Gov. Bill Lee finished meetings this week with state departments about their budget requests for the 2026-27 fiscal year.
In the governor’s hearing for the Department of Revenue, he asked Commissioner David Gerregano if there were things the state should look to change about business taxes in Tennessee, taking into account changes with technology and how certain businesses are treated compared to others.
Gerregano said he would like to be the person who "fixes business tax," noting complications for business owners, counties and the state with the structure and filings. However, Gerregano said the amount of revenue the tax creates doesn’t necessarily justify making improvements a priority.
Gerregano also noted later in the hearing that Tennessee received a ranking of eighth in the country for its business tax climate according to a study by the Tax Foundation.
During last year's revenue meeting, much more time was spent discussing returns made to businesses due to the change in the franchise and excise tax for entities with property in the state. There was only a brief mention of the change this year, with Gerregano calling it a change to an “antiquated” provision.
Franchise tax change puts strain on FY25 budget ahead of costly special-session topics
That change has caused corporate tax revenues to continue to fall below budget estimates as well as underperform compared to figures of previous years. Just last week, Finance Committee Chair Sen. Bo Watson (R-Hixson) warned of flattening revenues in a meeting of Senate Republicans.
August and September 2024 revenues from corporate taxes were down 10 percent from the figures of the same period in 2023. And now corporate tax revenues generated in August and September 2025 are down another 6.8 percent, or $49.7 million, from the same period in 2024.
In total, at the end of FY2024-2025 (which ended in July), corporate taxes were down 15.8 percent, or $721.5 million, compared to FY2023-2024. Sales, fuel and other taxes were up slightly but not enough to offset the decline overall for the fiscal year.
This year’s August and September sales tax revenues are currently up enough to offset the downward trajectory of corporate taxes this year — but it wasn’t until October, November and December of last year that the numbers began to turn and corporate tax declines started to eclipse any upward movement from other sources. October revenue numbers should be published in the coming weeks.
Also notable from the governor’s budget hearings: Department of Education Commissioner Lizzette Reynolds did not make a request for either the TISA (Tennessee Investment in Student Achievement) funding formula or the second year of the state’s Education Freedom Scholarships. Lee told media earlier this week that there will be a request made “to increase funding for public schools across the state.”
The governor also said he hopes for an expansion of the state’s Education Freedom Scholarship plan, having seen a significant demand for the vouchers, which provide funding to families who seek to place their children in private schools.
Legislators already have an option to increase the funding for an additional 5,000 students. But there could be a push for further legislation to open up the opportunity for even more as both the governor’s office and the General Assembly have “a desire” to expand the program. Lee said the decision about how much funding will be used to expand the program will be determined by incoming revenue projections.
In total so far, the departments have requested more than $4.58 billion in state funds. Last year, the requests were at roughly $3.26 billion.
Julianne Akers contributed reporting.
This article was first published by our sister publication, the Nashville Post.
