Senator takes step to stiff-arm payroll tax

Oak Ridge Republican fears proposal would set precedent

By Richard Locker for The Commercial Appeal
October 8, 2004

NASHVILLE -- A state senator from East Tennessee is trying to block a potential payroll tax in Memphis and elsewhere.

Citing state attorney general's opinions that a payroll tax is already unconstitutional in Tennessee, Sen. Randy McNally, a Republican from Oak Ridge, is drafting a bill to "clarify" that cities and counties are prohibited from enacting the tax. He wrote all legislators Thursday inviting them to join him as co-sponsors.

McNally's effort would not block the payroll tax referendum in Memphis because his bill cannot be voted on until the legislature convenes in January. But if the referendum passes, the Memphis City Council would have to enact the tax before it would go into effect, and McNally said a likely court challenge would keep it tied up until his bill could pass.

"If they do go ahead, it would be my intent that the legislation would supercede it and block it," he said.

Early voting in the Nov. 2 general election begins across Tennessee Wednesday. The payroll tax referendum is on ballots only in Memphis.

There has been little effort to build public support for the city charter amendment authorizing a payroll tax and few believe it will pass because the ballot contains no details about the tax, tax rate or how it would be applied.

McNally wrote to fellow legislators: "A city in Tennessee is attempting to enact a payroll tax absent constitutional or legislative authority. The state Constitution clearly prohibits the legislature, cities and counties from enacting one. I would very much appreciate your consideration of co-sponsoring this proposed statutory clarification along with me."

McNally acknowledged that his Senate district is nearly 400 miles from Memphis, but said he's concerned that a payroll tax in the Bluff City would set a precedent others might pursue and that a payroll tax would be unfair. "If it's a payroll tax that only taxes earned income, it would not tax unearned income like income from stocks and bonds," he said.

McNally said his action was prompted by last month's state Supreme Court ruling that ordered the referendum on the ballot "and that any city might attempt to enact a payroll or income tax. It's nothing against Memphis; I spent some of the best years of my life there," said McNally, a University of Memphis graduate who obtained his pharmacy degree from the University of Tennessee Health Science Center in Memphis.

Most of his legislative colleagues had not received McNally's letter Thursday but he said he's confident he will have enough backing.

Sen. Mark Norris, R-Collierville, had not seen the letter but said, "Apparently he shares my opposition to a payroll tax. I'll be anxious to see what he comes up with."

Gov. Phil Bredesen declined to weigh in on the issue.