Tennessee Aims to be the US Innovation Capital

Adam Jackson
Adam Jackson

The Beacon Center of Tennessee is telling the story of Adam Jackson, an entrepreneur in the state who faced regulatory obstacles to starting a new high-tech business. Jackson headed a start-up that intended to use biometric data to create facial-recognition software that could scan faces from security camera footage. This would allow the system to cross-reference known-offender databases in real time and identify “bad actors,” heightening security in vulnerable locations, such as schools or shelters.

Jackson’s start-up was prematurely shut down by the Tennessee Alarm System Contractors Board, after being told that he could not distribute his product unless he had a license to install alarm systems. Jackson appeared in front of the board and explained that the product he was developing wasn’t an alarm itself, but rather software that would enhance security of existing alarm systems. The state board still shut Jackson down, citing that it was a gray area, and Jackson should proceed with getting the proper licensing

The Beacon Center of Tennessee, an Atlas Network partner, aims to promote innovation in Tennessee by identifying where regulatory barriers hinder entrepreneurs—as they did for Jackson—and advocating for solutions through public policy reforms.

Three of Beacon’s policy focuses include creating an environment where entrepreneurs can freely innovate, working toward making Tennessee an industry leader by embracing new technologies, and advocating for a regulatory sandbox, which allows companies to experiment with new business models under regulatory supervision. Beacon has recently celebrated two big policy wins that are bringing them closer to making the Volunteer State a leader in entrepreneurship.

Beacon persuaded policymakers to end what it called the “Innovation Tax”—a section within the Tax Cuts and Jobs Act, passed in 2017. Federal lawmakers had added this provision during the budget reconciliation process that, beginning in 2022, the full and immediate expensing of Research and Development (R&D) costs for businesses would expire. Because states like Tennessee often mirror federal tax policies, with this provision Tennessee-based businesses would have seen an increase in their state tax burden—a change that experts say would reduce American economic competitiveness. By separating from the “Innovation Tax,” Tennessee has set an example of how to avoid tax increases on R&D spending. In effect, Tennessee has ensured that companies and entrepreneurs will continue to fully and immediately deduct R&D expenses on their state taxes, providing a financial incentive to invest and do business in Tennessee.

In another policy win, Tennessee became the second state to allow Decentralized Autonomous Organizations (DAOs) to register as unique types of LLCs, providing them liability protections as new and innovative business models. DAOs are collectively owned blockchain-based companies, meaning they are run by computer code, rather than a human leader. Not only is the technology designed to allow people to more safely and transparently collaborate over the internet, but the fully automated business structure democratizes business decisions, such as purchasing physical or digital assets, because it must be voted on by all members. After this bipartisan bill was passed in both the state house and senate, members of the business and tech communities applauded the potential it brings for Tennessee to attract blockchain investments and create more jobs in the tech industry. On the heels of this win, Beacon will be a key participant in an upcoming statewide conference on blockchain technology hosted by the University of Tennessee.

With these two major policy victories, Beacon is continuing to strengthen relationships in the business community—particularly with entrepreneurs and a network of blockchain-based businesses—and the Tennessee Department of Commerce and Insurance Commissioner. Beacon is now exploring how to work together with these entities to create and implement their long-term goal of a regulatory sandbox. This regulatory approach would allow entrepreneurs like Adam Jackson to test new innovations that may exist outside of the current regulatory framework, like facial-recognition software that could be installed to existing security systems. Had a regulatory sandbox been in place for Jackson, his start-up would’ve had the chance to properly invest in research and development, unencumbered by regulations that didn’t apply to the product, and be meaningfully evaluated for the marketplace. Tennessee is well on its way to becoming the U.S. innovation capital, and Beacon is at the head of policy advocacy.