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SB 36

Taxes, Business - As introduced, exempts child care agencies from business tax; requires the state to annually allocate the amount of such taxes derived from child care services and received from counties and municipalities in the 2023-2024 fiscal year. - Amends TCA Title 67, Chapter 4.

114th Regular Session (2025-2026) Introduced by Heidi Campbell

Exempts child care agencies from the state business tax and starts annual local government allocations funded from state sales tax equal to the prior year’s child care tax share.

Placed on Senate Finance, Ways, and Means Committee calendar for 4/20/2026
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Bill Summary · SB 36

Summary of SB 36 / HB 156 (Session 114, Tennessee)

Aimed at exempting child care agencies from the state business tax and mandating a specific allocation of tax receipts to local governments, with a plan to begin distributions in a future fiscal year.

1) Main purpose and intent

  • To exempt child care agencies from the Tennessee business tax (part of the state tax structure in Title 67, Chapter 4).
  • To ensure that, beginning in fiscal year 2024-2025 and going forward, counties and municipalities receive an annual allocation equal to what they would have received from the business tax collections paid by child care agencies in the prior year (FY 2023-2024).
  • The allocation to localities would be funded from state sales tax collections (not general fund revenue), and would be exempt from the standard distribution rules under § 67-6-103.

2) Key provisions and changes

  • Section 1: Adds child care agencies (as defined in § 71-3-501) to the list of entities exempt from the business tax under 67-4-708(3)(C)(xvii).

  • Section 2: Updates cross-references to reflect the addition of the new subdivision (xvii) in the exempt categories.

  • Section 3: Establishes an annual allocation to local governments:

    • For the 2024-2025 and subsequent fiscal years, the state must allocate and distribute to counties and municipalities an amount equal to the amount distributed to counties and municipalities in the 2023-2024 fiscal year that was derived from taxes collected under this part for services performed by child care agencies.
    • The distribution must be made from state sales tax collections before distributions under § 67-6-103.
    • Excludes any portion of revenue from the increase in the sales tax rate from 6% to 7% (chapter 856, Public Acts of 2002) from this allocation; that revenue remains distributed as previously provided in chapter 856.

  • Section 4: Effective date and applicability

    • Takes effect upon becoming law.
    • Applies to tax years ending on or after December 31, 2025.
    • The act is intended to operate in the context of fiscal years 2024-2025 and beyond, with the first year of impact for local allocations occurring in FY25-26 due to timing of the legislation.

3) Who or what would be affected

  • Affected entities:
    • Child care agencies as defined by § 71-3-501 (including family child care homes, group homes, child care centers, drop-in centers, etc., regardless of licensure status).
  • Affected revenues:
    • State: Business tax revenues from child care agencies would be eliminated, reducing state general and related revenues.
    • Local governments (counties and municipalities): Would receive annual allocations equal to the FY23-24 local share of business tax receipts attributable to child care agencies, funded from state sales tax collections.
  • Distributions timeline:
    • First year of local allocations aligned with FY25-26 due to timing; the mechanism references FY23-24 as the baseline for the local allocation amount.

4) Procedural and timeline aspects

  • Legislative action history:
    • Co-sponsor: Heidi Campbell.
    • Earlier action included introduction, committee consideration, and multiple calendar placements in 2025-2026, with final committee scheduling in 2026.
  • Fiscal notes (highlights):
    • State revenue impact (general fund): Estimated negative impact >$449,900 in FY25-26; >$456,600 in FY26-27 and beyond.
    • Local government impact (mandatory): Estimated negative impact >$528,100 in FY25-26; >$536,100 in FY26-27 and beyond.
    • The fiscal analysis notes that the Department of Revenue may be unable to exactly mirror FY23-24 allocations due to 2023 tax year reporting structures.
  • Effective date:
    • Becomes law upon signature or enactment and applies to tax years ending on or after December 31, 2025.

5) Notable considerations

  • The bill would shift tax burden away from child care agencies and toward the state’s sales tax base, with a targeted redistribution to local governments to compensate for the loss of business tax revenue from the exempted agencies.
  • The allocation mechanism uses a baseline from FY23-24 and would be funded from state sales tax receipts, preserving local revenue streams through a dedicated channel but not expanding the overall state sales tax rate.
  • The policy design assumes the local revenue loss will be offset by state-shared allocations, but the exact administrative feasibility and timing require coordination with the Department of Revenue and fiscal offices.

If you’d like, I can provide a simplified one-page briefing or a comparative pre/post analysis with hypothetical baselines.

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

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