On April 27, 2016, Governor Haslam signed House Bill No. 2558 into law. A copy of Public Chapter No. 881 is attached for your reference. This legislation, which was the Administration’s tax bill for 2016, enacts a number of user-friendly changes related to franchise, excise tax estimated payments effective for tax years beginning on or after January 1, 2016.

The significant provisions of the new law are detailed below:

  • Taxpayers will be required to make estimated payments in the current tax year only if its tax liability is $5,000 or greater, after application of tax credits, for both the preceding tax year and the current tax year. Previous law required estimated payments if the tax liability was $5,000 or greater in either the preceding tax year or the current tax year.
  • The required amount of estimated payments will be based on the lesser of 100% of the preceding tax year’s tax liability or 80% of the current year’s tax liability. Previously, the required amount had been the lesser of 100% of the preceding tax year or 100% of the current tax year.
  • The penalty rate for delinquent and deficient estimated payments will be reduced to 2% per month from 5% per month. The maximum percentage of penalty assessed will be slightly reduced from 25% to 24%.
  • Administratively, the Commissioner of Revenue may consider deficient estimated payment(s) on which penalty and interest were assessed to be made timely for purposes of establishing a good filing history and good and reasonable cause for waiver of penalty.

These changes are the result of recommendations made by a workgroup comprised of members from the TSCPA State Tax Committee, NFIB and Tennessee’s Chamber of Commerce as well as representatives from the Department of Revenue. The changes were proposed to help taxpayers and practitioners more effectively meet their estimated payment requirements and thereby minimize the amount of penalty assessed and paid on deficient estimated payments.

One recommendation which was not included in the bill this year was the option to base the required estimated payments on an annualized income method, similar to federal treatment, because of funding. There is a provision in the bill which mandates the Commissioner of Revenue to ensure that the Department’s new integrated tax system will support the annualization of estimated payments. The franchise, excise tax portion of this system is scheduled to go live in March 2018.

If you have any questions about this bill, please contact Mason Barrick at mbarrick@lbmc.com or (615) 309-2204.