Gov. Bill Haslam said last week that ending the state's inheritance and gift tax will generate more money for Tennessee than what it will cost the state's tax coffers.
The Tennessee Legislature this year voted to phase out the state's inheritance and gift taxes. The Volunteer State was one of 19 states that taxed estates. Connecticut is the only other state to impose a state tax on gifts.
"Ending the inheritance tax will leave more capital in the state, and the more capital we can get to come or stay in our state the better it will be for Tennessee," Haslam told reporters and editors at the Chattanooga Times Free Press. "I do think we're headed in the right direction in Tennessee, and I feel very good about where we are competitively among the states."
The Tennessee Department of Revenue estimates the state will lose an estimated $104.1 million in revenue annually when the inheritance tax is fully eliminated by 2016. The gift tax will end July 1, costing the state about $15 million a year.
But Haslam said ending such taxes should encourage more wealthy people to reside in Tennessee and not flee to other states that don't impose such taxes. Dr. Arthur Laffer, a former economist for the late President Ronald Reagan, estimates Tennessee's economy would have been 14 percent larger with 200,000 more jobs had the state not had an estate tax and more wealthy individuals lived in Tennessee.
Already, developers such as the Tennessee Land and Lakes are touting the repeal of the state's estate tax in their marketing appeals to seniors to buy properties on Tellico Reservoir.
In Tennessee, the estate tax rate ranges from 5.5 percent to 9.5 percent and applies to those with estates above $1 million.
Last fiscal year, 845 families paid $98 million in inheritance taxes. The phase-out first raised the exemption to $1.25 million, then $2 million in 2013-14, and $5 million in 2014-15 before eliminating the tax in 2016.
Dropping the tax on estates of $5 million or more will affect 39 families a year, Revenue Department officials project.
The tax ranges from 5.5 percent to 16 percent on gifts of $13,000 or more to family members, and gifts of $3,000 or more to nonfamily members.
Despite the limited number of those who will benefit by the repeal of the estate and gift taxes, Haslam said he expects the overall state economy will fare better "and we will end up with more money" without such taxes.
Sales tax easier at point of sale
An International Council of Shopping Centers survey shows that 86 percent of respondents feel it would be easier to pay sales tax on online purchases at the point of purchase, rather than file the purchases on tax forms at the end of the year as is current practice in most states including Tennessee.
The survey was conducted on the heels of the 2011 tax season to gauge consumer sentiment about online sales and use tax, according to ICSC.
By collecting it at point-of-purchase, consumers will not need to track all online purchases and will save the hassle of filing, ICSC said.
This year and next, Amazon.com is sending Tennesseans who made online purchases through Amazon in the previous year the total of such purchases that might be subject to taxes. But the notice does not calculate what consumers must pay, and it is not a tax bill.
By 2014, however, state law will require Amazon to collect sales taxes on all purchases it handles from Tennessee residents.
Rainy day funds below U.S. mean
The recession drained most of the "rainy day funds" states set aside in reserves and left Tennessee and Georgia with smaller rainy day funds than those held by most other states, according to a new study by the Tax Foundation.
Only oil-rich Alaska and Texas have sizable rainy day fund amounts remaining, the Tax Foundation said in a report last week. As a percent of general fund appropriations, rainy day funds nationwide have declined to 4.9 percent.
Georgia had a rainy day fund of only 4.1 percent of its general budget, and Tennessee's rainy day fund fell to only 3.3 percent of its general budget.