Legislation sponsored by Tennessee Senator Mark Green (R-Clarksville) and Tennessee Rep. Charles Sargent (R-Franklin) to statutorily phase out the Hall Income Tax was signed into law today by Governor Bill Haslam sending Tennessee on its way to an income tax-free status by Jan. 1, 2022.
First sponsored in 2012 by Senator Green, the proposal to remove the tax on income which results from investments has been an annual legislative proposal with public support based on the principle of double taxation and the disproportionate impact to retirees.
“Our citizens should never be penalized to work or to save. Any income tax does just that and this law ends the taxation of savings and investment,” noted Senator Green, vice chairman of the Senate Commerce Committee. “Whether a couple saving for their future or an investment group creating jobs in our state, Tennessee has just removed a barrier to economic freedom in our state.”
Initially implemented in 1929 to tax the investment income of the wealthy of the day, over time the Hall Tax has impacted a larger segment of the state’s population levying a 6 percent tax rate on any investment disbursement that exceeds $1,250 per individual or $2,500 for married couples. According to IRS data within the last five years, 56 percent of Tennessee taxpayers who reported receiving dividends were households earning less than $75,000 annually. Further, 40 percent of the state’s households receiving a dividend earned less than $50,000.
“Unlike the government out of Washington, Tennessee continues to be an effective steward to our citizens with a balanced budget and prioritized spending," said Senator Green, founder and CEO of AlignMD, a health care staffing company headquartered in Clarksville. "The end of the Hall Tax keeps your money in your budget, not the government’s."
The historic bill codifies the following: The tax rate will be reduced from 6 percent to 5 percent, a 17 percent cut from the total dollars collected by the state for fiscal year 2016. The intent of the General Assembly in successive years is that the tax on investment and dividend income will be cut 1 percent annually, but is not bound to any specific rate reduction being charged to respond according to the economic health of each fiscal year. By Jan. 1, 2022, the Hall Income Tax will no longer be collected and eliminated as a legal means of taxation in Tennessee.
Tennessee will soon join seven other states as completely income tax-free: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.