Final vote: Hall Income Tax to be completely eliminated by 2021


Final vote: Hall Income Tax to be completely eliminated by 2021

The Hall Income Tax will now be reduced by one percent each year until it is fully eliminated in 2021.

The Hall Income Tax will now be reduced by one percent each year until it is fully eliminated in 2021.

An amendment by Rep. Billy Spivey (R-Lewisburg) to one of Rep. Charles Sargent’s (R-Franklin) bills was passed earlier this week that will gradually eliminate the Hall Income Tax, which is a six percent levy on all taxable interest and dividend income from investments, and is the only tax on personal income in the state.

Sargent’s bill, HB 0813, was up on the House floor to reduce the Hall Income Tax from six percent to zero percent.

“The income tax represented nearly $1.5 billion over the next six years in revenue to the state and our local communities, so we had to come up with a plan that phased it out responsibly,” Sargent, the House Finance, Ways and Means Committee chair, said. “I have been focused on eliminating this tax for years now, and with the state in excellent financial shape and a Republican majority in both chambers, we were able to get it done without harming the municipalities that depend on that revenue.”

The bill as introduced, contingent on revenue growth exceeding three percent in any fiscal year, reduced the Hall Income Tax until it reached zero percent. For each rate reduction, it increased the percentage of tax proceeds returned to local governments until it reached 100 percent, and it decreased the percentage returned to the general fund until it reached zero percent.

Under this bill, if state revenue growth were to exceed three percent over the previous fiscal year, then the rate of the Hall Income Tax would be reduced by one percent for the following calendar year and all subsequent calendar years, unless further reduction is warranted because of another increase in revenue greater than three percent.

If the Tax is reduced to a rate of three percent, then all subsequent reductions to the rate will be in increments of .75 percent. Upon the seventh reduction, the rate of the Hall Income Tax will become zero percent. On Jan. 1 immediately following the final rate reduction, the Hall Income Tax will be abolished.

Under present law, 5/8 of the revenue collected by the Hall Income Tax is distributed to the general fund and the remaining 3/8 of revenue is distributed to the local government from which the tax was collected.

Under the bill, the amount of revenue distributed to the general fund will be decreased in an amount corresponding to the first four reductions to the rate of the Hall Income Tax. During this time, the rate distributed to local governments will remain the same. Following the fourth rate reduction, no revenue from the Hall Income Tax will be distributed to the general fund, and all further revenue generated by the Hall Income Tax will be distributed to the local government from which the tax was collected, until eliminated.

There have been several amendments to this bill. The first, introduced by Rep. Jeremy Faison (R-Cosby), is one that rewrites this bill to reduce the Hall Income Tax from six percent to five percent beginning with the tax year that began on Jan. 1, 2016. It expresses legislative intent that the tax be eliminated on or before Jan. 1, 2021, through annual reductions made by enactments of general bills in the amount of one percent each year.

The second amendment, introduced by Sargent, is almost the same except that it takes away Faison’s provision that the annual reductions be made in the amount of one percent each year.

The third amendment, introduced by Rep. Billy Spivey (R-Lewisburg), states that on Jan. 1 of any calendar year in which the sixth qualifying reduction occurs, the rate is zero percent and, on or after that date, no tax shall be imposed. It also sets legislative intent to eliminate the tax by 2021.

The Beacon Center of Tennessee, a public policy organization, has expressed support for the bill.

“The Beacon Center has been working with Rep. Sargent for several years now on a variety of approaches to eliminating the Hall Tax,” Beacon Center public policy director Lindsay Boyd said. “He has remained committed to getting this accomplished for Tennesseans in an aggressive but fiscally responsible manner, in a bill that had the viability to get passed by the General Assembly.”

With the legislative session ending, a variety of bills and amendments were being pushed to either phase out gradually or entirely eliminate the Hall Income Tax.

Before Spivey’s amendment passed, several versions of a Hall Income Tax elimination bill went through the House.

Sargent’s bill, HB 1437, would have decreased the Hall Income Tax rate from six percent to 5.5 percent for tax years beginning on or after Jan. 1, 2016. It would have decreased local revenue by more than $13 million. It was intended to be the first of a series of bills to gradually decrease the Hall Income Tax, but did not specify an end date for the tax.

Another bill, HB 2118 sponsored by Gerald McCormick (R-Chattanooga), would have fully repealed the Hall Income Tax for tax years beginning on or after Jan. 1, 2017. It would have authorized local governments to levy an identical tax, but prohibited it from exceeding 2.25 percent, and would have decreased state revenue by more than $166 million, and decrease local revenue by more than $90.8 million.

Both Sargent’s legislation and McCormick’s were tabled as Sargent’s HB 0813 passed with amendments on Friday. By 2021 the Hall Income Tax will be completely eliminated.

Samantha Hearn reports for Home Page Media Group. She can be reached via email at samantha@brentwoodhomepage.com or on Twitter @samanthahearn.

About The Author

Kelly Gilfillan is the owner-publisher of Home Page Media Group which has been publishing hyperlocal news since 2009.

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