(Note: This is an unedited version of a column written for Knoxville Business Journal. The edited version is HERE.)
Most folks didn’t notice, but the Tennessee General Assembly imposed a new tax on some Tennessee businesses during its recently-completed 2013 session and raised taxes on others.
Gov. Bill Haslam, through his Department of Revenue, spearheaded a bill that did both under the title “Uniformity and Small Business Relief Act of 2013′ (SB183, as amended). An increased tax on companies producing solar energy products was accomplished through SB1000.
Yes, while legislators uniformly announced in post-session news releases they had cut taxes, they had also raised them.
The ballyhooed cuts were a reduction the state sales tax on grocery food from 5.25 percent to 5 percent and the exemption of more people over age 65 from paying the Hall income tax. (The exemption level was increase from $26,200 to $33,000 for single filers and from $37,000 to $59,000 for joint filers.)
Most news releases also pointed out that the governor’s budget included $19 million from loss of revenue for the second stage of a bill passed last year that phases out Tennessee’s inheritance tax in steps, concluding in 2016 with total elimination. People dying after July 1 are exempt from the tax if the estate value is below $2 million.
The business tax increases require some explanation but are still worth nothing in a Republican supermajority culture that regards all taxes as anathema.
Witness Sen. Doug Overbey’e attempt (SB212) to reasonably argue that having Internet booking agencies pay the hotel-motel tax just like hotels and motels do – reasonably contending that it closes a loophole and updates a law passed back when there was no Internet.
Americans for Tax Reform, a Washington-based organization headed by anti-tax activist Grover Norquist, mailed fliers to constituents of legislators serving on the committees scheduled to hear the bill. The mailer declared the bill a tax increase and thus “a threat to Tennessee tourism.” The bill was killed summarily, getting just one yes vote when it came up before a nine-member Senate committee.
The “Uniformity and Small Business Relief Act of 2013” makes the local government tax on business a state tax. It follows up on a 2009 law that had the state Department of Revenue collect the tax, then redistribute the revenue back to the local governments where the taxpayer resides.
Under this year’s bill, it officially becomes a state tax, but the money still goes back to the locals. The new tax comes in because three counties — Clay, Claiborne and Morgan – now have no local business tax. With passage of the bill, they will. Ergo, businesses in those counties will be paying a new tax.
Another three counties – Hardin, Lauderdale and McNairy – have a local business tax but the rate is much lower than the rate imposed by the bill. Republican Rep. Vance Dennis, who lives in Hardin County, said in brief House floor debate that it will double taxes on businesses. He was among those voting no on the bill, which passed the House 58-30 with 11 dodging a decision.
That’s the “uniformity” part. The lack of uniformity has been the subject of lawsuits, given that businesses in some places are not receiving equal treatment under the law and such.
The subtleties of a hidden tax increase were apparently overlooked in the Senate, where the bill passed unanimously. And that’s understandable since the bill did a whole lot more, revising multiple provisions in business tax law.
Other provisions of the bill include an exemption from filing returns for all businesses making less than $10,000 per year, a move the Department of Revenue says will mean no returns filed for about 50,000 small businesses. While not filing a return, such companies with more than $3,000 in business will still have to obtain a “minimal activity license” and pay a $15 annual fee. When filing a return under current law, the minimum tax for such businesses would be $22 per year.
As drafted by the department, the bill also brought satellite TV into the business tax picture.
Federal law prohibits cities and counties from taxing satellite TV providers, but allows states to levy a tax. With the change of tax type, satellite TV would thus be eligible for taxation, though the effective date was postponed in the original draft until 2015 to give providers a chance to prepare, according to Revenue Commissioner Richard Roberts.
Ah, but the satellite TV folks shouted – through ads themed on “stop the TV tax!” – that this would be a new tax. Legislators wilted promptly, amending that provision out of the bill in committees of both the House and Senate.
(Incidentially, I called Knox County Clerk Foster Arnett – a critic of the 2009 state takeover of business tax collections when the state Department of Revenue was headed by Regan Farr, appointed by former Democratic Gov. Phil Bredesen – to see what he thought of the bill. Most of his remarks were devoted to praising Roberts.
Arnett, who chaired the statewide clerk association’s legislative committee, says Roberts vetted the bill thoroughly and “we feel pretty comfortable” with it.
“He’s been unbelievably gracious… a breath of fresh air,” Arnett said.)
The solar tax situation also had its roots in a bill passed during the Bredesen era. Without getting too deep into the taxing technicality weeds, suffice to say that, for property tax purposes, solar facilities were assessed at just 0.5 percent (zero point 5) percent of acquisition value and the state attorney general said that was so low it appears to violate the state constitution.
Bredesen, meanwhile, has become an investor in a solar business launched by Farr and Matt Kisber, who served as commissioner of economic and community development under the former Democratic governor. This inspired considerable Republican suspicions and a bill repealing the tax break was pushed last year with support of Deputy Comptroller Jason Mumpower. It ran into the ‘but-it’s-a-tax-increase’ opposition, led by the solar folks and died.
This year a modified version was filed with Senate Finance Committee Chairman Randy McNally,, R-Oak Ridge, and Rep. David Hawk, R-Greeneville, as sponsors. The Tennessee Solar Energy Industries Association credits McNally and Mumpower with forging a compromise that rewrote the bill and, more or less, left everybody happy. It passed unanimously.
“We are grateful to the state Comptroller’s officer and all the legislators involved, for their extraordinary statesmanship and efforts to work with the solar industry to preserve Tennessee’s business friendly climate. The agreement sends a strong message that Tennessee welcomes private investment in businesses and jobs in the solar energy industry.” said Gil Hough, president of the solar association in a press release.
Basically, the deal keeps the tax assessment low, but not so low that it could be invalidated by a court, leaving the industry to be taxed just like an ordinary business. That would have been a big tax increase.
The final version says the state Board of Equalization will figure out a fair assessment rate, but that it cannot be any higher than 12.5 percent. The Legislature’s Fiscal Review Committee staff officially declared there would be a tax increase, but it couldn’t figure out how much, of course, until the Board of Equalization does its thing.
So the Republican supermajority has been raising taxes. And you can probably expect that to be pointed out by anti-incumbent challengers in next year’s legislative campaigns – without an explanation.