While voters next month will have an option to permanently ban a future income tax in Tennessee, a type of tax on income is still in place in the state that affects numerous residents, especially retirees, and many in the local community hope to eliminate the tax.
Dubbed the Hall income tax, the state collects 6 percent of the money individuals and other entities earn from interest from bonds and notes and dividends from stock.
State Reps. Jimmy Matlock, R-Lenoir City, and Kent Calfee, R-Kingston, said they’ve heard from constituents hoping to remove the tax. Both representatives said they are in favor of eventually eliminating it.
The tax was enacted in 1929, and portions of the tax go into not only state coffers but also county and city revenue streams.
Running for re-election in a contested November race, Calfee co-signed a bill during this year’s legislative session that would have phased out the Hall tax during a seven-year period. Calfee, who is on the legislature’s finance committee, said the bill was later withdrawn due to funding cuts that would have replaced a revenue stream in the tax’s absence.
“Of course, part of that money goes to the counties and the cities, so we had a portion of that was going to be extended for some time as they say ‘hold harmless’ the local entities that share the Hall income tax,” Calfee said. “... When we are able to enact it if you’re going along and all of a sudden you had a bad year with your other revenue streams then you would simply skip that year.
“I know that the Hall tax elimination is extremely important to retirees,” he added. “And we’ve actually, with the Hall income tax, we have forced some retirees to move to Florida where they don’t have that. It’s going to be a good thing when we can eliminate it, but as long as the other revenue streams are down like they are then we aren’t going to be able to do it as soon as we would like.”
While sales tax revenue is up, the state is still suffering in its franchise and excise tax revenue stream, Calfee said.
Matlock, who has Democratic opposition in November’s election, said he hopes to also eventually repeal the Hall tax.
“The data shows in Tellico Village all those retirees spend on average $20,000 a year locally, and if you get more of those folks who want to move into the area and they come in and spend the money, they are going to more than make up what we don’t collect on the Hall tax by spending it on the grocery stores, movie theaters and restaurants,” Matlock said.
“A lot of people are living in Florida who are retirees who would really like to move here because there are a lot of people in my district who retired from up north and retired to Florida and didn’t like the hot weather all year round,” Calfee said. “So, they moved to East Tennessee where we have four seasons, typically a mild winter and a mild summer, and they’re a day’s drive to the grandkids instead of two days. This is an ideal retirement community, all of East Tennessee — well, all of the state — but you have the Hall income tax hanging over you.”
Calfee said he thought a bill to eliminate the Hall tax will be filed in the next legislative session.
“I’m certainly in favor of that because, you know, retired people talk to me almost daily about when are we going to repeal the Hall income tax,” Calfee said. “It’s a passionate issue for a lot of retirees.”
Matlock said he is also in favor of Amendment 3 on the November ballot, which is a proposal that would permanently ban the legislature and local governments from instituting an income tax on personal income.
“I think it goes to the point to why so many people want to move to Tennessee,” Matlock said, adding that it also encourages companies to make the move. “We are a consumption state, and we believe it’s more fair to tax people on what they use and purchase than to penalize them for how much income they have.”
Though he said he would not vote for an income tax, Calfee expressed concern with permanently banning the option.
“That’s something the people need to decide if they want to reject forever a state income tax,” Calfee said.
“I would never vote for an income tax, but who knows what the needs may be 20, 30, 40 years down the road,” he added. “And then, of course, I’m not for initiating any new taxes because it seems like when you do that the tax it is supposed to replace seems to never go away, so I wouldn’t be for a state income tax.”
