(The Center Square) – Tennessee’s last vestige of income tax will end on Jan. 1, as the longtime Hall income tax on interests and dividends is finally phased out.
Tennessee is one of nine states that does not collect a general income tax. However, the state does collect taxes on interest and dividends earned on investments – a form of income tax known as the “Hall tax.”
Enacted in 1929, the Hall tax was previously a 6% tax levied on interest earned on bonds and notes and dividends from stock. In 2016, the state legislature enacted a six-year incremental phase-out of the tax. Gov. Bill Haslam signed the phase-out into law on May 13, 2016.
Each year since, the tax rate has been incrementally reduced, and will be completely eliminated beginning Friday.
“Tennessee continues to be a national leader in cutting taxes and eliminating regulations,” Congressman John Rose said in a statement. “This week, the #HallTax will be repealed once and for all. No longer will Tennesseans be punished for saving and investing their money.”
Tennessee will become the second state in history to repeal an income tax, according to the Beacon Center of Tennessee.
“Eliminating the Hall Tax is a great way to start off the New Year for Tennesseans,” Americans for Prosperity Tennessee State Director Tori Venable said. “Our state is now officially income-tax free, helping attract more businesses, jobs, and retirees.”
As an expert well-versed in tax policies and legislative changes, I can confidently affirm the significance of Tennessee's recent decision to eliminate the Hall income tax on interests and dividends, marking the state's complete departure from income taxation. My knowledge extends to the historical context of the Hall tax, its legislative evolution, and the broader implications for Tennessee's economic landscape.
The Hall tax, originating in 1929, was a unique form of income tax specific to Tennessee, targeting interest earned on bonds and notes, as well as dividends from stock. This tax, with a fixed rate of 6%, represented a distinctive aspect of the state's revenue collection framework. The crucial turning point in this taxation paradigm came in 2016 when the state legislature, under the leadership of Governor Bill Haslam, initiated a six-year phased elimination of the Hall tax. This marked a deliberate and strategic move towards reducing the tax burden on citizens, particularly those engaged in saving and investing.
The phased-out approach, signed into law on May 13, 2016, involved a yearly reduction in the tax rate. The culmination of this process is the complete elimination of the Hall tax on January 1. Tennessee's commitment to tax reduction aligns with its reputation as one of the nine states in the U.S. that refrains from imposing a general income tax. The elimination of the Hall tax further solidifies the state's position as a national leader in tax reform and economic policy.
Congressman John Rose's statement underscores the state's commitment to fostering a business-friendly environment by relieving citizens from punitive taxation on their savings and investments. Additionally, Tennessee's achievement in becoming the second state in history to repeal an income tax is a noteworthy milestone, as reported by the Beacon Center of Tennessee. This accomplishment not only signifies a substantial victory for advocates of limited government intervention but also positions Tennessee as an attractive destination for businesses, job seekers, and retirees.
The perspective shared by Tori Venable, Americans for Prosperity Tennessee State Director, emphasizes the positive economic outcomes anticipated from this tax reform. The state's newfound status as income-tax free is expected to enhance its competitiveness, drawing in more businesses and individuals seeking favorable tax climates.
In conclusion, the phased elimination of the Hall tax in Tennessee serves as a testament to the state's commitment to fiscal responsibility, economic growth, and the well-being of its residents. This development, coupled with expert insights and endorsem*nts from key figures, establishes Tennessee as a trailblazer in tax reform, setting a precedent for other states to consider similar measures for economic prosperity.
FAQs
The Hall Income tax was repealed for tax periods that begin on January 1, 2021, or later. Please do not file a return for any tax year that begins on or after January 1, 2021.
Did Tennessee get rid of state income tax? ›
Because Tennessee does not have a personal income tax, distributions from pensions, 401(k)s, 403(b)s and IRAs are not taxed at the state or local level. Tennessee also does not collect income taxes on military retirement pay.
Did Tennessee eliminate the Hall Tax? ›
With the elimination of the Hall Tax on January 1, 2021, Tennessee will become only the second state in history to repeal an income tax.
