Over the course of 2022 and even into recent weeks, multiple legislative updates have been signed into law that affect both Tennessee and Georgia individual and business taxes. Below are some of the changes and information on how they will affect you during the next filing season and help you plan for the future.
Historically, Tennessee has used a triple-weighted sales formula (property, payroll, three times receipts with a denominator of five). Beginning in 2023, this formula will change to be more heavily weighted to sales with the eventual switch to a single sales factor for apportionment calculations.
A taxpayer still can elect to use the historical method to calculate apportionment, but it must be higher than the percentage calculated using the graphic below.
Excise and Franchise Taxes
Tennessee will now conform to assets expensed under 168(k) bonus deprecation rules as of 01/01/2023. Be reminded that assets placed in service during 2023 are eligible only for an 80% expensing in the current year with future years decreasing the percentage.
For tax years ending December 31, 2024, and onward, a standard deduction will be used to subtract the lesser of $50,000 or pre-apportionment net earnings when calculating excise tax base. Taxpayers will not be allowed to use this deduction to create a loss.
Also going into effect for this tax year is an exemption on the franchise tax base that will exempt the first $500,000 of real and tangible property when being taxed. The franchise tax base will remain the greater of net worth or real and tangible property.
Taxpayers filing business returns from 2023-2025 now may receive a state credit for the paid family and medical leave federal credit. The state credit is all compensation used in calculating federal income minus any non-Tennessee compensation. The credit will be added back to the excise tax base, and that amount will ultimately be used as a state credit to offset excise taxes. The credit may not exceed 50% of the combined franchise and excise tax liability. Any unused credit may be carried forward up to 25 years.
As with the state credit mentioned above, the five credits below also will receive a carryforward period of 25 years.
- Industrial machinery credit
- Brownfield property credit
- Job tax credit
- Community investment credit
- Qualified production credit
Starting August 1, 2023, with some exceptions listed below, no sales tax will be applied to most food and food ingredients bought in grocery stores until October 31, 2023. Excluded from the sales tax relief are these items:
- Dietary supplements
- Prepared food
Beginning January 1, 2024, the filing threshold for business taxes increases from $10,000 to $100,000. If you have more than $3,000 but less than $100,000 in gross receipts, you are required to obtain only a minimal activity license from your county. If you have greater than $100,000 in gross receipts, you must obtain a standard business license and file a business tax return. The $100,000 threshold also applies to contractors and increases the deemed location threshold up from $50,000.
Starting January 2024, retailers will collect in-state sales tax on digitally downloaded products. This will include books, video games, music, artwork, and photographs. Subscription-based services where digital products are consumed will not be subject to sales tax.
Georgia businesses and individuals now can get a state tax credit for donations made to a qualified law enforcement foundation. Single filers may receive up to $5,000, while couples filing jointly and businesses may receive up to $10,000 in credits.
If you have questions about your state’s tax legislation or any matter concerning tax or tax reporting, our executive contacts would be happy to assist. You may contact them at the e-mails below or by calling (800) 270-9629.