Following a sometimes testy debate, House Education Administration and Planning members voted 8-4 and sent the legislation, which had previously been shipped off for summer study, on to the Finance Committee.
It came despite objections from the heads of Alcoa Inc., Dow Chemical, Choice Hotels International and Replacements Ltd. who said in a letter that "discrimination is wrong and we believe it has no place in Tennessee or anywhere in our country."
The companies' top executives also said in their letter to House Speaker Beth Harwell, R-Nashville, and Senate Speaker Ron Ramsey, R-Blountville, that floor passage "will make it far more challenging for businesses across the state to recruit and retain" talented workers and also "diminish the state's draw as a destination for tourism, new businesses, and economic activity."
In North Carolina, where a similar bill passed, at least one company has already announced it won't follow through with relocating jobs.
Tennessee Republican Gov. Bill Haslam has expressed concerns that the legislation, should it become law, could result in Tennessee losing federal education funding, The Associated Press has reported.
A majority of Republicans on the House panel brushed those concerns, as well as similar ones voiced by the American Civil Liberties Union's Tennessee chapter.
Rep. Susan Lynn, R-Mt. Juliet, the House sponsor, offered and the committee accepted an amendment she said makes her bill different from a Senate-passed version and which is intended to "protect the constitutional rights of all students."
Among other things, Lynn said, it would allow schools to make accomodations for students whose doctors say are intersex children who are born with different chromosome structures or both ovarian and testicular tissue.
That would allow school officials to "make an appropriate accomodation" in some instances for students "displeased" with boys' or girls' restrooms assigned to them, she said.
But it didn't mollify critics and Hedy Weinberg with the American Civil Liberties Union's Tennessee chapter voiced concerns.
That drew scathing criticism from Rep. Rick Womick, R-Murfreesboro, charged the group has threatened to sue at least one school district, Sumner County schools.
"Things are just fine without y'all meddling and threatening lawsuits," Womick said. "Parents in my district don't want to deal with this or put up with it because of you and people like your organization threatening."
Rep. Barbara Cooper, D-Memphis, defended ACLU-Tennessee and questioned why Republicans were so intent on pushing the issue. Transgender students have few people to speak up for them, Cooper sid.
"I was born black and I know some of the terrible things that are going to happen to these people who are bord different, not less than, they were born different. I was born different."
She said she was "told I was not a child of God" and she bristled at what she said was "subjecting [transgender] children to this at a period of their lives when they're most vulnerable."
The bill now goes to the House Finance Committee.