An Evaluation of Combined Reporting in the Tennessee Corporate Franchise and Excise Taxes: Revised October 30, 2009

Authors: William F. Fox, LeAnn Luna, Anne Boyd Davis, Rebekah McCarty, Zhou Yang

Publication Date: October 1, 2009

Tennessee Senate Resolution 292 urges the Comptroller of the Treasury with the cooperation of the Departments of Revenue and Economic and Community Development to complete a comprehensive study and analysis of converting to a combined reporting regime. This report fulfills that mandate and describes combined reporting and various issues related to a state combined reporting regime for the Tennessee franchise and excise taxes. The question facing Tennessee is whether the current tax regime appropriately taxes the operations of multistate businesses operating in Tennessee. The tax regime should capture an appropriate measure of economic activity within the state. As such, the analysis that follows uses four criteria to examine the appropriateness of requiring all related firms to file combined set of franchise and excise tax returns versus the current requirement that each corporation file a separate return. The four criteria include the effects on corporate tax revenue, economic development, administration and compliance and base definition implications. Both the theoretical and practical dimensions of determining the appropriate tax base for the Tennessee business excise and franchise taxes are examined here.