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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 tax |
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 successfully 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.
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