Hall income tax proposal worries Germantown

On March 7, 2011, in News 2011, by Mark Norris

9 bills to curb or end state levy would be ‘devastating’

By Lela Garlington, Memphis Commercial Appeal
March 7, 2011

Germantown and Memphis could lose millions of dollars in revenues if the state Hall income tax is phased out.

The Tennessee General Assembly has at least nine bills that would either phase out or curtail the amount of money collected on the state’s income tax on investments.

The proposals targeting the Hall tax would affect metropolitan cities and metro counties the hardest.

“It would be devastating if we were to lose the Hall income tax. Every year we seem to fight this battle,” said Germantown City Administrator Patrick Lawton.

Suburban city officials may be fighting their own legislators over the issue.

Both state Sen. Brian Kelsey of Germantown and Senate Majority Leader Mark Norris of Collierville favor eventually eliminating the tax. Both, however, say it is unlikely to happen this year.

The biggest reason is the state can’t afford to lose the revenues. If the Hall tax were eliminated this year, it would add another $129 million to a state budget deficit already totaling more than $150 million. The $129 million is the state’s share of the Hall tax.

Still, Norris said, “I think there is bipartisan support for that kind of initiative.”

In a separate telephone interview, Kelsey agreed. “I would love to phase out the Hall income tax over time.” But he added, “That’s a tough bill to pass for this session.”

Germantown could lose from $1.7 million to almost $3.5 million based on the previous highs and lows over the past five years. For years, the city has earmarked any money it gets for capital-improvement projects. The Hall tax money has bought a fire pumper truck, renovated the public services building, resurfaced a parking lot at the Germantown Performing Arts Centre and paid for a study on expanding the library.

The city of Memphis would take an even bigger hit. Memphis would lose from $7.3 million to $15.7 million, based on collections the past five years.

Other Shelby County cities would only feel a slight pinch. During the past five years, Bartlett has taken in a high of $445,000 to a low of about $110,000. In Collierville, the Hall tax has brought in almost $1 million to a low of $507,000. Shelby County has received between $1 million and $1.6 million from those taxpayers who live in unincorporated areas.

Except for Germantown, Memphis, Bartlett, Collierville and Shelby County earmark Hall tax proceeds to the general operating funds.

Norris said before he could support phasing out the Hall tax, he would want to analyze the effect and impact it would have on cities and the state.

“You wouldn’t want anybody unduly disadvantaged,” Norris said. “The ‘what ifs’ and the ‘how tos’ are the next questions.” Without the tax, he added, “I believe that more disposable income generates more revenue in the state in the long term.”

Kelsey, who sits on the Senate finance committee, said he would want to make sure the cities are made whole if the Hall tax is eliminated or phased out. “This is a tax that affects a lot of seniors on fixed incomes,” he said.

— Lela Garlington: 529-2349

Nashville Bureau Chief Richard Locker contributed to this story.

Show me the Money

The state collects a 6 percent tax on income from dividends and interest on certain investments. The state keeps 62.5 percent of the tax collected and cities are allocated 37.5 percent based on where the taxpayer lives.

In fiscal year 2010, the state collected $172 million from the individual income tax, often called the Hall tax.

The five counties that collected the most money were:

Knox, $34.7 million

Shelby, $31.5 million

Davidson, $28.9 million

Hamilton, $14 million

Williamson, $12.4 million


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