HOUSE BILL 218
By Behn
SENATE BILL 270
By Oliver
SB0270
000864
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AN ACT to amend Tennessee Code Annotated, Title 4,
Chapter 51; Title 49 and Title 67, relative to the
"Universal Pre-K Funding Act."
WHEREAS, the Committee for Economic Development began issuing its "Child Care in
State Economies" report in 2015; and
WHEREAS, as detailed in these reports, the Committee for Economic Development has
found that access to affordable child care increases labor force participation and supports state
and local economic growth; and
WHEREAS, the Committee for Economic Development also determined that access to
affordable child care supports parents seeking additional education and training, which
contributes to higher earnings over an individual's lifetime; and
WHEREAS, according to the 2022 Brookings Institute's article "What Does the
Tennessee Pre-K Study Really Tell Us About Public Preschool Programs?", on average,
children who attended preschool enter kindergarten with stronger school readiness skills than if
they had stayed home; and
WHEREAS, the Brookings Institute also determined that benefits from preschool are
greater for children from families with low incomes, dual-language learners, and children of
color; and
WHEREAS, the Brookings Institute found that without public programs, both
economically marginalized and middle-class families often have trouble affording preschool and
are left with lower-quality options than they would like; and
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WHEREAS, research shows that enrolling children in a full-day universal pre-
kindergarten program increases parents' work hours and raises their earnings by 21.7%, lasting
for at least six years; and
WHEREAS, pre-kindergarten programs in this State have been voluntary and dependent
on federal and other funding; and
WHEREAS, in order to establish a universal pre-kindergarten program throughout
Tennessee, it is necessary to develop a dedicated source of funding; and
WHEREAS, the taxation of digital advertising can provide a stable and dedicated source
of funds to support a universal pre-kindergarten program; now, therefore,
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. This act is known and may be cited as the "Universal Pre-K Funding Act."
SECTION 2. Tennessee Code Annotated, Section 49-6-103, is amended by deleting the
language "on a voluntary basis" in subsection (a); by deleting the language ", nor shall anything
in this section and §§ 49-6-104 – 49-6-110 be construed to be an entitlement to any service or
program authorized by §§ 49-6-104 – 49-6-110" in subsection (b); and by deleting subsection
(c) and substituting instead the following:
(c) Each LEA shall provide a pre-kindergarten program that provides the number
of classrooms necessary to serve all eligible children, as defined in § 49-6-104.
SECTION 3. Tennessee Code Annotated, Section 49-6-104, is amended by deleting the
section and substituting instead the following:
(a) As used in this section, "eligible child" means a child who is four (4) years of
age on or before August 15 and who resides in the geographic area served by the LEA.
(b) Each LEA shall establish a pre-kindergarten program that enrolls eligible
children. Each pre-kindergarten program must be designed to comprehensively address
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the educational needs of the children enrolled in the program, including, but not limited
to, the child's cognitive, physical, social, and emotional needs.
(c) Each LEA shall establish an initial enrollment deadline for eligible children to
enroll in the pre-kindergarten program. If, in the application period for a school year, the
number of program applications received by the LEA exceeds the number of students
the LEA is able to serve, then the LEA shall select students for participation in the pre-
kindergarten program through an enrollment lottery process.
(d) A pre-kindergarten program established pursuant to this section must:
(1) Consist of a maximum class size of twenty (20) students;
(2) Have at least one (1) licensed teacher per classroom who is certified
in early childhood education;
(3) Have at least one (1) educational assistant per classroom who holds
a child development associate credential or associate degree in early childhood
education, or who is actively working toward acquiring such credentials;
provided, however, that if a person with such credentials is unavailable, then
educational assistants who hold a high school diploma and who have relevant
experience working with children in pre-kindergarten or other early childhood
programs may be employed to satisfy this requirement;
(4) Provide a minimum of five and one-half (5.5) hours of quality
instructional time per day;
(5) Use an educational, age-appropriate curriculum that is aligned with
the early learning standards approved by the department of education and that
includes, at a minimum, literacy, writing, math, and science skills;
(6) Have a developmental learning program that addresses the cognitive,
physical, emotional, social, and communication areas of child development;
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(7) Meet the criteria for a "high-quality pre-kindergarten program," as
identified by the department of education; and
(8) Comply with the state board of education's rules and policies related
to early childhood education and pre-kindergarten programs.
