Tennessee Senate advances nearly $2 billion business tax cut, refund to prevent lawsuit

NASHVILLE, Tenn. (AP) — The Tennessee Senate on Thursday approved a nearly $2 billion tax and refund for businesses, a proposal designed to prevent threats of a potential lawsuit even as critics warned the so-called solution was rushed without being properly vetted and shrouded in mystery.

Starting last fall, Republican legislative leaders say a law firm representing a large group of businesses contacted the state to question the legality of Tennessee’s 90-year-old franchise tax and demanded a refund. In response, Gov. Bill Lee initially proposed offering businesses $1.2 billion in refunds and then an ongoing $410 million in tax breaks.

That amount has since been tweaked to $1.56 billion in refunds and $393 million in tax breaks, totaling $1.95 billion.

“This bill will put this issue behind us and address it in a responsible way,” said Republican Sen. Ken Yager, adding that doing so could make the state more competitive in attracting businesses to move to Tennessee.

At issue are concerns that the state’s franchise tax violates a U.S. Constitution’s Commerce Clause provision, which bans states from passing laws that burden interstate commerce. Furthermore, in 2015, the U.S. Supreme Court struck down Maryland’s tax that the justices ruled had the effect of double-taxing income residents earn in other states.

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