Category Archives: state taxes

Haslam ‘not holding my breath’ on sales tax action

Gov. Bill Haslam says he’s backing a state Department of Revenue rule to requiring out-of-state retailers to collect Tennessee sales taxes because he has little confidence Congress will act, reports the Times-Free Press.

“They [Congress] keep saying that they’re going to take it up, but I am not holding my breath they’ll take it up any time soon,” Haslam said in an interview Friday.

“For me, it’s just this: The economy is shifting so much that way [to the internet],” Haslam said. “It’s literally not a fair playing field for our in-state retailers. And those are folks who are not only having to collect the tax, but they’re paying property tax. They’re sponsoring the local Little League team, and these are folks who are contributing in a full way to our economy.”

He said the present situation gives internet retailers up to a 9.75 percent advantage over their brick-and-mortar competitors in Tennessee, which must collect the state’s 7 percent sales tax and local government taxes of up to 2.75 percent.

“It’s not fair to say, well, we’re going to let your competitors not collect that tax we make you collect,” Haslam added.

Haslam’s Revenue Department recently held a rule-making hearing on the proposal. It would require internet, catalog and other out-of-state companies with no physical presence in Tennessee but with annual in-state sales of at least $500,000 to collect state and local sales taxes starting in 2017.

On proposed TN tax collection by out-of-state retailers

A proposed Tennessee Revenue Department rule that would require out-of-state retailers to begin collecting Tennessee sales taxes on items sold here is pitting state-based retailers who use the internet, catalogs and cable to sell across the country against traditional brick-and-mortar stores that don’t.

Further from the Times-Free Press:

At a departmental hearing on the proposed rule Monday, opponents testified against the plan to require remote sellers with no physical presence in Tennessee to begin collecting sales taxes from in-state buyers in 2017.

States like Tennessee require in-state retailers to collect state and local sales taxes. But two U.S. Supreme Court decisions, the second one rendered back in 1992 before the explosion of the internet and internet commerce, bar states from requiring sellers with no physical presence in their state to collect sales taxes.

While representatives for traditional brick-and-mortars didn’t testify, they filed letters in support of the proposed rule, which would require out-of-state vendors who sell to Tennesseans to charge state and local sales taxes that can hit 9.75 percent.

Opponents’ chief concern is that other states may retaliate.

“While the rule appears to be targeted only at out-of-state sellers, it could actually cause a boomerang effect that would bring real and serious harm to retailers and businesses right here in Tennessee,” said a group of five businessmen and businesswomen in a letter to the Department of Revenue.

They warned the Haslam administration’s proposed regulation “would encourage other states to impose similar obligations on Tennessee businesses that sell to customers in other states — a situation that could lead to a chaotic patchwork of tax regulations and laws that reach beyond state borders and into Tennessee.”

Gas tax talk in Sen. Tracy’s GOP primary

Steve Lane believes the gas tax will emerge as a key election issue as he challenges state Sen. Jim Tracy in the August Republican primary for Senate District 14, according to the Daily News Journal.

“I oppose any gas tax increase,” said Lane of Murfreesboro, a candidate running in the Aug. 4 Republican primary against Tracy of Shelbyville and fellow challenger Matt Randolph of Ardmore.

The winner of the Republican primary, which starts with early voting Friday, will face Democratic candidate Gayle Jordan of Murfreesboro in the Nov. 8 election.

Randolph declined to comment for this story because he said he needed to research the gas tax issue.

A gas tax hike won’t affect the affluent who can afford new cars that are more fuel-efficient at the same level an increase will for a guy driving an old pickup truck, Lane said.

“Sen. Tracy supports it,” said Lane, who owns and operates a home construction business. “I think that’s one of the starkest differences. The people who can least afford it, the working class and the working poor, will have to shoulder the burden of the gas tax increase.”

Tracy, however, has said he wants more information about road needs and ways to pay for them before taking any positions on new gas taxes.

“I’m opposed to any kind of increase where we are today,” said Tracy, the Senate Transportation Committee chairman. “I signed a pledge last year that I was against the gasoline tax increase.”

