Gov. Haslam Signs Law To Reduce Hall Tax

Posted at 10:19 PM, May 20, 2016

Governor Bill Haslam signed a bill into law Friday that will reduce the Hall income tax gradually, and eliminate it in 2022.

The Hall Tax is the only personal income tax in Tennessee.  It is only imposed on individuals and other entities receiving interest from bonds and notes and dividends from stock. The bill cuts the income tax rate from 6 percent to 5 percent for tax year 2016, and the rate will be reduced by one percent annually each year.  It eliminates the tax entirely for the year 2022 and beyond.

In 2022, Tennessee is poised to join seven other states with no state personal income tax.

In 2015, the tax generated $197.9 million for the state and $105.5  million to cities and counties.  That includes $2.6 million for Belle Meade, $1.4 million for Forest Hills and around $400,000 to Oak Hill.

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.

Oak Hill City Manager Jeff Clawson said since the city doesn’t have any businesses to generate sales tax, the city relies on the Hall Tax for revenue to fund city services.

“About 20 to 30 percent of our overall revenue to run our operation comes from the income tax,” said Clawson.  “Being the size operation we are with the limited scope of services, I do believe something will have to be cut.”

Clawson said it is unknown what the city of Oak Hill would cut, but some change would have to be made to make up the extra money.

Jennifer Donnals, Press Secretary to Governor Haslam released a statement about the decision: “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.”