Approved bill lets TN corporations avoid increased taxation

A bill that largely spares Tennessee corporations from an increase in state business taxes otherwise triggered by President Donald Trump’s 2017 federal tax overhaul is on its way to Gov. Bill Haslam for his signature, reports the Times Free Press.

According to a legislative fiscal note, enactment of the bill (SB2119, as amended) means the state will be giving up potential $112 million in foregone state corporate excise tax revenue over a period of several years beginning in fiscal year 2020-2021. And businesses, of course, will be spared paying that much in added taxes.

The measure, which started out as a caption bill and was amended earlier this month, was sponsored by Sen. John Stevens (R-Huntington) and Rep. Gerald McCormick (R-Chattanooga) and actively pushed by the Tennessee Chamber of Commerce and Industry along with other business lobbies.

Under current state law, the deductions allowed on some state levies track those established in federal law. The federal tax overhaul approved by Congress earlier year, while lowering corporate taxes overall, included elimination of some deductions now authorized. The bill was depicted as “decoupling” state tax deductions from the federal law so Tennessee companies can continue to use the deductions.

The legislation is among dozens of bills passed in the waning hours of the 110th General Assembly before state lawmakers wrapped up their work late Wednesday night.

The Tennessee Journal recently quoted Lee Grubbs, HCA Healthcare’s chief tax officer, warning that without decoupling it would result in “one of the largest tax increases that we’ve had in the history of the state on businesses.”

The state normally would match the new federal 30 percent limit on net interest deduction when corporations borrow money for expansions or inventory. Moreover, there were fears the current tax-exempt status of grants from the state Department of Economic and Community Development could disappear.

McCormick, the House Finance Subcommittee chairman, explained on the House floor Wednesday that the federal provisions would show companies are “making more money” while actually “not doing more business.”

That would “automatically have the state have a windfall or a tax increase,” said McCormick, warning that unless Tennessee acted it could result in fewer business expansions here and make the state less attractive to companies looking at coming to the state.