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2011-2012 Legislative Campaigns
Title |
Description |
Revenue |
Tax Cut and Job Creation Bill |
The bill will leave more money in the pockets of hardworking citizens who are struggling to make ends meet. Money they save can be spent on necessities and will re-circulate in the economy, resulting in job retention and creation. The tax increase on upper income taxpayers will have a negligible effect on spending since increased income for these brackets is typically put into savings rather than spent. The additional revenue will allow TN to avoid layoffs of state employees and cuts in critical public functions. The bill:
- Eliminates the 5.5% state sales tax on grocery food and leaves the local option unaffected.
- Reduces the sales tax rate on other items from 7% to 5%.
- Eliminates the Hall Income Tax on unearned income.
- Helps businesses by removing real estate base from the Franchise Tax and cutting the rate in half.
- Introduces a new, broad-based income tax with generous exemptions (from $20,000 to $40,000 depending on filing status) and a 3% rate on the first $30,000 exceeding the exemptions and 6% on amounts over that.
Impact: Reduces state and local taxes from 11.7% to 9.7% for those earning less than $17,000; reduces from 9.3% to 8% for those earning $29,000 to $47,000; and provides a modest increase for those earning more than $75,000 (negligible at the bottom end of the range and averages from 5.3% to 7.1% for all families earning over $75,000). For example, a family of four earning the median 2009 income in Tennessee of $62,197 would pay $516 in income tax and save $780 in sales taxes for a net savings of $264. Income tax increases are partially offset by their deductibility against federal income tax. With all these cuts, the bill produces about $400 million in additional revenue for the state according to the Legislative Fiscal Review Committee. |
$400 Million |
Out-of-State Sales Tax Act |
The state sales and use tax is the largest source of funding for TN state government. In order to fund our public structures adequately we must be efficient at collecting the taxes that are due. Many out-of-state vendors (internet and catalogue) tempt Tennesseans to dodge sales tax by not collecting it.
TN relies on individual taxpayers to voluntarily report their purchases from out-of-state vendors who do not collect TN sales taxes, but few taxpayers do so. Only 2500 taxpayers filed use (sales) tax returns in 2009, compared to over 3.1 million individual federal tax returns filed by Tennesseans each year. The bill:
- Asserts taxing authority over out-of-state companies (who sell more than $4,800 of merchandise to Tennesseans) on the basis of their use of in-state affiliates to solicit business.
Impact: The revenue can be used to avoid layoffs of state employees and cuts to critical state functions. According to a UT Center on Business and Economic Research report, an estimated $365 Million will be lost in 2010 through online purchases by Tennessee residents. That does not include losses from mail order, direct television marketing or cross-border shopping. “State and Local Government Sales Tax Revenue Losses from Electronic Commerce.” 2009. |
Up to $300 million |
Single Article Cap Removal Act |
Tennessee levies a 7% tax on sales of most merchandise and some services. Local governments are allowed to charge additional taxes up to 2.75% on the first $1600 of the purchase price. For items priced between $1600 and $3200, the state levies a 9.75% tax on the amount exceeding $1600, with no local option tax. For items costing more than $3200, the state ”caps” the tax rate at 7% on the amounts exceeding $3200.
The cap is an unjustified tax break for upper income individuals and businesses. If the buyer can afford to buy items that cost more than $3200, he or she can afford to pay tax at the same rate as everyone else. The bill:
- Eliminates the cap by extending the 9.75% rate to the full value of all “big-ticket” items.
- Exempts mobile homes and manufactured housing if used as the primary residence.
- Exempts vehicles on the amount exceeding $3,200 up to $10,000.
Impact: The bill increases revenue and removes one of the two current obstacles to Tennessee’s full compliance with the Streamlined Sales Tax Agreement. |
$85 Million |
Tennessee Small Business Protection Act |
Tennessee’s business tax laws allow multistate companies to avoid taxes by setting up sham subsidiaries in Delaware or Nevada to transfer ownership of their real estate or trademarks and logos. They then deduct their payments to their own subsidiaries from their Tennessee income, thus avoiding TN taxes. The bill:
- Provides for “Combined Reporting,” a comprehensive solution to this “Las Vegas loophole”.
- Allows TN to receive tax revenues on a fair proportion of the companies’ revenues.
- Reduces the state sales tax rate on grocery food by 1% and leaves the local option unaffected.
Impact: The bill levels the playing field for Tennessee small businesses that pay TN taxes. More than half of the states use combined reporting. It’s time for Tennessee to join the majority. |
$100-$200 Million |
Proposals we may have to defend against: |
- Constitutional ban against an Income tax
- Increase sales tax on food to same as other items
- Decrease business excise (income) tax
- Increase exemptions from Hall Income tax
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2009-2010 Legislative Campaigns
TFT 2010 Legislative Program
I. Internet Parity bill SB1741/HB1947
This bill will extend the sales tax to goods that are sold over the internet by vendors who use local affiliates to solicit business. Similar bills have passed in New York, Rhode Island and North Carolina.
II. Food and Business Tax Fairness Act SB0502/HB1350
The current method of tax accounting, "separate reporting", requires each entity doing business in the state to prepare a separate tax return. This leaves businesses the opportunity to set up subsidiaries in states with more favorable tax laws where they can shelter TN income through a variety of schemes -- paying rent to themselves, paying themselves for the use of their logos and trademarks, etc. Most multistate businesses do this because they have an obligation to their shareholders to maximize profits and share value. "Combined reporting" would nullify all these schemes. Applying the revenue estimates done in other states that have considered a switch to "combined reporting" to TN suggests that TN could collect $120-$250 million additional revenue.
