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SB 2126

Business Organizations - As introduced, requires the comptroller of the treasury to submit a report, on or before December 31, 2026, to the governor, the speaker of the senate, the speaker of the house of representatives, the chair of the state and local government committee of the senate, and the chair of the committee of the house of representatives having jurisdiction over housing containing a summary of certain de-identified information related to real estate investment trusts' purchases and sales of single-family homes in this state in 2025. - Amends TCA Title 4; Title 5; Title 6; Title 7; Title 13; Title 47; Title 48; Title 61; Title 66 and Title 67.

114th Regular Session (2025-2026) Introduced by Brent Taylor

Tennessee would tighten REIT excise tax calculations (removing certain exemptions) and require a 2025 REIT activity report, with tax effects starting in 2026.

Failed in Senate Commerce and Labor Committee (no second)
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Bill Summary · SB 2126

Summary: SB 2126 (Session 114, Tennessee) – As Introduced / Amended via HB1777

Note: The materials provided reflect amendments to SB 2126/HB1777 and related fiscal analyses. The core focus is on REIT-related excise tax provisions and a separate reporting requirement. This summary consolidates the substantive changes and potential impacts.

1) Purpose and Intent

  • Primary aim (as amended):

    • Remove and modify certain exemptions and deductions used in calculating Tennessee excise tax liabilities for real estate investment trusts (REITs) and entities associated with REITs.
    • Establish a clear reporting requirement by the Comptroller of the Treasury (COT) on real estate activity of REITs in Tennessee (specifically acquisitions and dispositions of single-family homes in 2025), with a deadline of December 31, 2026.

  • Overall effect:

    • Increases state excise tax revenues by tightening tax calculations for REITs and related entities for tax years ending after December 31, 2026, according to fiscal analysis.
    • Potential reclassification of REIT-owned properties for property tax assessment purposes (residential vs. commercial) with uncertain local revenue impact due to data limitations.

2) Key Provisions and Changes

A. Excise Tax Provisions (REITs and Related Entities)

  • Section 1 (67-4-2006(b)(1)(O)) — Net income calculation changes:

    • Replaces the existing deduction rules for dividends paid by captive REITs, public REITs, and private REITs.
    • New rule: Dividends paid are added back to net income for excise tax purposes for those REITs that own single-family residential real property and derive income from rental of that property.
    • Applies to captive REITs, public REITs, and private REITs meeting the ownership/property criteria.

  • Section 2 (67-4-2019) — Partnership distributions to public REITs:

    • Repeals the existing exemption for partnerships that directly or indirectly distribute 100% of net earnings or net losses to a public REIT.
    • New rule: This 100% distribution exemption is removed, meaning such distributions are no longer exempt from excise tax liabilities.
    • Exception: Public REITs that own residential real property and derive rental income continue to be treated differently (i.e., the exemption does not apply to them in the same way).

  • Section 3 (67-4-2006(a)(5)) — Net earnings/net losses for partnerships owned by public REITs:

    • Replaces prior definitions with new calculations:
    • For a partnership-owned-by-a-public-REIT, net earnings/net losses are calculated as the amount per (a)(4) less distributions to a public REIT and adjusted as specified.
    • Exception: Applies only to partnerships not owned by public REITs that own residential property and derive rental income.

  • Section 4 — Effective date:

    • The act applies to tax years ending on or after December 31, 2026.

  • Practical impact:

    • Broadens the scope of income subject to Tennessee excise tax for REITs and related entities by removing certain exemptions and redefining net earnings calculations.
    • Projected to increase General Fund revenue beginning in FY26-27.

B. Reporting Requirement (COT)

  • Separate new provision (as per Fiscal Note and HB1777/Narratives):

    • Requires the Comptroller to submit a report by December 31, 2026, detailing:
    • Purchases, sales, and uses of single-family homes in Tennessee during calendar year 2025 by real estate investment trusts.
    • Report to be delivered to the Governor, the Speaker of the Senate, the Speaker of the House, and chairs of relevant committees.

  • Feasibility note:

    • The Comptroller’s Fiscal Note states the COT currently lacks a comprehensive data system to perform this report and cannot complete it by the deadline with existing data, implying potential implementation challenges.

3) Persons/Entities Affected

  • Real Estate Investment Trusts (REITs):

    • Captive REITs (including those owned by banks, bank holding companies, or public REITs).
    • Public REITs.
    • Private REITs.
    • Those owning single-family residential rental property are specifically affected by net income adjustments.

  • Partnerships treated for federal tax purposes:

    • Entities directly/indirectly distributing 100% of net earnings or net losses to a public REIT are affected (loss of exemption).

  • Public REITs that own residential property:

    • Subject to adjusted calculations; however, residential REITs retain special treatment in some contexts, per the amendments.

  • Local governments (via property taxes):

    • Potential impact from reclassification of REIT-owned properties from residential to commercial for tax assessment purposes, though the statewide impact is uncertain due to data gaps.

4) Timelines and Procedural Aspects

  • Effective date:

    • Tax years ending on or after December 31, 2026.

  • Reporting deadline:

    • December 31, 2026 (for 2025 REIT activity) to the specified recipients.

  • Legislative action history (as of the provided record):

    • Introduced and moved through Senate Commerce and Labor Committee with multiple calendar dates.
    • The action history indicates the measure failed in the Senate Commerce and Labor Committee on April 7, 2026 (no second), suggesting that, in its current form, the bill did not pass committee at that time.

  • Fiscal notes:

    • Initial analysis anticipated a significant net revenue increase in the General Fund (approximately $95.7 million for FY26-27 and onward, per one memo) but a later memo presents a contrasting or revised net impact indicating potential net decrease depending on the version of the bill.
    • Acknowledges uncertainty in local property tax revenue impacts due to data limitations for reclassification effects.

5) Summary of Fiscal Impact (as Amended)

  • State government (General Fund):

    • First-year effect: Potential net revenue impact varying by version; one memo cites a recurring increase of about $95.7 million starting FY26-27, while another memo notes a net decrease exceeding $10 million in a different formulation.
    • The exact impact depends on final legislative language and interpretation of repeals/closures and the effective scope of exemptions.

  • Local government:

    • Property tax revenue impact is uncertain due to lack of a comprehensive database to identify which residential properties would be reclassified as commercial.

  • Business impact:

    • REITs and related entities would face higher excise tax liabilities for tax years ending after 12/31/2026, under the amended framework.
    • Potentially increased compliance and administrative costs associated with recalculated net income for tax purposes.

6) Bottom Line

  • SB 2126/HB1777, as amended, seeks to tighten excise tax treatment for REITs and related entities and requires a state-level report on 2025 REIT activity in Tennessee. It would apply to tax years ending after December 31, 2026, and could influence both state revenue and local property tax dynamics. The bill faced procedural hurdles in committee, and the fiscal impact projections vary between analyses, highlighting the importance of final legislative action and any subsequent amendments.

Compiled from official sources — confirm details with the bill’s official record.

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