With state income tax now banned, Republican lawmaker eyes killing another tax

photo Brian Kelsey
Arkansas-Tennessee Live Blog

NASHVILLE - A Tennessee lawmaker, whose constitutional amendment banning a nonexistent state income tax won easy voter approval this week, now wants to kill a tax that actually is on the books.

Sen. Brian Kelsey, R-Germantown, announced Thursday that he has prefiled a bill that would phase out the state's Hall income tax on unearned income derived from stock dividends and certain bonds over a three-year period.

But unlike the income tax ban, which dealt with potential taxes on wages and salaries and was approved by voters on Tuesday, the Hall income tax indeed does exist.

And Kelsey is running headlong into Gov. Bill Haslam, a fellow Republican, on the issue. While no fan of the Hall tax, the governor nonetheless opposed an earlier effort to eliminate it during the last legislative session.

And just last week, days before his re-election, Haslam said he still doesn't see it as practical in light of the state's current revenue woes. Those problems forced Haslam earlier this year to renege on his pledge to boost pay for teachers and state workers.

"Given where we are right now I don't see a way for us to do away with the Hall income tax," Haslam told reporters. "The reality is, if you look at the budget pressure we have, if you look at the breadth of revenue that we have to draw off of for now, I don't see a way to do it.

"I don't think it's a good tax," Haslam added of the Hall tax. "But I can't take $270 million out of our budget without something to replace it."

The state gets five-eighths of those revenues while local governments get the remainder. Haslam has previously cut the state sales tax on food, eliminated the state's gift tax and is now phasing out the inheritance tax.

Earlier this year, House Finance Committee Chairman Charles Sargent, R-Franklin, and freshman Sen. Mark Green, R-Clarksville, pushed their own bill phasing out the Hall tax. The measure was backed by the Tennessee chapter of Americans for Prosperity, a Washington, D.C.-based group supported by the billionaire conservative brothers Charles and David Koch.

The group ran radio ads attacking Haslam during the legislative session.

Kelsey's Amendment 3 -- the ban on a general state income tax and any local payroll tax -- passed with 66 percent approval from voters.

Tennessee courts in years past have held the state constitution already banned a state income tax on wages and salaries. Nonetheless, two governors -- Democrat Ned McWherter in the early 1990s and Republican Don Sundquist in the early 2000s -- unsuccessfully pushed state legislators to pass a state income tax.

And that, Kesley said, was why a clear prohibition was needed in the Tennessee Constitution.

In a news release, Kelsey noted that although the amendment passed, it left the Hall income tax intact. He said his Senate bill will phase it out through a new law. That would occur over three years with annual reductions of 2 percent in the 6 percent tax.

"I am glad that an overwhelming majority of Tennesseans voted to ban a state income tax and local payroll tax with Amendment 3." Kelsey continued, "Now it's time to eliminate the Hall tax."

Contact staff writer Andy Sher at asher@timesfreepress.com or 615-255-0550.

Upcoming Events