Tennessee Works tax package ushers in major business tax changes including phased move to single‑sales factor

During a Department of Revenue webinar, Senior Tax Counsel Jeff Foster summarized the Tennessee Works Tax Reduction and Jobs Investment Act as “a major package” changing how many Tennessee businesses will be taxed and reported.

Foster said the act’s central corporate tax change is a phased move toward a near‑universal single‑sales factor for apportionment. He described a multi‑year phase‑in, saying the sales factor will increase to “five times” in 2023, “11 times” in 2024 and reach the full single‑sales‑factor effect in 2025. He noted carve‑outs and special rules for manufacturers, financial institutions and certain affiliated groups and said taxpayers will be allowed to elect the older three‑factor formula in narrow circumstances if that election preserves expiring tax credits.

The act also introduces new standard deductions and other business‑friendly provisions. Foster said the law creates a $50,000 excise deduction (from net earnings) and a $500,000 deduction from the franchise tax minimum measure for tax years ending on or after Dec. 31, 2024. He described expanded credit carryforward rules for certain incentives (industrial machinery, brownfield remediation, community investment, film production, paid family leave and jobs credits), extending carryforwards for qualifying credits from 15 to 25 years.

Foster described a change on federal bonus depreciation: Tennessee will “recouple” to the federal bonus depreciation rules for assets acquired on or after Jan. 1, 2023. He cited an initial allowance schedule (calling out 80% for 2023 and 60% for 2024) and said the allowance phases down in later years and reaches zero by 2027.

On business licensing, Foster said the standard business license threshold under the business tax rises from $10,000 to $100,000 (determined per jurisdiction), which the department expects will reduce required filings for roughly 140,000 taxpayers. He also described updates to manufacturer treatment (extending certain exemptions to out‑of‑state manufacturers and to storage within a 10‑mile radius of a manufacturing location) and a targeted rate reduction for a high business‑tax class (class 5A).

A participant asked whether the single‑sales‑factor phase‑in applies by tax‑year‑end or calendar year; Foster confirmed it applies by tax year ending. Foster and Phil Fitzgerald emphasized that certain taxpayers—manufacturers who previously elected single sales factor and specified financial/captive structures—keep existing apportionment rules or other special treatments.

Why it matters: the shift toward a sales‑factor weighting and the new deductions and extended credit carryforwards can materially alter the taxable bases and planning choices for multistate firms and in‑state employers. The department said it will provide updated tax manuals, new reporting schedules and webinars to help taxpayers implement the changes.

Next steps: the department’s updated manuals and tax forms (including schedule changes referenced in the webinar) are available on tn.gov/revenue; the presenters said follow‑up guidance and a September webinar dedicated to business‑tax changes will provide administrative details.