By Erik Schelzig, Associated Press
NASHVILLE, Tenn. — The House voted on Thursday to begin phasing out Tennessee’s inheritance tax and to lower the state’s sales tax on groceries.
The chamber voted 88-8 on the estate tax measure, and 96-0 to cut the food tax from 5.5 percent to 5.25 percent.
Republicans hailed the estate tax cut as a way to keep retirees from moving out of state, while Democrats argued that the tax cut on groceries affects a far larger number of people. Both measures were part of Republican Gov. Bill Haslam’s legislative agenda this year.
The inheritance tax currently applies to estates worth more than $1 million, and was paid by 845 estates in the last budget year. The bill would bump that exemption up to $1.25 million next year and to $5 million by 2016.
House Finance Chairman Charles Sargent, R-Franklin, argued that the tax measure will have a “multiplier effect” because a far larger number of heirs are left with the responsibility of paying the tax.
“This is something that’s going to make Tennessee one of the premier states to come — and not to leave — for retirement,” he said.
The first step of reducing the tax is projected to cost $14 million in lost revenue, and a total of $95 million once it reaches the full level in 2016.
House Democratic Caucus Chairman Mike Turner of Nashville, who voted against the measure, called having to pay a tax on estates worth more than $1 million “a nice problem to have.”
“When we’ve got money to give relief to our citizens, it should be broadly applied across the state, not to 1,000 people, it should be applied to 6.25 million people,” Turner said.
House Minority Leader Craig Fitzhugh, D-Ripley, noted that the first step of the inheritance tax cut is projected to affect about 300 estates, primarily in Shelby, Davidson, Knox, Hamilton, Rutherford and Williamson counties. About 40 counties would not have any estates that qualify, he said.
House Speaker Beth Harwell, R-Nashville, said she sees more of an immediate impact of cutting the inheritance tax, which opponents also call the “death tax.”
“When you remove the food tax you don’t encourage investment in the state, whereas the elimination of the death tax I believe will bring additional revenue into the state,” she said.
Trimming the sales tax on groceries to 5.25 percent in the budget year beginning July 1 is projected to cost $21 million — or an average annual per capita savings $3.40 per year.
Haslam has said he wants to drop the sales tax on groceries by another quarter percentage point to 5 percent in the next budget year.
The bills would have to be approved in the Senate before they can head for the governor’s signature.
The Legislature last reduced the sales tax on groceries from 6 percent to 5.5 percent in 2007.
Senate Speaker Ron Ramsey has said he regrets agreeing to that $41 million cut because reducing the estate tax or the Hall tax on income from interest and dividends would have a greater impact than a reduction in the food tax.
“We’re never going to do away with it completely,” Ramsey, R-Blountville, told reporters in December. “So I don’t think lowering it really does help that much.”
Read HB3761 and HB3760 at: http://capitol.tn.gov