Senators disclose conflicts, administration won't release records with reasons for $1.9B tax bill
As a $1.9 billion franchise tax break sails through the Senate and marches toward final approval in Tennessee, the state continues to withhold information used to justify the change – including a letter from a national law firm lawmakers have repeatedly referenced in public as the basis for the legislation.
“Nobody likes this solution. The administration doesn't like this solution. Revenue doesn't like this solution. Our AG doesn't like this solution,” Senate Finance Chairman Bo Watson, R-Hixson, said Thursday. “But the reality is, this is the best solution. … At the end of the day, this is the best solution whether we like it or don’t.”
Meanwhile, prior to the Senate vote Thursday, 16 of the 25 Republican Senators present Thursday declared a Rule 13 personal interest before voting in favor of the bill. Senate ethics rules require members to disclose if they have a personal interest in legislation, but do not prohibit members from voting on legislation from which they could personally benefit, nor do they require a specific disclosure of how members could benefit. One Democrat declared a personal interest, but voted against the bill.
Democrats have criticized the legislation and the justification behind it and have raised questions about how Gov. Bill Lee's private business could benefit. It remains unclear how much the Lee Company could benefit financially if the legislation is passed as written. Lee has said he is unaware of whether the company could benefit, citing a blind trust that was initiated prior to his taking office.
Senators approved the $1.9 billion bill along party lines on Thursday morning in a vote of 25 to 6.
The House is set to take up the bill next week, though leadership has indicated there may be a significant difference in the House version. House Speaker Cameron Sexton, R-Crossville, declined to provide details on the House amendment, though House Majority Leader William Lamberth, R-Portland, said he planned to file it by Monday. The bill will be up in subcommittee on Tuesday.
“It'll be similar, but different,” Sexton said. “We're still working through our language and what that looks like. We feel comfortable about what we're going to propose.”
‘The uncertainty of litigation’
Republican proponents of the $1.9 billion solution have argued that the restructure — and accompanying $1.5 billion in retroactive tax refunds over the last three years — are necessary to avoid a lawsuit.
“This is an attempt at reducing and significantly reducing risk to Tennesseans and risk to taxpayers,” Watson said, calling the measure “a remedy to a potential problem that our legal team has told us will come if we don’t take action.”
During debate, Sen. Ken Yager, R-Kingston, who sponsored the legislation, insisted that the reform proposed by the Lee administration is necessary to “to avoid the uncertainty of litigation.”
Senate Minority Leader Raumesh Akbari, D-Memphis, noted that the body has been unafraid of the uncertainty of litigation in the past — referring to lawsuits challenging the legislature’s action on Nashville’s Metro Council, the state’s existing voucher program, the Metro Airport Authority Board, and a host of other topics.
“Our attorney general has suggested this to us. We need to listen to our lawyer,” Yager responded indignantly, arguing that the legislation will save taxpayer money in the long term.
Yager acknowledged that there is currently no lawsuit pending against the state regarding the existing franchise tax, “because the action we are taking will prevent that.”
Sen. Jeff Yarbro, D-Nashville, argued that the $1.5 billion retroactive refund is premature, unprecedented and unnecessary.
“We're having this discussion as if we have to, like we are under the gun, in a way that I don't think is appropriate,” Yarbro said. “It is not like a court has ever found that there's a defect in this tax. We're guessing that they might… this goes ahead and assumes that there's a problem and it solves it.”
Administration keeps legal threat letter shrouded in secrecy
Multiple times as the bill has been debated in committee and on the Senate floor, Yager has referred to a communication received by the Lee administration in 2023 “that basically attacked the property measure component of our franchise tax.”
Yager said the administration was contacted by “a national law firm that was representing hundreds of clients who are paying this tax.” State attorneys later advised that a legal challenge “would prevail if we litigated it,” Yager said, explaining that the Department of Revenue estimated legal fees alone could cost the state $180 million.
But despite requests from The Tennessean to the governor’s office and the Department of Revenue, the administration has refused to disclose the law firm’s communication, claiming that it would be unlawful to make the letter public.
“The document you have requested is tax administration information and tax information,” Revenue spokesperson Kelly Cortesi told The Tennessean in an email. “Disclosing this confidential correspondence is a crime.”
Revenue did not respond to additional Tennessean requests on Thursday for an explanation and description of the letter, pointing to officials' testimony in committee.
"It is widely known that tax experts at the Department of Revenue and Attorney General’s Office became aware of a legal risk in Tennessee’s franchise tax law," Cortesi told The Tennessean in an email Thursday.
The department did not release a redacted copy of the letter as The Tennessean's request, nor did officials disclose the name of the law firm that communicated constitutional concerns to the department that prompted the $1.9 billion remedy.
Republicans vote down effort to make refunded company list public
Republicans voted down an amendment offered by Sen. Heidi Campbell, D-Nashville, which would have required the Department of Revenue to disclose the businesses receiving a refund, opting instead to keep the records secret.
“I believe Tennesseans have a right to know where their tax dollars are going,” Campbell said. “They have a right to know who is receiving the funds. That should be a public record.”
Yager blasted Campbell’s amendment as an attempt at “an end run around” the Senate Finance Committee — on which Campbell does not sit — saying that the amendment “flies in the face” of requirements that taxpayer information remain private.
Retiring Sen. Art Swann, R-Maryville, was the only Republican that supported public disclosure of the refund recipients.
Senators declaring a personal interest
The following senators declared a personal interest in Senate Bill 2103, in accordance with Senate Rule 13, according to the Senate Clerk's Office, which requires members to disclose matters on which “it may be considered that I have a degree of personal interest in the subject matter of this bill, but I declare that my argument and my ultimate vote answer only to my conscience and to my obligation to my constituents and the citizens of the State of Tennessee.”
Sen. Paul Bailey, R-Sparta
Sen. Ferrell Haile, R-Gallatin
Sen. Joey Hensley, R-Hohenwald
Sen. Jack Johnson, R-Franklin
Sen. Adam Lowe, R-Calhoun
Sen. Jon Lundberg, R-Bristol
Sen. Bill Powers, R-Clarksville
Sen. Shane Reeves, R-Murfreesboro
Sen. Kerry Roberts, R-Springfield
Sen. Paul Rose, R-Covington
Sen. John Stevens, R-Huntingdon
Sen. Brent Taylor, R-Memphis
Sen. Page Walley, Savannah
Sen. Bo Watson, R-Hixson
Sen. Dawn White, R-Murfreesboro
Sen. Ken Yager, R-Oak Ridge
Sen. Jeff Yarbro, D-Nashville
Vivian Jones covers state government and politics for The Tennessean. Reach her at [email protected].
This article originally appeared on Nashville Tennessean: Tennessee franchise tax change: Senators disclose conflicts
