Tennessee lawmakers passed a bill repealing the state’s Hall tax on interest and investment dividends, the state’s only tax on an individual’s income.
Senate Bill 47, approved by lawmakers in May, phases out the Hall Tax over five years, gradually reducing the investment tax rate each year until it reaches zero.
The tax is named after state Sen. Frank Hall (D), the author of the 1929 bill that first imposed it.
Encouraging Investment, Investors
The repeal bill’s sponsor, state Sen. Mark Green (R-Clarksville), says reducing the cost of investing in Tennessee businesses will bring greater economic prosperity to the state.
“Imagine you are an entrepreneur on Shark Tank and Mark Cuban decides to invest $300,000 in your company,” Green said. “As an investor, he will tell you to avoid Tennessee, because he doesn’t want to have to pay 6 percent to Tennessee. So, we get more startups in Tennessee with it gone.”
Green says the Hall tax discourages “angel investors,” individuals who invest large amounts of capital in entrepreneurs’ fledging businesses in return for a share of the businesses’ profits.
“There are only 400 angel investors in Tennessee,” Green said. “A comparably sized state with no Hall tax has 12 times as many, meaning access to startup capital is very light in Tennessee.”
Bringing Job Creators Back
Justin Owen, president of the Beacon Center of Tennessee, says the Hall tax has chased investors and business owners out of the state since its enactment in 1929.
“We have talked to numerous investors and job creators who have moved out of Tennessee because of the Hall tax,” Owen said. “By eliminating it, we hope to bring those Tennesseans home, while also encouraging others to move into our state. By taxing savings and investments, Tennessee was getting less of both.”
Everybody Is a Winner
Owen says encouraging investment by improving the state’s business climate will have positive effects on government, too.
“State and local governments, on average, rely on the Hall tax for barely 2 percent of their revenue,” Owen said. “They will have six years to adjust, and during the phase-out, they will likely see revenues from other sources increase.”
Owen says the tax’s repeal will be a win-win situation for all Tennesseans, including people working for the government.
“With more Tennesseans moving into and investing in our state, property tax revenue will increase when those Tennesseans buy homes,” Owen said. “Sales tax revenue will increase when they buy cars and other products. You don’t face a dollar-for-dollar loss in revenue when you cut dynamic taxes like the Hall tax.”
Ben Johnson ([email protected]) writes from Stockport, Ohio.