Hall income tax
Encyclopedia
The Hall income tax is a Tennessee
state tax
on interest
and dividend
income from investment
s. It is the only tax on personal income
in Tennessee, which does not levy a general state income tax
. The current tax rate is 6 percent, applied to all taxable interest and dividend income over $1250 per person ($2500 for married couples filing jointly). Revenues are shared with the government of the municipality or county where the taxpayer resides.
in 1929, by Chapter 86, Public Acts of 1929, enacted on April 10, 1929. It is named for Frank S. Hall, the state senator who sponsored the legislation. Authority for the tax derives from the 1870 amendments to the Tennessee State Constitution
, which gave the General Assembly the power "to levy a tax on incomes derived from stocks and bonds that are not taxed ad valorem.” A 2004 analysis suggests that this provision of the state constitution was intended to address difficulties that Tennessee government had experienced in its efforts to apply property tax
to intangible forms of property. A 1929 opinion of the Tennessee Supreme Court
, issued in the case of Shields v. Williams and written by Chief Justice Grafton Green
, found that the Hall tax was a privilege tax
, not a property tax. This meant that the Hall tax was not subject to a provision of the state constitution requiring all property to be taxed uniformly.
At first the tax rate was 5% and all collected revenue was directed to the state government. In 1931 the General Assembly amended the law to require that 45% of the revenue be distributed to local governments. This had the effect of allocating 2.75 percentage points of the taxable income to the state government and 2.25 points to local government.
In 1937 the tax rate was increased to 6% and the portion allocated to local governments was reduced to three-eighths of the total, thus keeping the local government share at 2.25 percentage points of the taxable income reported by the local jurisdiction's residents. These rates remain in effect as of 2011.
In 2002, the Tennessee Department of Revenue
established an electronic filing
system for the Hall income tax and ended its former practice of mailing tax form
s to taxpayers believed to be subject to the tax.
Dividends subject to the tax are dividends from corporation
s, investment trust
s. and mutual fund
s, including capital gains distributions from mutual funds. Taxable forms of interest include interest on bond
s issued by persons, corporations, churches, joint stock companies, business trusts, U.S. state
s and local political subdivisions outside Tennessee, and foreign governments; and interest on mortgage
s, commercial paper
, and other written obligations that mature more than six months after the date of issue. The tax does not apply to income from government obligations issued by the U.S. federal government and Tennessee state or local governments. Dividends from stock in banks and similar institutions (but not bank holding companies), as well as several types of Tennessee business, are exempt from the tax. Interest paid on bank
and credit union
accounts also is not subject to the Hall tax, regardless of the location of the bank.
The first $1,250 of a person's income that would otherwise be subject to the Hall tax is exempt from taxation. Married couples may file joint returns, in which case $2,500 of the couple's joint taxable is exempt. Blind
people and people over 65 years old whose total annual income is $16,200 or less ($27,000 for joint filers) are not subject to the Hall income tax. Some interest and dividend income received by quadriplegics also is exempt.
Evasion
of the Hall income tax may be prosecuted as a Class E felony
, with penalties of up to two years in state prison
and up $3000 in fines. The Tennessee Department of Revenue
uses Internal Revenue Service
data to assist in identifying taxable income that is not being reported.
Revenue from the Hall income tax varies significantly from year to year, making it difficult for governments to predict. Some of the largest year-to-year changes occurred in FY 1998, when collections increased 25.5% from the previous year, and FYs 2002 and 2009, when collections dropped 26.1% from the previous years. A principal reason for the large variability in revenues is the application of the tax to capital gains distributions from mutual fund
s. A 2004 report by the Tennessee Advisory Commission on Intergovernmental Relations
(TACIR) observed that capital gains from investments had displayed "roller-coaster behavior" over the preceding eight years. TACIR identified this variability, coupled with increased investor participation in mutual funds, as the main cause of fluctuations in Hall tax collections during the same period.
Distributions to municipalities are generally larger than distributions to counties. In FY 2003, combined distributions to all of the state's municipalities totaled $42,332,061, or an average of $13.22 per municipal resident, while distributions to counties were $8,184,443, an average of only $3.30 for each resident living outside city limits. In FY 2003, the largest per capita
recipient of Hall income tax distributions was Belle Meade
, a wealthy enclave in Metropolitan Nashville-Davidson County
, which received a per capita distribution of $491.68. At the low end, 14 municipalities had no income from the Hall tax. Per capita distributions to counties ranged from a high of $15.41 to Williamson County
to a low of $0.40 to Hancock County.
