Tennessee currently has no income tax on wages, but there is a tax on certain kinds of income. Specifically, the Hall Income Tax levies a 6% tax on dividends for filers. The tax has come under fire for years from both liberal and conservative groups and there may be some movement afoot to get this tax repealed. The group Americans for Tax Reform, for instance, is urging Tennessee voters to mail their representatives in an effort to gain momentum for tax repeal.
It is rare that a tax has opposition from both the right and the left, but the Hall income tax manages this difficult feat. Conservatives disapprove of the tax because they say it harms investment and harms competition. They argue that this tax discourages investment in Tennessee and instead causes it to be invested in more business-friendly states. They argue that, in order to remain competitive, the state should repeal this tax.
Liberal groups argue that the tax is regressive and unfairly impacts the elderly and retirees. Since many retirees derive a majority of their income from retirement accounts, investment accounts, and Social Security, the elderly and retired individuals no longer earning a wage feel this tax more acutely. Therefore liberal groups have called for tax reforms that would ease the burden on this vulnerable population.
The biggest impediment to repealing or reforming this tax is that the Tennessee Supreme Court has consistently ruled that the state constitution only allows for three types of taxes: privilege taxes, ad valorem property taxes, and a tax on income from interest and dividends. Because the Hall income tax raises anywhere from $150 million – $250 million in revenue, the state legislature will either need to find new sources of revenue (a nice way of saying new taxes) or find ways to lower the budget (a nice way of saying cut services). Since these are not politically viable options, it is difficult to say if this tax will ever be changes.
It is important for Tennessee to look for ways to remain competitive in the global marketplace. As states compete with one another, it is important to have a tax code that fosters investment and leads to job creation. Growing the tax base is the best way to ensure that the government has enough money to operate while helping lower and middle class individuals make ends meet.
If you are business owner or retiree, Burkhalter & Burkhalter can help with the Hall income tax and other tax issues. To speak with a Tennessee tax attorney about your tax needs, contact Burkhalter & Burkhalter right away.