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Income Tax Ban Redo — Again

A constitutional amendment to definitively ban a state income tax has already won approval by one full chamber and was on the move in the other. But the measure’s key House sponsor says he’s going to scrap it and start all over.

Rep. Glen Casada, R-College Grove, the former GOP caucus chairman in the House, said he is recasting the proposal and starting it from scratch because members of the House Finance Subcommittee attached an amendment to the resolution that would also cap state and local sales tax rates.

“It was too open,” Casada said of the resolution, which passed in the Senate 28-5 on March 9. Casada worried the measure’s added language both freezing the state sales tax and banning an income tax is too much for voters to weigh on one ballot question.

However, Casada says a new resolution, HJR231, has been “written it so tight it will hold no amendments.”

HJR231 reflects the main thrust of the original anti-income tax resolution and would add language to the Tennessee Constitution at the end of Section 28 concerning the state’s taxing authority:

Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.

The new measure also deletes language from the first bill that would have permitted the state to forgo the customary printing of proposed constitutional amendment language in the states’ larger newspapers and instead publish just on the web. That issue, too, is up for debate on Capitol Hill this legislative season.

Now that Casada is introducing the new language, he and Kelsey will have to run it by a series of committees in their respective chambers for a second time. The proposal will go before a House committee hearing late next week, he said.

House Democrats last month managed to tack on language to the measure that would have banned sales tax increases and permanently require the state to stay within it’s fiscal means.

Sen. Brian Kelsey, who spearheaded the bill in the Senate, said he wasn’t happy with the old version after Democrats, joined by two Republicans on the subcommittee, amended it, but still believes there is enough time left in this year’s session to pass the measure again.

“I am open to any amendments that are not poison pill amendments,” said Kelsey. “And, as I understood, that sales tax amendment, that was a poison pill amendment that was meant to kill the no state income tax constitutional amendment.”

The Senate last year passed Kelsey’s income tax ban as well, but the measure died behind the budget in the House because of the fiscal note for publishing it in newspapers.

Kelsey and Casada both say they like Democrats’ idea to ban any future sales tax increases, but say it would make the issue just muddy enough to prevent it from passing both full chambers in two years when it needs a two-thirds vote by lawmakers to make it on the ballot.

Plus the amendment would essentially ask voters to ban both an income tax and an increase in the sales tax — issues Republicans say should be weighed on separately.

House Democratic Leader Craig Fitzhugh said Democrats aren’t at all upset that the sales-tax capping amendment won’t stay on the proposed income tax prohibition.

“We were sort of encouraged to see that the former leader over there (former GOP caucus leader, Casada) said it was a good amendment,” he said.

“We can’t pass anything – they have to have the votes. But if we have convinced it’s the right thing to do, I think that would be good for all.”

Old Hickory Rep. Mike Turner says he doesn’t see his Democratic caucus fighting too hard on the straight-forward income tax ban, although he contends the income tax is already prohibited in the constitution.

“I personally think it’s already banned and it’s already been banned,” said Turner, who added that there’s no real pressure in Tennessee to impose an income tax, anyway.

That’s not a position held by everyone in his caucus, however. House Speaker Emeritus Jimmy Naifeh, fought to institute an income tax in the late 1990s and early 2000s. Last year several Democrats signed on to a “Tax Cut and Job Creation Act” that, while not a constitutional amendment, sought to enact a statewide income tax. The bill was reintroduced again this year, then withdrawn.

Although Turner, the House Democratic Caucus Chairman, says an income tax is already banned, traditional supporters of his party disagree. Tennesseans for Fair Taxation, which counts among its coalition of supporters the Tennessee State Employees Association and the Tennessee Education Association, believe not only is an income tax legal, but it is necessary.

An income tax is strongly supported — and the constitutional ban on one is vehemently opposed — by TFT, which “has for many years advocated cutting our sales tax in half and eliminating the food tax entirely.” The group regularly calls for trading a chunk of Tennessee’s highest-in-the-nation combined state-and-local sales tax rates for “an income tax with generous exemptions.”

“The Tennessee Constitution is mute or ambiguous on whether the state has the power to levy a tax based on income other than dividends and interest,” Bill Howell, the Middle Tennessee organizer for TFT, told a Senate committee hearing Kelsey’s income tax ban amendment earlier this year. “How we fund our government is at the core of our life together, and the justice of who pays for our government is a primary concern for all of us.”

Asked at one point during the hearing why he didn’t support giving the people the chance to vote for themselves on the issue of whether the state constitution ought to allow an income tax, Howell said “we have a representative form of government or a reason.”

“You have the power to foresee that there could be an emergency,” he told lawmakers. “If we leave this to the people and they do decide to forgo a future possibility (of enacting an income tax), they may live to regret it.”

House Speaker Beth Harwell expects the new constitutional rewrite will have few problems working its way through the legislative process during the final weeks of the legislative session, although she personally believes the current language bans any future income tax.

“Clearly, it’s what the public wants. My feeling is it’s already unconstitutional but just to be absolutely sure, we’re going to place this amendment before the people,” she told TNReport.

Because the proposal would change the Tennessee Constitution, it still has a long way to go before it can become law. The measure needs a majority vote in both chambers by the current General Assembly — which meets through 2012 — and a two-thirds vote in the next assembly before it can be put to voters on the 2014 ballot.