Although the Hall income tax is a relatively minor source of revenue for most local governments, it is a major source of funds for a few small municipalities, particularly those with wealthy residents. The government of the City of Belle Meade
receives over one-third of its revenue from the Hall income tax. Other Tennessee municipalities identified as highly dependent on the tax, based on 1997 data, are Forest Hills
, Allardt
, Lookout Mountain
, Slayden
, and Walden
.
In FY 2010, combined payments to Knox County
and its included municipalities (including Knoxville
) totaled $12.5 million, the highest of any county in the state. Shelby County
and its municipalities (including Memphis) received a total of $11.4 million, while Davidson County
and its municipalities (including Nashville) received a total of $10.4 million. Other counties where combined payments to the county and municipalities exceeded $1 million were Hamilton County
($5 million), Williamson County ($4.5 million), Sullivan County ($1.4 million), and and Sumner County
($1.3 million). At the low end, Hancock County and its municipalities received a total of $2,755.
and for having a negative impact on retired people
. Periodically, there are legislative proposals for changing it, including eliminating it, replacing it with a general personal income tax
, or changing the tax rates or exemptions. At times there also have been legislative proposals to enhance state government revenue by reducing the fraction of the Hall tax that is distributed to local governments; several such proposals were made in the late 1990s and early 2000s.
Proposals for major changes to the Hall tax typically fail because of the lack of alternative sources of revenue to replace it. The Hall tax is Tennessee's only tax on personal income; the state does not levy a general personal income tax
. As of 1974, the Tennessee Supreme Court had consistently held that the state constitution authorized only three types of taxes: privilege taxes, ad valorem property tax
es, and a tax on income from interest and dividends. In decisions in 1932 and 1960, the court rejected proposals for a general personal income tax. More recently, in 1981, 1991, and 1999, three different Tennessee Attorneys General
issued opinions to the effect that a general income tax would not violate the state constitution.
In December 2004, a commission established to study the state's tax structure criticized the Hall income tax as regressive
, anti-competitive, and "unfairly selective." The Tennessee Tax Structure Study Commission called the tax "particularly harmful to retirees with limited income derived mainly from investments," noting in its final report that low-income retirees with dividend and interest income pay the tax, but low-income people with income from other sources do not. The commission's report also asserted that the Hall tax "effective (sic) encourages retirees to leave the State." The commission recommended repeal
ing the Hall income tax, reducing or repealing certain other state taxes, and enacting a general personal income tax in their place. Other critics have suggested that the tax discourages people from saving and hinders efforts to encourage retirees to settle in Tennessee. Organizations including the League of Women Voters
of Tennessee and Tennesseans for Fair Taxation
have endorsed the repeal of the Hall income tax as part of comprehensive tax reform that includes implementation of a broad-based personal income tax. In its "Legislator's Guide to the Issues" issued in 2009 and 2011, the Tennessee Center for Policy Research called the 6 percent rate "sizeable" and said the tax "makes Tennessee an unwelcoming place, particularly for retirees and the wealthy." The organization advocated repealing the tax "to encourage wealthy and retired individuals to move to Tennessee" and cutting state spending to offset the lost revenue.
In May 2011 the General Assembly passed a measure, sponsored by Speaker Ron Ramsey
in the Senate and Representative Cameron Sexton
of Crossville
in the House, to increase the income exemptions for persons over 65 by $10,000, to $26,200 for individual taxpayers and $37,000 for joint filers. That change is expected to make an estimated 4,725 taxpayers eligible for the exemption, reducing Hall tax revenue by about $1.65 million, including $1 million for the state and $650,000 for local governments. Governor Bill Haslam
had earlier endorsed this proposal, saying: “If you’re retired and living on dividends, I’m not sure why you should be treated so much different from someone who’s living on a salary.” This was the only bill to pass from among the eight bills to reduce or eliminate the Hall tax that were introduced in the General Assembly in 2011. Representative Sexton and State Senator Charlotte Burks
of Monterey
sponsored a proposal to phase out the Hall tax by reducing the rate each year until 2015, when it would be reduced to 0%. Both of the bill's sponsors represent Cumberland County, the location of retirement communities including Fairfield Glade
and Lake Tansi
. In explaining his rationale for the bill, Sexton said that his goal was to protect senior citizen
s in these and other retirement communities from being "penalize[d] ... at the end of their lives when they're trying to live on a fixed income." Another legislative proposal in 2011, sponsored by Senator Jack Johnson
and Representative Charles Michael Sargent, both Republican
s from Franklin
, would increase the amount of a taxpayer's interest and dividend income that is exempt from the Hall tax, eventually making the first $2,500 ($5,000 for persons filing jointly) nontaxable.
