decoupling Tennessee’s research and development taxes

The Problem

To offset the revenue losses, the Tax Cuts and Jobs Act included a significant change to the Internal Revenue Code relating to how companies performing research and development expense their costs. Currently, the full cost of research and development can be expensed in the year it is incurred. This change, which takes place in 2022, requires these businesses to amortize the expenses over a five-year period. Tennessee automatically conforms to the Internal Revenue Code like many states, meaning that Tennessee businesses will face two tax hikes when this change takes place: one at the state level and another at the federal.

Our Solution

Tennessee should decouple from this section of the Internal Revenue Code. Simply put, decoupling means maintaining the status quo and not conforming to the federal tax code and its upcoming change. By decoupling, Tennessee businesses that conduct research and development would at least be protected from a hike in their state corporate taxes. Making this change makes Tennessee more attractive to prospective businesses looking to relocate to low-tax states.



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