…”I passed a bill that requires that all the money coming from the gasoline and diesel goes right into the transportation fund,” Tracy said. “It cannot be used in the general fund. It makes it against the law to do that.”

…But Lane worries that a TDOT study will lead to a recommended gas tax hike.

“I can’t remember seeing an elected official who is a true champion of the common man,” Lane said. “I’m a blue-collar guy. … My grandfather was a truck driver, and my dad was a truck driver. So opposing a gas tax increase is actually a fight for the working class.”
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Note: A campaign finance snapshot in the District 14 GOP primary:

Tracy raised $88,450 in the last quarter, spent $38,315 and had $221,635 cash on hand July 1. Lane and Randolph both reported they had not raised or spent any money.

Haslam moves to require online retailers collect TN sales tax

Gov. Bill Haslam wants Tennessee to join a growing group of states seeking to force either Congress or the U.S. Supreme Court to revisit rulings preventing collection of sales taxes from out-of-state online retailers. reports the Times-Free Press.

State Department of Revenue officials will hold a rulemaking hearing in August on a proposed rule that administration officials hope will tear down that barrier and let the tax dollars roll in.

The rule would require out-of-state online companies with more than $500,000 a year in Tennessee sales to collect and remit sales taxes to the state starting July 1, 2017.

Adopting the rule is a multistep process. If adopted, it’s virtually certain to be challenged in court. And that’s the primary objective of the strategy being pushed by states like Alabama, South Dakota and now Tennessee.

At least a dozen states are pushing a patchwork of laws or rules they hope will pressure Congress to act or, more likely, force the issue back before the Supreme Court.

“The governor has been out front on this issue and trying to get something through Congress,” Haslam press secretary Jennifer Donnals told the Times Free Press in an email.

If Tennessee is successful, Donnals added, “we would also look at reductions on the sales tax on food to be as cost neutral as possible.”

…Tennessee revenue officials estimate a loss of $300 million to $450 million in sales tax collections annually. The National Conference of State Legislatures estimates states collectively lost out on $23.3 billion in 2012.

“Tennessee is a sales tax-driven state, and we have to be fair to our local businesses,” state Revenue Commissioner Richard Roberts said by email.

Roberts called the status quo “fundamentally unfair” to local retailers. “Just this past year more Americans shopped online over the Thanksgiving-Black Friday weekend than went to stores,” he said.

Haslam: Legislators ready to cut spending to cover lost Hall tax revenue

In a Knoxville appearance Tuesday, Gov. Bill Haslam said legislative leaders have assured him they will be ready to cut state spending to make up for loss of revenue from the Hall tax on investment income, reports Richard Locker.

“I told the Legislature my concern was they were promising to cut taxes without promising to make commensurate expense cuts, and if the economy slowed down and revenues didn’t continue where they are, then that would be a problem. Their leadership assured me that if that time came, they would make the appropriate adjustments,” Haslam said in a brief question-and-answer session with reporters after a speech to the Knoxville Rotary Club.

The governor also said the reduction and ultimate loss of Hall tax revenue by cities and counties who share in its proceeds didn’t weigh heavily into the decision to approve the bill.
Since the Hall income tax on certain dividend and interest income was enacted in 1929, its proceeds have been divided between the state and local governments, with 5/8ths flowing to the state’s general fund and 3/8ths to the city or county where the taxpayer resides.

That formula favors the most populous cities and counties and its most affluent suburbs where more people who own stocks and bonds live.

…Haslam said that from the state’s perspective, the Hall tax was never really fair because some communities were better able to rely on it than others. “Some local communities just happen to do really well because they have a lot of people who paid it, whereas a similar community wasn’t getting anything.”

Memphis refunds $2.38M in ‘jock tax’ collections

As the clock runs out this week on Tennessee’s infamous “jock tax,” the city of Memphis is about to turn over $2.38 million to more than 900 professional basketball players as part of a 2015 settlement, according to the Commercial Appeal.

The city will return its portion of the money — a third of the $7.27 million it’s collected since Tennessee’s professional privilege tax was approved in 2009 — within the next three or four weeks, said Brian Collins, the city’s chief financial officer.

