House Majority Leader Gerald McCormick has proposed a new twist in repealing the Tennessee tax on investment income, acknowledging that it may be in conflict with a separate bill he is sponsoring for the Haslam administration.
The repeal bill (HB2118) would kill the tax at the state level, but allow local governments to enact their own Hall tax to avoid loss of local revenut. The separate bill would use the Hall tax breaks to encourage “angel investors” putting their money into relatively small and relatively new businesses.
Haslam has repeatedly opposed efforts to repeal the Hall tax — a general 6 percent levy on investment income with several exemptions and exceptions — as they come up every year. While voicing a general dislike for the tax, the governor argues against repeal without some other way of replacing the lost revenue. The tax generated $303 million in total revenue last year — about $189 million for the state with the remaining $114 million distributed to local governments.
The most-publicized repeal bill (SB2, as amended) was introduced last year without ever coming to a vote. Sponsored by Sen. Brian Kelsey, R-Germantown, and Rep. Tilman Goins, R-Morristown, with support from Americans for Prosperity and other conservative lobbying organizations, the bill calls for the state to cover the entire cost, reimbursing local governments for the money they lose from a phased-in repeal over the next three years.
McCormick’s bill would not reimburse local governments for the lost revenue, but it would authorize cities and counties to impose a 2.5 percent tax on investment income themselves. Enactment of the local Hall tax would require a two-thirds majority vote of a county commission or city council.
“This gives us another option,” said McCormick, adding that measure is not really a priority in his legislative endeavors this year; just an idea he thinks worth considering.
He noted that “most of the complaints” legislators get about repeal of the Hall come from local government officials revolved around the loss of revenue for their city or county. The bill lets them make up for the loss — “It would be between them and their constituents” — without requiring the state to pick up the tab, he said.
McCormick is also sponsor of HB1536, an administration bill inspired by Economic and Community Development Commissioner Randy Boyd. The bill would allow individual investors to take a credit of up to $50,000 on their Hall income tax liability for investments in a Tennessee-based company that is less than 5 years old with gross revenues of less than $3 million.
The idea, Boyd says, is to help entrepreneurs get funding from private investors and is similar to tax breaks already in place in six neighboring states. The state in 2009 put $200 million of taxpayer money into the TNInvestco program that has now been spent — with success of that spending in some dispute. Under the new bill, Boyd says, individuals would have an incentive to put money into startups instead of the state doing so directly.
Thus, the administration bill relies on continuation of the Hall taxto provide an incentive for investment in small companies that would be eliminated by repeal.
Asked if the two measures were in conflict, McCormick replied, “I think so” but declined to state a preference for which should be enacted.
“It’ll all come out in the wash,” he said.