Tennessee allows annualized method to determine excise tax estimated payments

On April 19, Governor Haslam signed House Bill 320 that amended Tennessee law relative to estimated franchise and excise tax payments.

Prior to the law change, taxpayers required to make franchise and excise tax estimated payments were required to make equal quarterly payments based on the lesser of 100 percent of the prior year’s tax liability or 80 percent of the current year’s liability. If the taxpayer did not earn income evenly throughout the year, they were still required to make the minimum payment, or be subject to an underpayment penalty of 2 percent per month, up to a maximum of 24 percent.

With this change, taxpayers are now allowed to annualize the excise tax portion of their liability, as provided by the Internal Revenue Code, and pay the lesser of: (1) 25 percent of the franchise tax shown on the tax return for the preceding year, annualized if the preceding tax year was less than 12 months; or (2) 25 percent of 80 percent of the franchise tax for the current tax year.

Many other states and the IRS allow for this annualization of income so the payment of the taxpayer’s tax liability aligns more closely with the earning of income during the year.

Additionally, the bill changed the due date for filing an application for exemption from taxation under the Excise Tax Law to the 15th day of the fourth month following the close of the first tax year for which the person is claiming the exemption. Previously, the due date for the exemption application was 60 days from the beginning of the first tax year for which the person claims the exemption. Also, a person who fails to file the application for exemption on time must pay a penalty of $200, which was previously $1,000.

Both changes are effective for tax years beginning on or after Jan. 1, 2017, so it can impact a taxpayer’s 2017 estimated payments.

Please contact your KraftCPAs service provider if you have any questions regarding these changes.

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