“(The money) was reserved a long time ago, and it won’t have an impact on the city’s budget this year or any year,” Collins said. The city set the funds aside in fiscal year 2015.

The flat tax of $2,500 per game up to $7,500 for NBA and NHL players was widely criticized for eating up most — and in some cases all — of the income lower-paid athletes received from basketball games in Memphis and hockey games in Nashville.

Gary Kohlman, general counsel for the National Basketball Players Association (NBPA), which sued the state over the tax, said “dozens” of players earning the legal minimum paid more in the tax than they earned from the games.

“That was not an isolated event,” he said.

A spokesman for the National Hockey League Players’ Association (NHLPA), which also sued the state, said its players lost money playing against the Nashville Predators too.

Kohlman said some NBA players were also charged the tax just because they were on the team’s roster — even if they didn’t play.

The Tennessee General Assembly voted in 2014 to repeal the tax, effective immediately for hockey players and June 1, 2016, for basketball players.

Haslam signs Hall tax repeal despite misgivings; reaction rundown

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.
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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.
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Note: Press releases in reaction to the governor’s signature are below. Continue reading →

Sunday column: Politics makes veto of Hall repeal unlikely

After decades of justified bipartisan bragging on Tennessee’s fiscally conservative status, our state legislators enthusiastically embraced deficit spending this year on a somewhat bipartisan basis, blowing a $300 million-plus hole in budgets of state and local governments for the sake of political popularity.

For the same reason, Gov. Bill Haslam is highly unlikely to veto the bill repealing the Hall tax on investment income, even though he has repeatedly preached on the fiscal irresponsibility of taking such an action without a plan to replace the lost revenue.

There is no such plan, of course. On the last day of the session, legislators basically said to state and local governments that the tax will disappear in six years, so deal with it. The governor sent his two top aides, Finance Commissioner Larry Martin and Deputy Governor Jim Henry, to politely tell lawmakers late in the session that the amended version of SB47 was basically a fiscally stupid idea.

As the final week of the session began, the administration and legislative leadership had reached a somewhat complicated agreement on the Hall: The 6 percent levy would be cut to 5 percent in the coming year and, in future years, a “legislative intent” was declared to repeal another percentage point each year — if state revenue increases otherwise by 3 percent or more in that year.

This year, the state enjoyed a $600 million budget surplus. The first year of the tax cut could thus be easily absorbed, it was reasonably argued, and the language left wiggle room to accommodate unforeseen future fiscal and political realities.

Martin said the 3 percent trigger did not seem very wise. It would mean that, regardless of what happens, cutting the Hall would have priority over all other things that a 3 percent revenue bump could go toward — increasing teacher pay, for example, or the predictable annual increase in other education needs as enrollment goes up, the annual increases in medical costs that send TennCare spending up every year, a costly lawsuit — two are pending that could conceivably add multiple millions to education spending — or, well, any number of things we cannot imagine today.

But for the sake of political expediency, the administration was ready to ignore such concerns and go along, leaving the possibility of changing “legislative intent” to arguments in future years when further Hall reductions could be pitted against other priorities. That wasn’t good enough.

The final version says the tax will be fully repealed, come hell or high water, in six years, barring the unimaginable possibility that legislators in the future will vote to repeal the tax cut now mandated and be accused of voting for a tax increase.

The governor, a billionaire in Forbes magazine’s estimation, presumably is way up toward the top of the 200,000 Tennesseans paying the Hall tax — probably well into six figures as opposed to the statewide average annual payment of $266. But as a policy matter, he has set aside personal financial interest to oppose the plan as fiscally irresponsible for the businesslike operation of government.

Setting aside political interest, though, is another matter. A veto, which would stand since the Legislature has adjourned without an override session scheduled, would provide ammunition for opponents in any future political endeavor — a U.S. Senate race, maybe? — and would lead to a highly-publicized effort to pass the bill again next year that would doubtless succeed, even as he contemplates pushing a gas tax increase.