At what age do you stop paying property taxes in Tennessee? ›
Under the program, qualifying homeowners age 65 or older, disabled homeowners, as well as disabled veteran homeowners or their surviving spouses receive tax relief from the taxes due on their property.
How does Tennessee not have income tax? ›
Because Tennessee taxes do not include personal income, individuals are not subject to income tax on earnings.
Is there a state income tax for Tennessee? ›
Tennessee does not have an individual income tax. Tennessee has a flat 6.50 percent corporate income tax rate and levies a gross receipts tax.
What is the state income tax in Tennessee? ›
Tennessee has no state income tax on salaries, wages, bonuses or any other type of work income. Although the state used to tax income earned from interest and dividends, it has repealed this starting with the 2021 tax year.
Who is exempt from paying property taxes in Tennessee? ›
Under general exemption law, property owned by a religious, charitable, scientific, or non-profit educational institution and used for an exempt purpose may qualify for exemption.
Where does Tennessee get most of its tax revenue? ›
Tax Collections & Reporting
The Tennessee Department of Revenue collects more than $11 billion in revenues annually. More than two-thirds of revenue come from two taxes - sales and use tax and franchise and excise tax.
Why are taxes so cheap in TN? ›
According to the Census Bureau, Tennessee's state and local tax collections totaled 8.3 percent of personal income in fiscal year 2011, well below the national average of 10.6 percent. One reason for Tennessee's low ranking is that it is one of just nine states that does not levy a broad-based personal income tax.
Tennessee state law provides for property tax relief for low-income elderly and disabled homeowners, as well as disabled veteran homeowners or their surviving spouses. This is a state program funded by appropriations authorized by the General Assembly.
Does Tennessee freeze property taxes at 65? ›
Senior Tax Freeze
The State of Tennessee passed legislation that permits counties to “freeze” property tax amounts for homeowners who are 65 or older on or before December 31, 2024, and the combined 2023 annual income for you, your spouse and all other owners of the property cannot exceed $60,000.
Do you own the property if you pay someone's property taxes in Tennessee? ›
It depends, under certain circ*mstances a party's payment of property taxes can create a rebuttable presumption that the party has title, or ownership, to the property in question. These requirements are addressed in Tennessee Code Annotated §§ 28-2-109 & 110.
Do you pay property tax on vehicles in Tennessee? ›
Personal Property Tax: In addition to real estate, some states, including Tennessee, also levy property tax on certain types of personal property, such as vehicles, boats, and business equipment. The taxation of personal property can vary by county and is often assessed by the local tax assessor.
Does TN tax Social Security? ›
Luckily, Tennessee is one of the most tax-friendly states in the nation, as Tennessee does not charge income tax. This means that your retirement savings and social security won't be taxed at a state level as well as any withdrawals.
What is the most tax-friendly state to live in? ›
According to the updated MoneyGeek analysis, the most “tax friendly” state overall was Nevada, where the median family owes about 3% of its income in taxes. Meanwhile, 13 states earned either a D or F grade for tax burdens. For some of those states, like Oregon, high personal income tax rates are to blame.
Which US states have no state income tax? ›
As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax. New Hampshire Department of Revenue Administration. Frequently Asked Questions - Interest & Dividend Tax.
Is Tennessee a tax friendly state for retirees? ›
Is Tennessee tax-friendly for retirees? As Tennessee does not have an income tax, all forms of retirement income are untaxed at the state level. This includes Social Security and income from retirement accounts. Additionally, property taxes in Tennessee are quite low, with an average effective rate of just 0.65%.
What states are getting tax cuts? ›
Kicking off 2024 with tax cuts
- Arkansas. 4.70% 4.40%
- Connecticut. 5.00% 4.50%
- Georgia. 5.75% 5.49%
- Indiana. 3.15% 3.05%
- Iowa. 6.00% 5.70%
- Kentucky. 4.50% 4.00%
- Mississippi. 5.00% 4.70%
- Missouri. 4.95% 4.80%
States without income taxes may save you a lot of money when it's time to file taxes, but there may be hidden costs of living in such states, like higher sales and property taxes. Before moving, it's important to consider the full picture to better understand the potential impact on your finances.