(e) Enrollment in a pre-kindergarten program is voluntary.
SECTION 4. Tennessee Code Annotated, Section 49-6-105, is amended by deleting the
section and substituting instead the following:
(a) An LEA may contract and enter into collaborative agreements for the
operation of a pre-kindergarten program with non-school system entities in the
geographical area served by the LEA, including, but not limited to, nonprofit and for-profit
child care providers and Head Start programs. An LEA shall not contract or collaborate
with a child care provider licensed by the department of human services, unless the
provider has attained the highest designation under the rated licensing system
administered by the department, pursuant to title 71, chapter 3, part 5.
(b) LEAs shall use the pre-k/kindergarten growth portfolio model approved by
the state board of education, or a comparable alternative measure of student growth
approved by the state board of education and adopted by the LEA, in the evaluation of
pre-kindergarten and kindergarten teachers pursuant to § 49-1-302.
(c) LEAs shall notify teachers evaluated using a growth portfolio model of any
training or professional development opportunities available on growth portfolio models.
SECTION 5. Tennessee Code Annotated, Section 49-6-106, is amended by deleting the
section.
SECTION 6. Tennessee Code Annotated, Section 49-6-107, is amended by deleting the
section and substituting instead the following:
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(a) Subject to appropriations, the state shall fund one hundred percent (100%) of
the costs required for an LEA to provide the number of classrooms, and to employ the
number of licensed teachers and educational assistants, required for the LEA to comply
with the requirements of § 49-6-104(d). Subject to appropriations, the commissioner of
education shall allocate to each LEA an amount sufficient for the LEA to serve all eligible
children, as defined in § 49-6-104, in the LEA's pre-kindergarten program.
(b) Notwithstanding subsection (a), if an LEA receives an allocation pursuant to
this section that is less than the allocation the LEA received for the prior school year,
then the local government may appropriate and allocate funds to the LEA to make up for
the state cuts without being subject to a continuation of funding effort requirement as to
those funds for any year during which the state reinstates the funding or restores the
previous cuts, and during any subsequent year should the state fail to restore the
funding cuts.
(c) It is the legislative intent that funds in the universal pre-K fund, established in
§ 67-4-1307, must be made available for appropriation and expenditure in accordance
with this section.
(d) An eligible child, as defined in § 49-6-104, is not required to pay tuition or
fees to enroll in, or attend, a pre-kindergarten program established by an LEA. This
section does not prohibit an LEA from charging fees for child care provided outside the
instructional day of the LEA's pre-kindergarten program.
SECTION 7. Tennessee Code Annotated, Section 49-6-108, is amended by deleting
subdivision (1) and deleting subdivisions (5) and (6) and substituting instead the following:
(5) Review existing regulations and standards, and recommend needed
changes, to promote a consistent assessment and monitoring process for providers of
pre-kindergarten programs established under §§ 49-6-103 — 49-6-110; and
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(6) Provide an annual report to the governor and the general assembly on the
status of pre-kindergarten programs, which must include, at a minimum, the number,
location, and types of providers of pre-kindergarten classrooms and the number of
children served. The annual report must be posted on the department of education,
office of early learning's website to provide public access to the report.
SECTION 8. Tennessee Code Annotated, Title 67, Chapter 4, is amended by adding
the following as a new part:
67-4-1301. Findings.