Tennessee
Tennessee is a U.S. state located in the Southeastern United States. It has a population of 6,346,105, making it the nation's 17th-largest state by population, and covers , making it the 36th-largest by total land area...
state tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
on interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
and dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
income from investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
s. It is the only tax on personal income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
in Tennessee, which does not levy a general state income tax
State income tax
State and local income taxes are imposed in addition to Federal income tax. State income tax is allowed as a deduction in computing Federal income tax, subject to limitations for individuals. Some localities impose an income tax, often based on state income tax calculations. Forty-three states...
. The current tax rate is 6 percent, applied to all taxable interest and dividend income over $1250 per person ($2500 for married couples filing jointly). Revenues are shared with the government of the municipality or county where the taxpayer resides.
History
The Hall tax was established by action of the Tennessee General AssemblyTennessee General Assembly
The Tennessee General Assembly is the state legislature of the U.S. state of Tennessee.-Constitutional structure:According to the Tennessee State Constitution of 1870, the General Assembly is a bicameral legislature and consists of a Senate of thirty-three members and a House of Representatives of...
in 1929, by Chapter 86, Public Acts of 1929, enacted on April 10, 1929. It is named for Frank S. Hall, the state senator who sponsored the legislation. Authority for the tax derives from the 1870 amendments to the Tennessee State Constitution
Tennessee State Constitution
The Constitution of the State of Tennessee defines the form, structure, activities, character, and fundamental rules of the U.S. State of Tennessee....
, which gave the General Assembly the power "to levy a tax on incomes derived from stocks and bonds that are not taxed ad valorem.” A 2004 analysis suggests that this provision of the state constitution was intended to address difficulties that Tennessee government had experienced in its efforts to apply property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
to intangible forms of property. A 1929 opinion of the Tennessee Supreme Court
Tennessee Supreme Court
The Tennessee Supreme Court is the state supreme court of the state of Tennessee. Cornelia Clark is the current Chief Justice.Unlike other states, in which the state attorney general is directly elected or appointed by the governor or state legislature, the Tennessee Supreme Court appoints the...
, issued in the case of Shields v. Williams and written by Chief Justice Grafton Green
Grafton Green
Grafton Green was an American jurist who served on the Tennessee Supreme Court from 1910 to 1947, including more than 23 years as chief justice....
, found that the Hall tax was a privilege tax
Privilege tax
A privilege tax is a tax levied in exchange for a privilege or license granted to the taxpayer. The fee for registering a motor vehicle is one example of a privilege tax....
, not a property tax. This meant that the Hall tax was not subject to a provision of the state constitution requiring all property to be taxed uniformly.
At first the tax rate was 5% and all collected revenue was directed to the state government. In 1931 the General Assembly amended the law to require that 45% of the revenue be distributed to local governments. This had the effect of allocating 2.75 percentage points of the taxable income to the state government and 2.25 points to local government.
In 1937 the tax rate was increased to 6% and the portion allocated to local governments was reduced to three-eighths of the total, thus keeping the local government share at 2.25 percentage points of the taxable income reported by the local jurisdiction's residents. These rates remain in effect as of 2011.
In 2002, the Tennessee Department of Revenue
Tennessee Department of Revenue
The Tennessee Department of Revenue is an agency within the Tennessee state government of about 1600 people which is responsible for the "administration of state tax laws and motor vehicle title and registration laws established by the legislature and the collection of taxes and fees associated...
established an electronic filing
Electronic tax filing
E-file is a system for submitting tax documents to the Internal Revenue Service through the internet or direct connection, usually without the need to submit any paper documents. Tax preparation software with e-filing capabilities are available as stand alone programs or through websites or tax...
system for the Hall income tax and ended its former practice of mailing tax form
Tax form
A tax form is a blank document or template supplied by a government for use in the reporting of tax information to the government or to potential taxpayers...
s to taxpayers believed to be subject to the tax.
