State Officials Worried About Franchise and Excise Taxes

While many local governments continue to anxiously look at sales tax numbers, some state officials are worried about how Franchise and Excise Tax returns.

Franchise and Excise taxes are due the 15th day of the 4th month following the close of a business’s year. For business with a January 1-December 31 calendar year, this tax is normally due on April 15th of the following year. This year the state has pushed that deadline back to July 15.

CPA Tiffany Crabtree from Bilyeu CPA Group in Crossville said just like the name implies, there are two prongs to filing. The first prong is the Franchise Tax.

“It is one-quarter of 1 percent of a business’s net worth and the value of their property,” Crabtree said. “Basically what that means, in a nutshell, is a service business is going to pay a minimum of a hundred dollars, which is the tax’s minimum fee. Whereas, a big manufacturing company is going to have a much higher tax because they have a lot of property and equipment.”

While the Franchise Tax can be difficult to calculate, Crabtree said the second prong would be more familiar to the average tax payer.

“The second part is the Excise Tax,” Crabtree said. “It is 6.5 percent of your net income. That one is a little easier to understand because we all pay income tax. It’s just a flat rate of 6.5 percent.”

The Tennessee Department of Revenue collects more than $11 billion in revenues annually. More than two-thirds of revenue come from two taxes: the Sales and Use Tax and Franchise and Excise Tax. According to the Tennessee Department of Revenue, Franchise and Excise Tax collections between May 2019 and May 2020 were down by about 15 percent, a shortfall of over $8.5 million dollars.

In comparison, Sales and Use Taxes over the same period were down 8.18 percent.