As many business leaders have realized, Tennessee business will be a major beneficiary of tax reform. Tennessee business will benefit from tax reform in the following ways:

Since business pays approximately 31 percent of the sales tax which the state collects, lowering the sales tax rate will allow business to reap additional profits. By spending less on sales taxes, people will have more to spend on goods and services. With a lower sales tax rate, consumers will come back to Tennessee to shop instead of shopping in neighboring states. If commodity prices do not fall by the full amount of the sales tax reduction, business will increase its profit margin.

The state legislature will not need to raise business taxes periodically to balance the state budget. Tennessee has a history of high business taxes as a result of its reliance on slow-growing revenue sources and a narrow tax base. A broad-based, balanced tax structure will provide a stable and sufficient revenue stream, thus eliminating our state's recurring revenue crises. All the states surrounding Tennessee have an income tax. As a result, in recent years many have reduced other taxes.

Adequate funding of education will create a more educated workforce which will enhance Tennessee's economic development. Unfortunately, Tennessee is currently near the bottom in the U.S. in education funding, in number of people with a high school education, number of college graduates and percentage of children living in poverty. If current trends continue, projections by the Tennessee Department of Labor and Workforce Development show that Tennessee will have a shortage of college graduates sufficient to meet business needs by 2008. Adequate funding of early childhood development programs, K-12 education, and higher education will create a more educated and skilled workforce. This will help Tennessee's businesses expand and help our state recruit new businesses, especially high-tech industries.

Businesses will be able to make forecasts with more accuracy. The unpredictability of Tennessee's current tax environment makes it difficult for businesses to plan for the future. With a predictable revenue stream, taxes will not be raised every few years as they are now.

Business will flourish when Tennessee has a modern tax base which is not overly reliant on sales tax as its base. Tennessee, like the rest of the country, is moving away from goods and towards a service economy. Many services aren't taxed and cannot easily be taxed. Tennessee needs a balanced, modern tax system which is not overly reliant on sales tax as its main source of revenue. As already mentioned, a lower sales tax rate will mean increased profits for business.

A modern tax system will enable Tennessee businesses to compete more successfully with businesses in other states and nations in the 21st century. Tennessee has the highest reliance on business taxes for revenue of any state in the southeast. If tax reform is not passed, business taxes are likely to be raised. This will put Tennessee businesses at a competitive disadvantage with other states. If the legislature votes to increase business taxes or tax certain services, some businesses, especially highly mobile service businesses, may chose to relocate. This would further erode Tennessee's precarious tax base.

The whole issue of tax reform needs to be addressed by looking at the big picture. What will the future of Tennessee be if tax reform is not passed? Where will the Bredesen administration and future administrations go for money to keep the state afloat if tax reform is not passed?

(Modified from How Tennessee Business Will Benefit With Tax Reform, by Nell Levin, originally drafted for TFT in 2000.)