Tennessee Senate OKs murky, avoidable, possibly unconstitutional $1.9B franchise tax ‘fix’

The Tennessee Senate has approved a franchise tax revision that unnecessarily will refund $1.9 billion of state tax collections — Tennesseans’ money — to companies in Tennessee and most or all of 49 other states.

Only the state Revenue Department will ever know where the money goes. While about 80 companies have sought refunds based on a U.S. Constitution commerce clause claim — that the tax method interferes with interstate commerce, which is prohibited by the clause — the state revenue commissioner has said about 100,000 can claim refunds under Gov. Bill Lee’s proposed solution.

The Senate has approved this plan, even though no court has declared the Tennessee franchise tax to be unconstitutional and no alternatives have been discussed thoroughly in public by the super-majority legislators.

Supporting senators have said this solution — not used in any contested state — is the best solution. But that obviously is not so. If the state did not have $1.9 billion on hand and available, it certainly would not have proposed this solution. The only other solution presented publicly — proposed by Sen. Jeff Yarbro, D-Nashville — solves the U.S. constitutional issue at an insignificant, near-zero cost, by a judicially tested tax-credit method based on any actual harm suffered by a company. This fiscally sound alternative was rejected with no discussion on the merits by the majority.

House must do what the Senate refused to do: Be transparent

No state has waved the white flag and refunded these taxes without a court determination that the tax is unconstitutional. The Senate bill does just that. Consequently, some Tennessee companies — whether engaged in interstate commerce or not — will get a refund of taxes just for the asking.

None of this can happen without the agreement of the House of Representatives. One can hope that the House finance committee and super-majority will give due consideration to solutions other than refunding $1.9 billion of taxes lawfully collected and $4 billion that would be collected over the next 10 years from a franchise tax in place for 87 years without a commerce-clause judgment undermining the structure of the tax or declaring the law unconstitutional.

Deliberate consideration of the low-cost idea proposed by Yarbro would be a good place to begin.

While state attorneys and other executive officials may have known about this for a year or two, the people of Tennessee, if they know it at all, have known for only two or three months.

Deliberately vague public discussion of the problem and scant debate on alternatives in the Senate make full public discussion of options all the more necessary in the House.

There is a better solution for handing out billions in taxpayer money

As Yarbro pointed out, there is more than one constitutional provision involved.

The Tennessee Constitution, at Article 2, Section 31, prohibits state government from appropriating or spending public funds for the private benefit of individuals, companies, and associations.

This is clear in court cases of the last 70 years and opinions of the attorney general of the last 50. Given that the taxes at issue were lawfully paid and no court has said otherwise, refunds are not owed to these companies.

If these are refunds that are not owed and the state is appropriating funds for reimbursement anyhow, then the appropriation is for private benefit, which is unconstitutional.

I’m an optimist. I’m counting on the House of Representatives to be the deliberative body that the people of Tennessee expect it to be and then to work with the Senate to find a better solution.

There are many good things that can be done for Tennesseans with $1.9 billion on hand and $400 million annually thereafter. Investing it in 49 other states is not one of them.

Bill Bradley, of Nashville, a retired State of Tennessee employee, worked on the state budget for 32 years, including 14 years as director of the Division of Budget, Department of Finance and Administration.

This article originally appeared on Nashville Tennessean: Tennessee Senate OKs $1.9B tax 'fix' but keep taxpayers in the dark