Applicability
The Hall tax applies to interest and dividend income received by people who maintain their legal residence in Tennessee, including part-year residents who live in the state at least six months of the year.Dividends subject to the tax are dividends from corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s, investment trust
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
s. and mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s, including capital gains distributions from mutual funds. Taxable forms of interest include interest on bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
s issued by persons, corporations, churches, joint stock companies, business trusts, U.S. state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
s and local political subdivisions outside Tennessee, and foreign governments; and interest on mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
s, commercial paper
Commercial paper
In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial Paper is a money-market security issued by large banks and corporations to get money to meet short term debt obligations , and is only backed by an issuing bank or...
, and other written obligations that mature more than six months after the date of issue. The tax does not apply to income from government obligations issued by the U.S. federal government and Tennessee state or local governments. Dividends from stock in banks and similar institutions (but not bank holding companies), as well as several types of Tennessee business, are exempt from the tax. Interest paid on bank
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
and credit union
Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
accounts also is not subject to the Hall tax, regardless of the location of the bank.
The first $1,250 of a person's income that would otherwise be subject to the Hall tax is exempt from taxation. Married couples may file joint returns, in which case $2,500 of the couple's joint taxable is exempt. Blind
Blindness
Blindness is the condition of lacking visual perception due to physiological or neurological factors.Various scales have been developed to describe the extent of vision loss and define blindness...
people and people over 65 years old whose total annual income is $16,200 or less ($27,000 for joint filers) are not subject to the Hall income tax. Some interest and dividend income received by quadriplegics also is exempt.
Evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
of the Hall income tax may be prosecuted as a Class E felony
Felony
A felony is a serious crime in the common law countries. The term originates from English common law where felonies were originally crimes which involved the confiscation of a convicted person's land and goods; other crimes were called misdemeanors...
, with penalties of up to two years in state prison
Prison
A prison is a place in which people are physically confined and, usually, deprived of a range of personal freedoms. Imprisonment or incarceration is a legal penalty that may be imposed by the state for the commission of a crime...
and up $3000 in fines. The Tennessee Department of Revenue
Tennessee Department of Revenue
The Tennessee Department of Revenue is an agency within the Tennessee state government of about 1600 people which is responsible for the "administration of state tax laws and motor vehicle title and registration laws established by the legislature and the collection of taxes and fees associated...
uses Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
data to assist in identifying taxable income that is not being reported.
Revenues collected
The Hall income tax accounts for about 2% of Tennessee's state tax collections. Revenue from the Hall tax peaked at $289.7 million in state fiscal year (FY) 2008, when almost 192,000 households paid Hall income tax based on returns filed for calendar year 2007. Hall income tax collections totaled $213.9 million and $172 million for calendar years 2008 and 2009, respectively (paid in state FYs 2009 and 2010). About 156,000 state households paid the tax in FY 2009 for income received in 2008.Revenue from the Hall income tax varies significantly from year to year, making it difficult for governments to predict. Some of the largest year-to-year changes occurred in FY 1998, when collections increased 25.5% from the previous year, and FYs 2002 and 2009, when collections dropped 26.1% from the previous years. A principal reason for the large variability in revenues is the application of the tax to capital gains distributions from mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s. A 2004 report by the Tennessee Advisory Commission on Intergovernmental Relations
Tennessee Advisory Commission on Intergovernmental Relations
The Tennessee Advisory Commission on Intergovernmental Relations is an intergovernmental body of state and local governments in the U.S. state of Tennessee that has the purpose of providing a forum for discussion and resolution of intergovernmental problems and providing research support to...
(TACIR) observed that capital gains from investments had displayed "roller-coaster behavior" over the preceding eight years. TACIR identified this variability, coupled with increased investor participation in mutual funds, as the main cause of fluctuations in Hall tax collections during the same period.
