NASHVILLE, Tenn. (AP) — Republican Gov. Bill Haslam has signed a bill into law that will phase out the state’s Hall tax on earnings from stocks and bonds.
The law reduces the tax by 1 percentage point in the first year and then requires future reductions to eliminate the tax altogether by 2022.
Haslam signed the bill Friday despite his administration’s earlier concerns about the measure for requiring the future cuts regardless of how the state’s economy performs.
The initial cut amounts to a 17 percent reduction for Hall tax payers. The change is projected to cause a loss of $28 million in state revenues, plus another $15 million from the communities where the tax is collected.
Some mayors of have warned warn they will have to try to make up the revenues elsewhere.
Note: Statement on the Hall signing from Haslam spokeswoman Jennifer Donnals:
The governor has long stated his wish to repeal the Hall Income tax. It penalizes saving and investing, and because it is concentrated on a small number of people coming or going from Tennessee, there can be significant shifts in revenue, making it undependable. He is concerned, however, with the approach taken to reduce and eliminate it. It is a small piece of a much larger puzzle we have tried to manage effectively and efficiently in state government. He often compares governing to a relay race, and he will hand off the baton to the next governor. As we move forward with this plan at this time, there will be more difficult decisions to be made. The state will not always have revenues like we had this year. The governor expects the legislators, advocacy groups and other stakeholders who have supported the automatic repeal of the Hall Tax to be equally strident in their support of this administration’s efforts to find the efficiencies needed to meet the aggressive timetable set forth in this legislation.
Note: Press releases in reaction to the governor’s signature are below.
News release from Americans for Prosperity-Tennessee:
Nashville, TN – Today, Governor Haslam signed Senate Bill 47, cutting the Hall income tax rate from 6 to 5 percent effective January 1, 2016. The tax will then be completely eliminated by 2022. Americans for Prosperity-Tennessee advocated strongly for the full repeal of the state’s only income tax, arguing that it represented a huge win for taxpayers and protected senior citizens, whom the tax disproportionately impacted.
Andrew Ogles, state director for Americans for Prosperity-Tennessee had the following comment:
“We applaud Governor Haslam’s decision to make our state as fiscally responsible as the thousands of hard-working Tennesseans who’ve been paying this tax. Signing SB 47 into law will finally repeal the burdensome Hall income tax by 2022. This represents a huge win for taxpayers, especially retirees who’ve sacrificed and saved for retirement. The Hall tax only brings in marginal revenue for the state, yet the fight for repeal was hard-fought and long-standing.”
“We’ll see our economy grow stronger as companies choose Tennessee for our favorable tax structure and pro-business environment. I firmly believe this bill will lead to real economic growth in our state. We are glad that the Governor recognizes what a huge win this represents for Tennessee.”
News release from Institute on Taxation and Economic Policy
Following is a statement by Dylan Grundman, senior analyst at the Institute on Taxation and Economic Policy, regarding Gov. Bill Haslam signing the Hall Tax repeal into law today.
“Lawmakers agreeing to reduce and ultimately repeal the Hall Tax is a major step backward for tax fairness in Tennessee, not to mention a brazen giveaway to the wealthiest Tennesseans.
“Already, Tennessee’s lack of a broad-based income tax and comparatively high sales tax make the state’s tax system one of the most regressive in the nation. By repealing the Hall Tax, Tennessee lawmakers are doubling down on an upside down tax system that taxes the poorest 20 percent of Tennesseans at a rate nearly four times the rate it taxes the top 1 percent.
“The Hall Tax repeal bill is short-sighted and will reduce state revenue by more than $300 million per year once full repeal happens. And good budget times like those Tennessee is enjoying presently do not last forever. Eliminating this important source of revenue for both the state and its localities is likely to mean funding cuts to Tennessee services as well as property tax hikes down the road.”
The institute’s critical review of the economic impact of Hall repeal is HERE.
News release via Senate Republican Caucus:
NASHVILLE, Tenn. — Legislation sponsored by TN Senator Mark Green (R-Clarksville) and TN Rep. Charles Sargent (R-Franklin) to statutorily phase out the Hall Income Tax was signed into law today by Governor Bill Haslam sending Tennessee on its way to an income tax-free status by January 1, 2022.
First sponsored in 2012 by Green, the proposal to remove the tax on income which results from investments has been an annual legislative proposal with public support based on the principle of double taxation and the disproportionate impact to retirees.
“Our citizens should never be penalized to work or to save. Any income tax does just that and this law ends the taxation of savings and investment,” noted Green, Vice Chairman of the Senate Commerce Committee. “Whether a couple saving for their future or an investment group creating jobs in our state, Tennessee has just removed a barrier to economic freedom in our state.”
Initially implemented in 1929 to tax the investment income of the wealthy of the day, over time the Hall Tax has impacted a larger segment of the state’s population levying a 6% tax rate on any investment disbursement that exceeds $1250 per individual or $2500 for married couples. According to IRS data within the last five years, 56% of TN taxpayers who reported receiving dividends were households earning less than $75,000 annually. Further, 40% of the state’s households receiving a dividend earned less than $50,000.
“Unlike the government out of Washington, Tennessee continues to be an effective steward to our citizens with a balanced budget and prioritized spending. The end of the Hall Tax keeps your money in your budget, not the government’s,” concluded Green, founder and CEO of AlignMD, a health care staffing company headquartered in Clarksville.
The historic bill codifies the following: The tax rate will be reduced from 6% to 5%, a seventeen percent cut from the total dollars collected by the state for fiscal year 2016. The intent of the General Assembly in successive years is that the tax on investment and dividend income will be cut 1% annually, but is not bound to any specific rate reduction being charged to respond according to the economic health of each fiscal year. By January 1, 2022, the Hall Income Tax will no longer be collected and eliminated as a legal means of taxation in Tennessee.
Tennessee will soon join seven other states as completely income tax-free: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
Senator Mark Green has served Montgomery, Houston and Stewart Counties since 2012 with legislative priorities featuring job creation, educational excellence supporting students and teachers and support for our military veterans and their families.
News release from Beacon Center of Tennessee
NASHVILLE – Today, Governor Bill Haslam signed into law legislation that will phase out the Hall Income Tax. The tax will be completely eliminated by 2022, giving the legislature flexibility on how much to cut the tax in intermediate years.
The Beacon Center was the major factor in the elimination of this unfair tax with a public awareness effort that led to over 75,000 emails sent to legislators. This means that the Beacon Center alone accounted for roughly 90% of the total emails sent on the issue. In addition to the emails, Beacon garnered over 1.8 million views on its anti-Hall Tax video.
“I’d like to thank Governor Haslam for making the decision to end this destructive tax once and for all,” said Beacon CEO Justin Owen. “Signing this bill is yet another sign of his leadership when it comes to cutting taxes and making Tennessee a competitive state for economic growth.”
Owen went on to note, “Repealing the Hall Tax is a signature victory for the Beacon Center. It has been one of our top priorities for years, and through our public awareness and legislative outreach, we have finally accomplished our goal. We would like to thank Sen. Mark Green, Rep. Charles Sargent, and those legislators who supported the tax’s repeal, because it never would have passed without them.”
Owen concluded, “Seniors and entrepreneurs can now breathe a sign of relief knowing that they will receive a much needed tax cut. Our ultimate goal is to make Tennessee the freest and most prosperous state in the nation, and the phase out of the Hall Tax is an important step in that direction.”