The general assembly finds and declares the following:
(1) The largest internet corporations use their monopolistic control of
essential online platforms to extract economic rents from their users in the form
of personal data. This personal data is highly valuable and acquired at a steep
discount, as demonstrated by the massive profit these corporations make selling
this information to digital advertisers. For the purposes of stability and equity in
the tax base, such economic rents are a favorable target for taxation;
(2) Tennessee sales and use tax statutes provide that specified digital
products are taxed at the state rate of seven percent (7%) and a standard local
tax rate of two and one-half percent (2.5%), instead of the local tax rate in effect
in a county or municipality. However, many digital transactions are hard to bring
into the digital sales tax base because instead of paying a monetary fee,
customers sometimes barter their personal information for access to digital
platforms. This personal information is in turn sold for use in targeted
advertisements on digital platforms. To tax this consumption, leading tax
economists have suggested using the receipts earned from digital data
transactions as a proxy for the value of the barter;
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(3) As has been noted by many, including the Organisation for Economic
Co-operation and Development (OECD), the value of the consumption provided
by digital platforms is typically greater as the size of its network is greater. As
such, the general assembly finds that the consumption value provided by
networks of a small size is negligible, especially when compared to the
compliance burden that would be imposed on smaller digital platforms; and
(4) Digital advertising is not substantially similar to traditional print or
broadcast advertising, as traditional advertising neither relies on the extraction of
valuable personal information from users, nor does it serve as a proxy for
currently untaxed consumption.
67-4-1302. Part definitions.
As used in this part, unless the context otherwise requires:
(1) "Annual gross revenues" means income or revenue from all sources,
before any expenses or taxes, computed according to generally accepted
accounting principles;
(2) "Assessable base" means the annual gross revenues derived from
data transactions from digital advertising services in this state;
(3) "Commissioner" means the commissioner of education;
(4) "Department" means the department of education;
(5) "Digital advertising services":
(A) Means data transactions from advertising services on a digital
interface; and
(B) Includes advertisements in the form of banner advertising,
search engine advertising, interstitial advertising, and other comparable
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advertising services that use personal information about the people to
whom the ads are being served;
(6) "Digital interface" means any type of software, including a website,
part of a website, or application that a user is able to access;
(7) "Person":
(A) Means an individual, firm, partnership, association,
corporation, limited liability company, trust, or other legal or business
entity;
(B) Includes a receiver, executor, trustee, guardian, or other
representative appointed by order of any court; and
(C) Does not include a governmental entity or a unit or
instrumentality of a governmental entity; and
(8) "User" means an individual or other person who accesses a digital
interface with a device.
67-4-1303. Tax imposed.
(a) A data transaction privilege tax is imposed on a person's annual gross
revenues that are derived from data transactions from digital advertising services in this
state.
(b)
(1) The portion of a person's annual gross revenues derived from data
transactions from digital advertising services in this state must be determined
using an apportionment factor.
(2) The apportionment factor is a fraction, the numerator of which is the
person's annual gross revenues derived from data transactions from digital
advertising services in this state, and the denominator of which is the person's
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annual gross revenues derived from data transactions from digital advertising
services in the United States.
(3) The department shall promulgate rules that specify how to determine
the state from which revenues from data transactions from digital advertising
services are derived.
67-4-1304. Tax rate.
The data transaction privilege tax imposed pursuant to § 67-4-1303 is levied at
the rate of nine and one-half percent (9.5%) of the assessable base and applies only to
persons with an assessable base of fifty million dollars ($50,000,000) or more.
67-4-1305. Returns.
(a) Each person that, in a calendar year, has an assessable base of at least fifty
million dollars ($50,000,000) shall complete and file with the department a return on or
before April 15 of the following year.
(b)
(1) A person that reasonably expects that the person's assessable base
will be fifty million dollars ($50,000,000) or more shall complete and file with the
department a declaration of estimated tax on or before April 15 of that year.
(2) A person required under subdivision (b)(1) to file a declaration of
estimated tax for a taxable year shall complete and file with the department a
quarterly estimated tax return on or before June 15, September 15, and
December 15 of that year.
(c) A person required to file a return under this section shall file with the return
an attachment that provides any information that the department requires to determine
annual gross revenues derived from data transactions from digital advertising services in
this state.
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(d) A person required to file a return under this section shall maintain records of
data transactions from digital advertising services provided in this state and the basis for
the calculation of the data transaction privilege tax owed for a minimum of five (5) years.
(e) The chief executive officer, proprietor, owner, or highest-ranking manager
shall sign annual and quarterly returns to certify the accuracy of the information
contained therein under penalty of perjury.
67-4-1306. Tax payment.
(a) Except as provided in subsection (b), a person who is required to file a return
under this part shall pay the data transaction privilege tax with the return that covers the
period for which the tax is due.