Distributions to municipalities and counties
Three-eighths of Hall income tax payments are distributed to the local government of the municipality or county where the taxpayer resides. There are no restrictions on how local governments use the money. This distribution arrangement may be related to the genesis of the Hall tax as a property tax on an intangible property.Distributions to municipalities are generally larger than distributions to counties. In FY 2003, combined distributions to all of the state's municipalities totaled $42,332,061, or an average of $13.22 per municipal resident, while distributions to counties were $8,184,443, an average of only $3.30 for each resident living outside city limits. In FY 2003, the largest per capita
Per capita
Per capita is a Latin prepositional phrase: per and capita . The phrase thus means "by heads" or "for each head", i.e. per individual or per person...
recipient of Hall income tax distributions was Belle Meade
Belle Meade, Tennessee
Belle Meade is a city in Davidson County, Tennessee, United States, within Nashville.-Overview:In 1963, it was absorbed into the metropolitan government of Nashville-Davidson County, however, it retains its independent city status, and its residents pay taxes both to the Metro government and to the...
, a wealthy enclave in Metropolitan Nashville-Davidson County
Nashville, Tennessee
Nashville is the capital of the U.S. state of Tennessee and the county seat of Davidson County. It is located on the Cumberland River in Davidson County, in the north-central part of the state. The city is a center for the health care, publishing, banking and transportation industries, and is home...
, which received a per capita distribution of $491.68. At the low end, 14 municipalities had no income from the Hall tax. Per capita distributions to counties ranged from a high of $15.41 to Williamson County
Williamson County, Tennessee
Williamson County is a county in the U.S. state of Tennessee. As of 2010 US Census, the population was 183,182. The County's seat is Franklin, and it is part of the Nashville-Davidson–Murfreesboro–Franklin Metropolitan Statistical Area. The county is named after Hugh Williamson, a...
to a low of $0.40 to Hancock County.
Although the Hall income tax is a relatively minor source of revenue for most local governments, it is a major source of funds for a few small municipalities, particularly those with wealthy residents. The government of the City of Belle Meade
Belle Meade, Tennessee
Belle Meade is a city in Davidson County, Tennessee, United States, within Nashville.-Overview:In 1963, it was absorbed into the metropolitan government of Nashville-Davidson County, however, it retains its independent city status, and its residents pay taxes both to the Metro government and to the...
receives over one-third of its revenue from the Hall income tax. Other Tennessee municipalities identified as highly dependent on the tax, based on 1997 data, are Forest Hills
Forest Hills, Tennessee
Forest Hills is a city in Davidson County, Tennessee, United States. The population was 4,710 at the 2000 census.-Geography:Forest Hills is bordered by Old Hickory Boulevard on the south, Granny White Pike on the east, Harding Place on the north, and Hillsboro Pike on the north...
, Allardt
Allardt, Tennessee
Allardt is a city in Fentress County, Tennessee, United States. The population was 634 at the 2010 census.-History:After 1880 Frederick Allardt and Bruno Gernt brought a group of Germans from Michigan to the area to settle it...
, Lookout Mountain
Lookout Mountain, Tennessee
Lookout Mountain is a town in Hamilton County, Tennessee, United States. The population was 1,832 at the 2010 census. It is part of the Chattanooga, TN–GA Metropolitan Statistical Area.-Geography:Lookout Mountain is located at...
, Slayden
Slayden, Tennessee
Slayden is a town in Dickson County, Tennessee, United States. The population was 178 at the 2010 census.-Geography:Slayden is located at .According to the United States Census Bureau, the town has a total area of , all of it land....
, and Walden
Walden, Tennessee
Walden is a town located atop Walden's Ridge Hamilton County, Tennessee, United States. The population was 1,960 at the 2000 census. It is part of the Chattanooga, TN–GA Metropolitan Statistical Area.-Geography:...
.
In FY 2010, combined payments to Knox County
Knox County, Tennessee
Knox County is a county in the U.S. state of Tennessee. Its 2007 population was estimated at 423,874 by the United States Census Bureau. Its county seat is Knoxville, as it has been since the creation of the county. The county is at the geographical center of the Great Valley of East Tennessee...
and its included municipalities (including Knoxville
Knoxville, Tennessee
Founded in 1786, Knoxville is the third-largest city in the U.S. state of Tennessee, U.S.A., behind Memphis and Nashville, and is the county seat of Knox County. It is the largest city in East Tennessee, and the second-largest city in the Appalachia region...