III. Tax Modernization
There are three tax modernization bills. The first was introduced in 2009 and will bring a sweeping reform to Tennessee’s tax structure and produce an additional $1.1 Billion of revenue to preserve Tennessee’s economy and government capacity. Two tax cut bills have been filed this year. They will both preserve Tennessee’s economy and government capacity, though not as robustly as the tax modernization bill ($200 Million of additional revenue). One has a flat 5.5% income tax rate, the other has two tiers at 3% and 6%. Details are shown in the table below.
| Change Item |
Tax Modernization SB2054/HB2182 |
Tax Cut and Job Creation SB3235/HB3597 |
Tax Cut and Job Creation SB3236/HB3596 |
| Food Tax |
Eliminate state & local food taximi |
Eliminate state food tax |
Eliminate state food tax |
| Other sales tax |
Reduce to 6.75% unified rate |
Cut state part of sales tax on other goods from 7% to 5% |
Cut state part of sales tax on other goods from 7% to 5% |
| Franchise tax |
No change |
Eliminate real property component and cut rate on remainder from 0.25 to 0.125% |
Eliminate real property component and cut rate on remainder from 0.25 to 0.125% |
| Hall income tax |
Eliminate; hold harmless local revenue |
Eliminate; hold harmless local revenue |
Eliminate; hold harmless local revenue |
| Pay with… |
Graduated rate income tax, 3.5-7.75% |
Flat rate 5.5% |
Two rates: 3% on first $30,000 over exemption; 6% on higher amounts |
| Exemptions |
Individuals: $17,500
Head of household: $22,500
Couple: $35,000
Dependents: $2,500 |
Individuals: $20,000
Head of household: $30,000
Couple: $40,000
Dependents: $2,500 |
Individuals: $20,000
Head of household: $30,000
Couple: $40,000
Dependents: $2,500 |
| Revenue impact |
^ $1.1 Billion |
^ ~$200 Million |
^ ~$200 Million |
| Reduces tax for … |
65-70% |
60-65% |
70-75% |
| Local revenue impact |
Hold harmless provision |
Hold harmless provision only needed for Hall tax |
Hold harmless provision only needed for Hall tax |
SB3235/HB3597 and SB3236/HB3596
The sponsors are Sen. Reginald Tate and Rep. Johnnie Turner. Stay tuned for updates!
Tennesseans for Fair Taxation (TFT) is working in the 2009 legislative session to advance at least five positive bills that will help address the the current budget shortfall, while laying the foundation for a more just, adequate, and modern tax system. Click here to download a printable summary of the 2009 agenda.
Closing Corporate Tax Loopholes with Combined Reporting
The Food and Business Tax Fairness Act (SB0502/HB1350), sponsored by Sen. Tim Burchett and Rep. Charles Sargent, would end a wide range of corporate tax avoidance schemes, such as Delaware Holding Companies and Captive REITs, by adopting combined reporting for business tax purposes as 22 other states already use. Part of the revenue recovered from this reform would be used to pay for another food tax reduction, while the remainder would be available to assist with the current budget shortfall. Click here for more
Victory! We were able to succesfully close the FONCE Loophole in 2009!
TFT supported the Governor in his call to close the FONCE (family-owned noncorporate entity) loophole that allows a handful of wealthy land-owners in the state to avoid paying taxes that other businesses must pay. This exemption was costing the state $45 million a year at a time that public structures essential to strong communities are being cut. Click here for more.
Internet Parity and Amazon
TFT supports efforts to put in-state merchants, that employ Tennesseans from Memphis to Tri-Cities, on a more level playing field with their out-of-state competitors. One such bill supported by TFT, SB1741/HB1947 by Sen. Marrerro and Rep. Shaw, would require that Amazon (who employs no one in Tennessee) and certain other large internet merchants charge the same sales tax that Books-a-Million, Barnes and Noble, and the thousands of local book shops must charge already. Click here for more.
Ending Unjustified Sales Tax Exemptions
TFT is working with a number of legislators in exploring the myriad of exemptions to the current sales tax, and ultimately, closing those that are not justified or reasonable. Horse feed for example is exempt from the sales tax but baby food is not. In some cases, these are services that have not historically been taxed, such as marina docking, fur storage, taxidermy, tanning salons, and more. Click here for more.
Comprehensive Tax Modernization
All of the above plans are good measures that will add fairness to our tax system, while also raising much needed funds to sustain important public structures. However, even if every one of them passed, they would only raise $200M to $300M collectively. To truly get Tennessee out of the fiscal mess we are in, and have been for years in both good and bad economic times, we must look further and embrace comprehensive modernization of our tax code.
TFT fully supports the Tax Modernization and Economic Stimulus Act (SB2054/HB2182), sponsored by Sen. Reginald Tate and Rep. Larry Turner. This bill would completely repeal the state food tax, reduce the sales tax by 3%, repeal the limited Hall income tax, and enact a broad-based state income tax with generous front-end exemptions so that a family of four would pay no income tax on the first $40,000 of income. Under such a package, 60% of Tennesseans would pay less. And by creating a more level-playing field, the plan would also raise $1 billion. Click here for more.
Stopping Bad Legislation
TFT is also working to stop senseless constitutional amendments that would tie the hands of future generations. One such amendment would constitutionally prohibit a state income tax, that would result in ever-increasing hikes of the state sales tax, make it all but impossible to ever repeal the state food tax, and virtually ensure that our schools and other public structures remain at the bottom of the national rankings for generations to come.
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