(b) A person required to file estimated data transaction privilege tax returns
under § 67-4-1305(b) shall pay:
(1) At least twenty-five percent (25%) of the estimated data transaction
privilege tax shown on the declaration or amended declaration for the taxable
year:
(A) With the declaration or amended declaration that covers the
year; and
(B) With each quarterly return for that year; and
(2) Any unpaid digital transaction privilege tax for the year shown on the
person's return that covers that year with the return.
67-4-1307. Allocation of tax revenue – Universal pre-K fund.
(a) All revenue from the data transaction privilege tax collected under this part,
including penalties and interest, must be deposited in a special account in the state
treasury to be known as the universal pre-K fund. The fund must be administered by the
department of education and used exclusively to fund, establish, and maintain a
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universal pre-kindergarten program in each public and public charter elementary school
in this state in accordance with §§ 49-6-104 and 49-6-107. Moneys in the fund may be
invested by the state treasurer in accordance with § 9-4-603. Notwithstanding another
law to the contrary, interest accruing on investments and deposits of the universal pre-K
fund must be credited to the fund, shall not revert to the general fund, and must be
carried forward into the subsequent fiscal year. Any balance remaining unexpended at
the end of a fiscal year in the fund shall not revert to the general fund but must be
carried forward into the subsequent fiscal year.
(b) Notwithstanding subsection (a), five-tenths percent (.5%) of the revenue from
the data transaction privilege tax collected under this part, including penalties and
interest, must be paid into the state treasury and earmarked and allocated to the
department of revenue for the administration and enforcement of this part.
(c) For purposes of this section, "universal pre-kindergarten" means a program
established pursuant to § 49-6-104, and includes a program established under § 49-6-
104 that is intended to provide high-quality education before attending kindergarten and
has a purpose to:
(1) Increase access to voluntary high-quality pre-kindergarten programs;
(2) Provide developmentally appropriate activities for children in this
state;
(3) Expand early childhood community capacity;
(4) Support linguistically and culturally appropriate curricula; and
(5) Focus on school readiness.
67-4-1308. Violations and penalties.
(a) If the total amount of the digital transaction privilege tax due for the year is
less than three hundred dollars ($300), then it is a Class E felony for:
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(1) A person subject to this part to knowingly:
(A) Fail to file a return;
(B) Violate § 67-4-1305 or § 67-4-1306;
(C) Fail to keep books and records as required by this part;
(D) File a fraudulent return; or
(E) Violate a rule promulgated by the department for the
administration and enforcement of this part;
(2) An officer or agent of a corporation or manager, member, or agent of
a limited liability company subject to this part to knowingly sign a fraudulent
return filed on behalf of such corporation or limited liability company; or
(3) An accountant or other agent to knowingly enter false information on
the return of any taxpayer.
(b) If the total amount of the digital transaction privilege tax due for the year is
three hundred dollars ($300) or more, then it is a Class D felony for:
(1) A person subject to this part to knowingly:
(A) Fail to file a return;
(B) Violate § 67-4-1305 or § 67-4-1306;
(C) Fail to keep books and records as required by this part;
(D) File a fraudulent return; or
(E) Violate a rule promulgated by the department for the
administration and enforcement of this part;
(2) An officer or agent of a corporation or manager, member, or agent of
a limited liability company subject to this part to knowingly sign a fraudulent
return filed on behalf of such corporation or limited liability company; or
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(3) An accountant or other agent to knowingly enter false information on
the return of any taxpayer.
(c) A prosecution for an act in violation of this section must commence within
three (3) years of the commission of the act.
67-4-1309. Rulemaking.
The commissioner shall promulgate rules and forms necessary to implement this
part. Rules must be promulgated in accordance with the Uniform Administrative
Procedures Act, compiled in title 4, chapter 5.
SECTION 9. The headings in this act are for reference purposes only and do not
constitute a part of the law enacted by this act. However, the Tennessee Code Commission is
requested to include the headings in any compilation or publication containing this act.
SECTION 10. For purposes of rulemaking, this act takes effect upon becoming a law,
the public welfare requiring it. Sections 1-7 of this act take effect upon becoming a law, the
public welfare requiring it, and apply to the 2026-2027 school year and each school year
thereafter. Section 8 of this act takes effect January 1, 2026, the public welfare requiring it.