) totaled $12.5 million, the highest of any county in the state. Shelby County
Shelby County, Tennessee
Shelby County is a county located in the U.S. state of Tennessee. It is the state's largest both in terms of population and geographic area, with a population of 927,644 at the 2010 census...
and its municipalities (including Memphis) received a total of $11.4 million, while Davidson County
Davidson County, Tennessee
Davidson County is a county located in the U.S. state of Tennessee. As of 2010, the population was 626,681. Its county seat is Nashville.In 1963, the City of Nashville and the Davidson County government merged, so the county government is now known as the "Metropolitan Government of Nashville and...
and its municipalities (including Nashville) received a total of $10.4 million. Other counties where combined payments to the county and municipalities exceeded $1 million were Hamilton County
Hamilton County, Tennessee
Hamilton County is a county located in the U.S. state of Tennessee. It was named for Alexander Hamilton, the first Secretary of the Treasury. The 2005 Census Estimate placed the population at 310,935 . Its county seat is Chattanooga....
($5 million), Williamson County ($4.5 million), Sullivan County ($1.4 million), and and Sumner County
Sumner County, Tennessee
Sumner County is a county located in the U.S. state of Tennessee. As of 2000, the population was 130,449. Its county seat is Gallatin, but its largest town is Hendersonville...
($1.3 million). At the low end, Hancock County and its municipalities received a total of $2,755.
Criticisms and proposals for changes
The Hall income tax has been the subject of chronic criticism, primarily for being regressiveRegressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
and for having a negative impact on retired people
Retirement
Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...
. Periodically, there are legislative proposals for changing it, including eliminating it, replacing it with a general personal income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
, or changing the tax rates or exemptions. At times there also have been legislative proposals to enhance state government revenue by reducing the fraction of the Hall tax that is distributed to local governments; several such proposals were made in the late 1990s and early 2000s.
Proposals for major changes to the Hall tax typically fail because of the lack of alternative sources of revenue to replace it. The Hall tax is Tennessee's only tax on personal income; the state does not levy a general personal income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
. As of 1974, the Tennessee Supreme Court had consistently held that the state constitution authorized only three types of taxes: privilege taxes, ad valorem property tax
Ad valorem tax
An ad valorem tax is a tax based on the value of real estate or personal property. It is more common than a specific duty, a tax based on the quantity of an item, such as cents per kilogram, regardless of price....
es, and a tax on income from interest and dividends. In decisions in 1932 and 1960, the court rejected proposals for a general personal income tax. More recently, in 1981, 1991, and 1999, three different Tennessee Attorneys General
Tennessee Attorney General
The Tennessee Attorney General is a position within the Tennessee state government. The Attorney General is the chief law enforcement officer and lawyer for Tennessee. Unlike most states, the Tennessee Attorney General is an officer of the judicial branch, being appointed by the justices of the...
issued opinions to the effect that a general income tax would not violate the state constitution.
In December 2004, a commission established to study the state's tax structure criticized the Hall income tax as regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
, anti-competitive, and "unfairly selective." The Tennessee Tax Structure Study Commission called the tax "particularly harmful to retirees with limited income derived mainly from investments," noting in its final report that low-income retirees with dividend and interest income pay the tax, but low-income people with income from other sources do not. The commission's report also asserted that the Hall tax "effective (sic) encourages retirees to leave the State." The commission recommended repeal
Repeal
A repeal is the amendment, removal or reversal of a law. This is generally done when a law is no longer effective, or it is shown that a law is having far more negative consequences than were originally envisioned....
ing the Hall income tax, reducing or repealing certain other state taxes, and enacting a general personal income tax in their place. Other critics have suggested that the tax discourages people from saving and hinders efforts to encourage retirees to settle in Tennessee. Organizations including the League of Women Voters
League of Women Voters
The League of Women Voters is an American political organization founded in 1920 by Carrie Chapman Catt during the last meeting of the National American Woman Suffrage Association approximately six months before the Nineteenth Amendment to the United States Constitution gave women the right to vote...
of Tennessee and Tennesseans for Fair Taxation
Tennesseans for Fair Taxation
Tennesseans for Fair Taxation is a Tennessee political advocacy group advocating tax reform, particularly at the state level.As a grassroots group of generally low and moderate income families, Tennesseans for Fair Taxation is allied with state public employee and schoolteacher groups, along with...
have endorsed the repeal of the Hall income tax as part of comprehensive tax reform that includes implementation of a broad-based personal income tax. In its "Legislator's Guide to the Issues" issued in 2009 and 2011, the Tennessee Center for Policy Research called the 6 percent rate "sizeable" and said the tax "makes Tennessee an unwelcoming place, particularly for retirees and the wealthy." The organization advocated repealing the tax "to encourage wealthy and retired individuals to move to Tennessee" and cutting state spending to offset the lost revenue.
