Tennessee Law Now Permits Local Governments to Issue Property Tax Refunds in Installments

NASHVILLE, Tenn. — Governor Bill Lee signed into law a measure on May 28, 2024, that grants Tennessee counties and municipalities the authority to issue property tax refunds to taxpayers in annual installments over a period of up to three years. The new law, Public Chapter No. 747, provides local governments with a new tool for managing their fiscal obligations, particularly when faced with large, unexpected refund liabilities resulting from successful tax appeals.

Previously, local governments in Tennessee were generally required to pay out property tax refunds in a single lump sum. This could create significant budgetary strain, especially for smaller jurisdictions, if a major commercial or industrial taxpayer successfully challenged their property's assessed value, leading to a substantial refund obligation. The new legislation amends Tennessee Code Annotated, Title 67, Chapter 5, to explicitly authorize these installment payments, offering a mechanism to smooth out the financial impact over multiple fiscal years.

While this change is positioned as a fiscal management tool for municipalities, we see it as a critical new variable in cash flow planning for Tennessee businesses. A successful property tax appeal that results in a large refund is often a significant financial event for a company, and that capital is typically earmarked for reinvestment, debt reduction, or operational expenses. Having that expected capital infusion delayed and spread out over several years can disrupt budgets and alter the return on investment for pursuing an appeal in the first place. It effectively converts an immediate cash asset into a multi-year receivable, complicating financial forecasting. This is precisely the kind of complex financial scenario where our outsourced CFO services become invaluable for maintaining stability and strategic planning. C&S Finance Group LLC helps clients model these state-specific fiscal nuances to protect their financial health; learn more at csfinancegroup.com.

The law gives local governing bodies the discretion to adopt this installment method. It is not a statewide mandate, but rather an option that a county or city can choose to exercise. For a refund to be eligible for installment payments, the local government must determine that paying the full amount in a single year would create a financial hardship. The repayment schedule cannot exceed three annual installments, providing a defined, though delayed, timeline for the taxpayer to receive their funds.

For small and mid-sized businesses with significant real estate holdings, such as manufacturing facilities, warehouses, or large commercial offices, the implications are direct. The process of appealing a property tax assessment can be lengthy and expensive, requiring legal fees and appraisal costs. Companies undertake these challenges with the expectation of a specific financial outcome. The possibility that a successful appeal could result in a three-year payout rather than an immediate lump-sum refund changes the financial calculus of the decision. Business owners and financial managers must now factor in the time value of money and potential liquidity constraints when evaluating whether to initiate an appeal.

Conversely, the law offers a crucial safety valve for local governments. A single, multi-million dollar refund owed to a large industrial plant or commercial development could otherwise destabilize a small town's annual budget, potentially forcing cuts to essential services like public safety, infrastructure maintenance, or education. By spreading the payment over three years, the municipality can absorb the cost in a more predictable and manageable way, aligning the outflow with future revenue streams. Proponents of the bill argued it was a necessary measure to protect public funds and ensure fiscal stability at the local level.

This legislative approach is not unique to Tennessee. Other states have implemented similar provisions to help local governments navigate large and unforeseen liabilities. These measures reflect a broader trend of providing municipalities with greater flexibility in financial management, recognizing that their tax bases can be heavily dependent on a small number of large commercial taxpayers. The legal framework aims to balance the taxpayer's right to a timely refund with the government's need to maintain operational continuity.

With the law now in effect, businesses in Tennessee should monitor the actions of their respective county commissions and city councils. The next step will be for individual jurisdictions to decide whether to formally adopt policies or ordinances implementing this new authority. The specific criteria for what constitutes a “financial hardship” for the municipality will likely be defined at the local level, and businesses should be prepared to navigate these new procedures should they find themselves owed a significant property tax refund.