THE PROBLEM
Full expensing, or bonus depreciation, is a tax policy that enables businesses of all sizes to deduct the full value of capital expenses in the year the expenditures are incurred, rather than depreciating the assets over several years. These investments may be for equipment or infrastructure to support and expand their operations. In 2023, Governor Bill Lee’s Tennessee Works Tax Act coupled state law with President Trump’s 2017 Tax Cuts and Jobs Act, providing full expensing for businesses. At first, this allowed Tennessee businesses to write off 100 percent of the cost of business purchases on their state excise taxes and federal taxes in the first year of purchase. However, this federal provision is phasing out and fully expiring after 2026. As a result, Tennessee businesses can currently only write off 20 percent of the cost of business purchases on their state excise taxes in the first year expenditures are incurred.
OUR SOLUTION
President Trump’s One Big Beautiful Bill set the bonus depreciation rate at 100 percent expensing for federal tax purposes. Tennessee should follow suit and work towards allowing 100 percent expensing for the purposes of the state excise tax. Doing so would put thousands of dollars back in the pockets of Tennessee business owners in the first year after purchasing qualifying assets, allowing them to make payroll and provide raises, get ahead on loan payments, and even hire more skilled workers.
HOW IT WORKS
With this legislation, Tennessee will decouple from federal tax law to prevent a further phase-out of the deduction and work to restore the full expense rate to 100 percent. Beacon’s proposal would freeze bonus depreciation at 40 percent as a critical first step towards restoring 100 percent bonus depreciation, putting more money back in Tennessee business owners’ pockets during the first year after qualifying purchases. This will benefit all Tennesseans by making our state more competitive, encouraging capital investment, and providing more high-quality employment opportunities.
STATUS: This bill has been filed as SB 32 (Bailey) / HB 477 (Vaughan).