Johnson City Press: How will local governments work to make up for the death of the Hall tax?

How will local governments work to make up for the death of the Hall tax?

Brandon Paykamian • Updated Feb 11, 2018 at 12:01 AM

Will state legislators’ elimination of the Hall income tax drop thousands of dollars from local governments’ coffers, or will it bring a windfall from new residents looking to escape high-tax states?

Last year, Washington County and Johnson City received $266,684 and $889,924 in funds garnered from Tennessee’s Hall income tax.

But in recent years, Republicans in the Tennessee General Assembly have worked to reduce the tax and approved legislation last year to incrementally phase out the levy on income derived from stocks and bonds by 2021.

On top of this, state Sen. Brian Kelsey, R-Germantown, proposed an amendment to the state Constitution banning the tax from ever coming back after it is phased out. This proposal was approved by the Senate Finance, Ways and Means Committee Tuesday by a vote of 9-2 and awaits approval by the 110th General Assembly and the 111th General Assembly before facing a referendum during the 2022 governor’s race.

State Sen. Rusty Crowe, R-Johnson City, joins a number of local Republicans in the Tennessee House and Senate who oppose the Hall tax on the grounds that killing it will incentivize more people to come to the state and reduce tax burdens on senior citizens. He, along with Rep. Micah Van Huss, R-Jonesborough — another staunch opponent of the tax — want to ensure that future legislatures could not simply reinstate the Hall tax.

“I have always considered the Hall tax on investment income as a ‘double tax’ on general income dollars already taxed by the federal government; and as a tax on incentive and production,” Crowe wrote in an emailed statement to the Johnson City Press Tuesday. “Many of our seniors rely on this income in their retirement years and some have moved from Tennessee as a result.”

But since local governments use revenues from the Hall tax to help fund various services, municipalities will have to make up for lost funds previously garnered from the Hall tax.

Though the Hall tax only provides a small percentage of Johnson City’s funds, Assistant City Manager Bob Wilson said losing more than $800,000 from the budget could be bad for the city. 

“It does put a burden (on Johnson City) because it’s lost revenue we’ll have to make up somehow,” Wilson said. “From a budgeting perspective, you want multiple revenue sources. That way, if one is down, you can offset it.

“The more you eliminate those options, the less flexibility you have on the budget.”

Commissioner Ralph Van Brocklin echoed this sentiment, saying the elimination of the Hall tax “shifts the tax burden” and “causes problems for local municipalities.” 

“I understand that they want to make the state overall a healthy place to invest, but you have to look at the impact it has on localities,” he said. 

Johnson City has a few options on the table for trying to offset the loss of Hall tax revenues, including working to bolster the tourism industry as a source of more tax revenue.

Options laid out by the Johnson City Commission:

• Raise or eliminate the single-article sales tax cap to allow cities and counties to collect local option sales tax on more than the first $1,600 of the sales price of single articles of personal property, such as motor vehicles, boats, televisions, large machinery, etc. This means the sales tax on these items — which is no more than $44 per item, regardless of the item — will have to be raised.

• Implement a local option privilege tax for restaurants, similar to what cities like Sevierville, Pigeon Forge and Gatlinburg are now able to do when they levy a privilege tax of up to 2 percent on the amount charged by restaurants, cafes and other similar establishments. A substantial amount of this revenue, according to officials, could go toward infrastructure and programs that bolster tourism, while the rest would go toward the city’s general fund.

“Some other cities have that. You just have to get the legislation passed in Nashville that gives you the option,” Vice Mayor Jenny Brock said of the privilege tax.

Van Brocklin said similar measures have been brought to the attention of the state legislature in the past, but have been met with little interest. He said he’d like to see Republican state lawmakers allow municipalities to have more autonomy in terms of how they generate revenue.

“We’d like to utilize alternative tax sources like other cities,” he said.

The city has more control over property taxes, but local officials want to be able to explore other avenues freely.

“Despite the Republican Party saying they believe in local control being a tenet, I think they seem focused on maintaining state control of the localities,” he said. “The voiced ideology that localities should have the vast majority of say in their own government is not actually being fulfilled.”

Johnson City Press Videos