NASHVILLE - A bill that largely spares Tennessee corporations from an increase in state taxes otherwise triggered by President Donald Trump's 2017 federal tax overhaul is on its way to Gov. Bill Haslam for his consideration.
According to a legislative fiscal note, it would amount to $112 million in foregone state corporate excise tax revenue annually beginning in fiscal year 2020-2021.
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.
Sponsored by Rep. Gerald McCormick, R-Chattanooga, the bill would "decouple" Tennessee taxes from new federal tax provisions regarding net interest deductions. The Tennessee Chamber of Commerce and other business groups sought the decoupling.
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.
Rep. G.A. Hardaway, D-Memphis, congratulated McCormick for what he described as "fighting the effects of the latest federal tax plan," noting Tennessee lawmakers have "got to protect our state corporations from this ridiculous [federal] tax plan that has put this burden" on them.
The Haslam administration had originally wanted to hold off on doing anything to see the impact.
McCormick said in an interview Thursday he thought it important to go ahead and put something into statute sooner. But he noted the legislation postpones the impact for the "first couple of years." He also said he expects Tennessee to still reap some benefits but not to the extent projected.
Contact Andy Sher at email@example.com or 615-255-0550. Follow him on Twitter @AndySher1.