In May 2011 the General Assembly passed a measure, sponsored by Speaker Ron Ramsey
Ron Ramsey
Ronald Lynn "Ron" Ramsey is the Lieutenant Governor of Tennessee and Speaker of the State Senate. A Republican from Blountville in East Tennessee, Ramsey succeeded long-term Democratic Lieutenant Governor John S...
in the Senate and Representative Cameron Sexton
Cameron Sexton
Cameron Sexton is a Republican member of the Tennessee House of Representatives for the 25th district, encompassing Crossville, Cumberland County and Bledsoe County.-Biography:...
of Crossville
Crossville, Tennessee
Crossville is a city in and the county seat of Cumberland County, Tennessee, United States. The population was 10,795 at the 2010 Census.-Geography:Crossville is located at...
in the House, to increase the income exemptions for persons over 65 by $10,000, to $26,200 for individual taxpayers and $37,000 for joint filers. That change is expected to make an estimated 4,725 taxpayers eligible for the exemption, reducing Hall tax revenue by about $1.65 million, including $1 million for the state and $650,000 for local governments. Governor Bill Haslam
Bill Haslam
William Edward "Bill" Haslam is the 49th and current Governor of Tennessee. A member of the Republican Party, Haslam was elected to office in 2010...
had earlier endorsed this proposal, saying: “If you’re retired and living on dividends, I’m not sure why you should be treated so much different from someone who’s living on a salary.” This was the only bill to pass from among the eight bills to reduce or eliminate the Hall tax that were introduced in the General Assembly in 2011. Representative Sexton and State Senator Charlotte Burks
Charlotte Burks
Charlotte Gentry Burks is a farmer and Democratic party politician in Tennessee who has represented the 15th District as State Senator since 1998....
of Monterey
Monterey, Tennessee
Monterey is a town in Putnam County, Tennessee, United States. The population was 2,717 at the 2000 census. It is part of the Cookeville, Tennessee Micropolitan Statistical Area.-Geography:Monterey is located at ....
sponsored a proposal to phase out the Hall tax by reducing the rate each year until 2015, when it would be reduced to 0%. Both of the bill's sponsors represent Cumberland County, the location of retirement communities including Fairfield Glade
Fairfield Glade, Tennessee
Fairfield Glade, a resort and retirement community, is a census-designated place in Cumberland County, Tennessee, United States. The population was 6,989 at the 2010 census.-Geography:Fairfield Glade is located at ....
and Lake Tansi
Lake Tansi, Tennessee
Lake Tansi is a resort community in Cumberland County, Tennessee, United States, recognized by the U.S. Census as a census-designated place...
. In explaining his rationale for the bill, Sexton said that his goal was to protect senior citizen
Senior citizen
Senior citizen is a common polite designation for an elderly person in both UK and US English, and it implies or means that the person is retired. This in turn implies or in fact means that the person is over the retirement age, which varies according to country. Synonyms include pensioner in UK...
s in these and other retirement communities from being "penalize[d] ... at the end of their lives when they're trying to live on a fixed income." Another legislative proposal in 2011, sponsored by Senator Jack Johnson
Jack Johnson (politician)
Jack Johnson is an American politician and a Republican Party member of the Tennessee Senate for the 23rd district, which is composed of Williamson County and part of Davidson County.-Education and career:...
and Representative Charles Michael Sargent, both Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
s from Franklin
Franklin, Tennessee
Franklin is a city within and the county seat of Williamson County, Tennessee, United States. The population was 62,487 as of the 2010 census Franklin is located approximately south of downtown Nashville.-History:...
, would increase the amount of a taxpayer's interest and dividend income that is exempt from the Hall tax, eventually making the first $2,500 ($5,000 for persons filing jointly) nontaxable.