Two right-wing groups, Americans for Prosperity and Beacon Center of Tennessee, both claimed to have gotten more than a million views on sponsored videos against the Hall tax and to have contacted thousands of voters otherwise. With some justification, they claimed credit for putting the legislative train on track.

Only two Republicans — Reps. Bill Dunn of Knoxville and Steve McDaniel of Parkers Crossroads — had the political courage to vote against the bill, though a dozen or so dodged a vote one way or the other. Several Democrats voted for it; a couple dodged.

The governor has a dodge opportunity as well. He can let the bill become law without his signature, which would indicate that he does, indeed, have future political plans that outweigh pragmatic policy considerations. A veto would indicate he does not and stands on principle.

Legislature votes to repeal Hall tax on investment income

The House and Senate voted Friday to repeal the state’s Hall tax on investment income, now at 6 percent, over a period the next six years at the rate of 1 percent per year.

From Richard Locker’s report:

Gov. Bill Haslam said later he would have preferred a bill with just a one-time tax cut, from the current 6 percent to 5 percent, leaving any additional cuts to future legislatures depending on the state’s fiscal condition at the time. But he stopped short of saying whether he will sign it into law or veto it.

“I would have been much more comfortable with having something that just did it this year, where we know what the state’s fiscal situation is every time we make that decision. But the General Assembly felt like it was good to put in a point certain (to totally repeal the tax) by 2022,” the governor said during a post-session news conference with legislative leaders.

“Like everything else, we will take it and study it and over the course of time will come back with a response,” he said.

…If Haslam approves the Hall tax bill, the tax rate drops from 6 to 5 percent effective with tax year 2016 on tax returns due by April 15, 2017. It also declares that “the legislative intent” is for the tax be reduced by 1 percentage point annually starting next year. The tax would be eliminated starting with tax year 2022.

The state Department of Revenue says 204,944 taxpayers filed Hall income tax returns for tax year 2014. (Returns for 2015 were due Monday and have not been fully compiled.) The average liability per 2014 return was $1,446. “However, it’s worth noting that the median liability per return was $266, which means that half of the returns filed had a liability of $266 or less,” said Revenue Department spokeswoman Kelly Nolan Cortesi.

Taxpayers 65 and older are exempt from the Hall tax if their total income from all sources is $68,000 or less for joint filers and $37,000 or less for single filers. In addition, the first $1,250 in taxable dividend and interest earnings for all single filers and the first $2,500 for all joint filers is tax-exempt.

The tax isn’t levied on interest earnned on savings accounts, certificates of deposit, government bonds, credit unions, bank money-market accounts and dividends from bank stock, insurance companies, credit unions and other sources.

The Hall tax, enacted in 1929, generated total revenue of $303.4 million in fiscal year 2014-15 — $197.9 million to the state and $105.5 to cities and counties. Under the law, 62.5 percent of its revenue is retained by the state and 37.5 percent is sent to the municipality where the taxpayer resides — or to the county if the taxpayer lives in an unincorporated area.

Cities and counties that receive the most money opposed the absence of a provision for replacing the lost tax revenue.

Memphis received $14.8 million in Hall tax revenue in fiscal year 2015, Nashville $14.6 million, Knoxville $10 million, Knox County $3.3 million, Germantown $3.1 million, Belle Meade $2.1 million, Shelby County $1.5 million, Collierville $1.2 million and Williamson County $1.2 million, according to the Revenue Department.

Final approval given bill to legalize and tax fantasy sports betting

By Sheila Burke, Associated Press
NASHVILLE, Tenn. — Tennessee’s Legislature passed a bill that would make clear that fantasy sports betting is legal, but would also regulate it and put a tax on it.

The Senate passed the Fantasy Sports Tax Act on Tuesday, and the bill (HB2105) is now on its way to the governor. The legislation follows a state attorney general issued legal opinion issued earlier this month that said fantasy sports contests are illegal gambling.

The measure says online companies that offer the contests must be licensed by the state. The measure also generally limits players to betting no more than $2,500 per month, unless they can show that the limit should be increased. And it would allow the state to impose a 6 percent gambling tax on the adjusted revenue of fantasy sport operators.
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