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For Immediate Release—March 2, 2009
Spokespeople available from Memphis to Tri-Cities. Contacts:
- John Stewart, TFT State Chair, Knoxville, 865-584-3834 (hm)
- Dick Williams, TFT Board Member, Nashville, 615-934-5240 (cell)
- Samantha Wallace, TFT Knoxville, 865-687-9600 x12 (off) or 865-696-5212 (cell)
- Bill Howell, TFT Nashville, 615-751-5011 (off) or 615-289-1397 (cell)
- Ron Naylor, TFT Board Member, Soddy Daisy, 423-451-0074 or 423-280-1801 (cell)
Tax Package Provides Tax Cuts and Reduced Budget Deficit
Tennesseans for Fair Taxation (TFT) is announcing its support for a package of legislation designed to increase available state revenue as the state faces a one billion dollar deficit, while also providing much-needed tax reductions for most Tennesseans, and strengthening local businesses that employ people in our state.
“In times like these we simply cannot stand aside and let Tennessee citizens be penalized by a tax system that is deeply flawed, extraordinarily unfair, and incapable of delivering the benefits our citizens have every right to expect,” said John G. Stewart, TFT State Chair.
“We applaud the legislators who have stepped forward with concrete proposals to fix our tax system. While each of these five proposals will draw a different set of supporters, taken together, they will move Tennessee forward by closing loopholes that benefit only a favored few, strengthen businesses that employ people here in Tennessee, reduce taxes for those hardest hit by the economic downturn, and raise much-needed funds to invest in Tennessee and avoid unnecessary budget cuts.”
“In assessing these various bills, Tennesseans need to look at the facts,” Stewart said. “Some Tennesseans need to stop shouting, take a deep breath, exhale slowly, and take the time to figure out what these bills really do, not just take the word of someone else.”
“Tennesseans also need to face the most fundamental fact of all: like it or not, and I know of no one who likes it, the General Assembly, in order to meet its constitutional obligation to balance the State budget, will have to enact some kind of tax increase once the Federal fiscal stimulus runs its course.”
“So the issue is not whether there will be a tax increase, the issue is what kind of increase it will be. These bills, taken together, provide the best deal for the overwhelming majority of Tennesseans—by increasing revenue, providing important tax cuts, and equalizing the tax burden across all income levels,” Stewart said.
“Not every legislator will support every one of these bills. Some will support a few of the bills, but not others. But when legislators are contemplating deep cuts to higher education, public health, environment, and other public responsibilities vital to a strong economy, these bills provide real and far better alternatives,” states Stewart.
The five bills supported by TFT include:
1 - The Food & Business Tax Fairness Act of 2009, sponsored by Sen. Tim Burchett (SB 0502) and Rep. Charles Sargent (HB 1350). This legislation stops the practice of multi-state corporations shifting their profits to out-of-state subsidiaries to avoid paying Tennessee’s business taxes that smaller, locally-owned businesses must pay. Toys-R-Us for example pays its own subsidiary in Delaware for the rights to use its corporate logo and trademark giraffe. While these are really the same company, such shell games mean that taxable profits in Tennessee can be greatly reduced or zeroed out on paper.
The Multi-State Tax Commission, an interstate agency, estimated that in 2001 alone, Tennessee lost between 14% and 32% of taxable revenue to these sheltering schemes. The Center on Budget and Policy Priorities in Washington, DC, has estimated that Tennessee would recover $110 million to $250 million by requiring ‘combined reporting’ of corporate profits.
This legislation would close these loopholes by enacting ’combined reporting’ as 22 other states have already done. Part of the revenue would pay for another food tax reduction while the remainder could help with the current shortfall.
2 - Legislation, sponsored by Sen. James Kyle (SB 2290) and Rep. Mike Turner (HB 2264), to repeal the FONCE (family-owned, non-corporate entity) loophole. A FONCE is a company that is owned by related individuals and whose income is derived primarily from real estate holdings or passive investments. In 2000, the General Assembly declared these entities to be tax-exempt. An otherwise identical organization would not be tax-exempt if owned by unrelated individuals. Approximately $45 million dollars in lost revenue could be recaptured by closing this loophole.
In relation to the FONCE loophole, Governor Bredesen has observed: “I think it’s sinful on the one hand to be talking about laying off people and on the other hand giving a huge loophole to relatively wealthy individuals in the state of Tennessee who found some ways of working the system.” TFT agrees with the Governor on this issue.
3 - Legislation to end the tax advantage for out-of-state merchants, sponsored by Sen. Beverly Marrero (SB 1741) and Rep. Johnny Shaw (HB 1947). Currently, some web sites charge the sales tax and others don’t. If a company has a “bricks-and-mortar” presence in Tennessee (and employs Tennesseans), it must collect the tax. If it doesn’t have any stores or employees in the state, then the company is not required to collect the tax.
While it is impossible for Tennessee to fully close the internet and mail-order loophole without federal action, we can make the loophole smaller. Some states have found a way to require at least some out-of-state merchants to collect the sales tax. Tennessee should enact the same provision and help reduce the budget deficit and give those businesses that employ Tennesseans a fair chance to compete.
4 – Efforts to examine sales tax exemptions, and close those without justification. Various bills filed in the General Assembly can accomplish this. A major cause of the state’s inability to support a basic level of state programs is the steady shift of the state’s economy away from a manufacturing base to a service base. A long list of services, everything from fur storage to chartered flights, is exempt from the sales tax. Over time, the sales tax has come to apply to a smaller and smaller proportion of economic activity in the state.
Legislators should review each exemption and determine whether that exemption is still justified in light of today’s economy and the state’s growing budget deficit. What is the rationale, for example, for not collecting the state sales tax on such activities as private investigation (detective services), dating services, limousine services, and tennis and dance lessons while food and clothing are taxed?
5 – The Tax Modernization and Economic Stimulus Act of 2009, sponsored by Sen. Reginald Tate (SB 2054) and Rep. Larry Turner (HB 2182). A key provision includes the total repeal of Tennessee’s grocery food tax, that takes 29 days worth of groceries from every family each year. Eliminating this tax means that families will gain the equivalent of one month’s free groceries each year.
Another provision lowers the nation’s highest average general sales tax – now varying from 9.25% to 9.75% – to a universal rate of 6.75% across the state. In addition to keeping hundreds of dollars each year in the pockets of Tennesseans, this cut is sufficient to stem the tide of cross-border shopping that hurts Tennessee employers and costs the state much-needed revenue.
The Hall income tax on dividends and interest, a strain on many Tennesseans in retirement, also is repealed. Local government are “held harmless” by being reimbursed from the state for any revenue loss incurred by local governments from sales tax reductions and repeal of the Hall income tax.
A new, graduated tax on personal incomes would be established with generous front-end exemptions such that a family of four would not pay any income tax on the first $40,000 of income. Additionally, only income of $260,000 or more for that same family of four would be taxed at the top rate. The net effect of these changes is that over 60% of Tennesseans will pay less in state taxes. In fact, a family earning $35,000 a year will save $700 each year.
By creating a more level playing field, the legislation raises more than one billion dollars. This new revenue will not only help meet the current budget shortfall, it will also enable the state to invest in public responsibilities, including health care and higher education, that are essential to building a strong economy and maintaining Tennessee’s competitiveness.
“In critical times like these, we simply cannot afford to continue the same failed policies that got us into this mess in the first place,” said Stewart. “This package of individual bills charts a new and long overdue course and is our best shot at strengthening Tennessee’s economy, along with providing a meaningful tax break for most Tennesseans, by fixing the broken tax structure that has hindered our state for decades.”
Additional information on each individual bill can be found at:
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