As happens each year before the start of a state legislative session, Johnson City, Bristol and Kingsport officials compile a list of items and issues they’d like to see addressed when the General Assembly convenes in January to begin round two of the 108th session.
Johnson City’s concern over the tax, or lack thereof, is stapled to the front of the 2014 Joint Legislative Policy of the Tri-Cities. City Manager Pete Peterson said his primary concern is the apparent phasing out of the Hall Tax, which brings in about $700,000 each year. That money helps pay for day-to-day operations, such as the city’s police and fire departments.
“It’s a significant form of income for the city, but there’s been discussion in the legislature about doing away with it,” Peterson said. “If that revenue stream was eliminated, it would take about a 5 percent increase in property tax, and we certainly don’t want to do that.”
Tara Musick, Bristol’s finance director, said she’s been working with Johnson City Assistant City Manager Bob Wilson on this issue. Musick said Bristol’s average intake from the Hall Tax over the last five yeas is about $500,000, with a low of about $370,000 in 2011.
“In 2008, we brought in $720,000, then it dropped to about half,” she said. “We’re nowhere near where we’re used to being. You don’t want to raise property taxes, but we’ve had to pull money out of our fund balance to pay for daily operations. I understand the governor is trying to see that people who have invested have more of what they’ve earned, and I think there’s a balancing act going on because the economy is starting to recover.”
The Hall Tax, established in 1929, is a state tax on interest and dividend income from investments, and it’s the only tax on personal income in Tennessee. In 1937 the tax rate was increased to 6 percent, and the portion allocated to local governments was reduced to three-eighths of the total.
That rate remained in effect until 2011, when Gov. Bill Haslam and the General Assembly raised the exemption level for taxpayers age 65 and up by $10,000 for both single and joint filers. In March, legislators passed a bill that raised the Hall income tax exemption level for citizens age 65 and older from $26,200 to $33,000 for single filers and from $37,000 to $59,000 for those filing jointly.
The move resulted in a decrease in revenue of about $1.5 million to the state and about $790,000 to local governments, where collections are apportioned back to the jurisdiction in which the individual income taxpayer resides, Tennessee Department of Revenue projections said.
“That means they’re reducing the number of people that have to pay the tax — that’s the equivalent of phasing it out,” Peterson said. “This has really just come around in the last couple of years. The only other alternative to replace that revenue would be to hold a public referendum in which residents could vote whether to increase local option sales tax by .25 percent.”
If that happened, half must go toward education, state law says. That would leave a relatively minor net gain to apply toward local government functions.
The local option sales tax in Washington County is 9.5 percent. The state cap is 9.75 percent. Of that, 7 percent goes to the state.
On the other side of the tax coin, Haslam’s initiative reduces the tax burden on seniors. This demographic is more likely to own stocks that pay dividends than other demographic groups, and many retirees rely on stock dividends for their income. The governor has consistently said seniors who have worked hard to save their money and who have made wise investments over the years should not be penalized by taxes.
Kingsport City Manager John Campbell was not immediately available for comment.