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Haslam: States Need to Cooperate on Internet Sales Issues — Like Those TN’s Amazon.com Deal Raises

Gov. Bill Haslam said Wednesday that governors need to come together to find a solution on applying sales taxes to Internet sales, adding that the federal government won’t have the incentive to take action.

Haslam seemed to brush aside the matter of whether to hold the Internet sales giant Amazon to account on the collection of sales taxes as the company plans two large distribution centers near Chattanooga.

“My argument is it’s a bigger issue,” Haslam told reporters at a press availability after a Farm Bureau event in downtown Nashville. “I think Internet sales should be subject to sales tax for everybody, whether you have a distribution center or not.”

Amazon’s establishment in the state represents a $139 million investment. Traditional retailers object that they have to collect sales taxes while businesses like Amazon do not.

Haslam attended a National Governors Association meeting in Washington last weekend, but he said he told other governors they shouldn’t expect help from Washington on the issue.

“It doesn’t affect Congress’s pocketbook,” Haslam said. “The sales tax hits states.

“You’re not going to get leadership from Washington because it doesn’t affect them. It does affect us in every state — Republican, Democrat, north, south, east and west. I think it’s a place where governors have to, and will, lead.”

In Tennessee, the state sales tax is 7 percent, with up to an additional 2.75 percent applied by local governments. Since Tennessee does not have an income tax, the sales tax has more importance to Tennessee than most other states as a revenue source. Since Internet sales began, the issue of collecting taxes has been a problem for the state.

“We need to have a united effort,” Haslam said. “It’s too big a piece of our economy now to ignore. It’s not fair to those people who are investing in bricks and mortar.”

The nation has seen conventional bookstores suffer from the Amazon effect, and while many consumers lament the loss of traditional bookstores there is no dispute that consumers like the idea of ordering through online outlets, whether it be for convenience or to avoid paying sales tax.

“It affects everybody from real estate owners to small retailers to large retailers,” Haslam said. “It impacts too many for us to continue to ignore it.”

But the governor emphasized it will take a concerted effort to confront the problem.

“One state obviously can’t do it. That’s the whole issue we have now,” Haslam said. “I think it will take a large majority of governors saying they are going to band together on that.”

Tennesseans for Fair Taxation, a group that generally advocates on behalf of the government attracting more revenues — up to and including the implementation of  a “broad based” personal income taxhas been critical of Amazon’s ability to avoid the sales tax issue.

In Congress, Rep. Dan Lungren, R-Calif., and Rep. Zoe Lofgren, D-Calif., recently introduced a resolution urging lawmakers to say no to congressional efforts toward imposing sales taxes on small retailers online. The resolution was presented as a way to protect small businesses and entrepreneurs.

Amazon, based in Seattle, Wash., has been involved in battles with states recently over sales tax collections.

The U.S. Supreme Court ruled in 1992 that retailers can’t be forced to collect sales taxes on out-of-state purchases unless they are established in those states.

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Press Releases

TFT: Where is the Revenue, Justice in Amazon.com Deal?

Press Release from Tennesseans for Fair Taxation, Feb. 24, 2011:

Revenue ?with? Justice ?Report

This “Revenue with Justice Report” inaugurates an occasional service by Tennesseans for Fair Taxation (TFT) to provide fact-based analyses of pending issues related to Tennessee’s state budget, public programs, and tax policy. Recipients are free to use this material, in whole or in part, with or without attribution to TFT.

TFT is a statewide non-partisan coalition of people and groups working to assure a balanced, just, and equitable tax system in Tennessee, one that provides revenue critical to economic growth, prosperity and essential citizen services. For further information about this “Revenue with Justice Report,” be in touch with:

The? Amazon? Fast ?Shuffle

Tennessee has chosen to rely on the retail sales tax as its principal source of public revenue. Thus, it is critical that this tax be administered in a just and effective manner. For this obvious reason, the under-the-table, backroom deal that is designed to relieve Amazon of its legal obligation to collect sales taxes from its Tennessee customers and remit those tax receipts to the Tennessee Department of Revenue is unacceptable for two major reasons:

  • Tennessee, like most states, faces a serious revenue shortfall and related budget deficit. Every legitimate tax dollar, as determined by Tennessee law and the U.S. Constitution, needs to be collected.
  • Relieving Amazon of its constitutional and legal obligation—while enforcing this obligation against Tennessee-based retailers—places homegrown and Tennessee operated businesses at a severe competitive disadvantage at a time many are struggling just to stay alive.

What is going on here?

In the closing weeks of the Bredesen Administration, Amazon agreed to construct two affiliated distribution centers near Chattanooga. Details of the deal have been declared confidential but, in addition to the expected incentives of job-creation and property tax credits, money for employee training assistance, and free land, it now appears that the deal includes promises to overlook constitutional principles and Tennessee law to determine whether Amazon will be required to collect and remit sales taxes in Tennessee.

  • The Department of Revenue is planning to change a regulation under Tennessee tax law that has been in effect since 1974 (Tax regulation 1320-5-1-.96) which imposes an obligation to collect and remit sales taxes on in-state distribution centers. The proposed change will carve out an exemption for Amazon while continuing to require existing distribution centers to keep imposing the sales tax on their customers.
  • Without this change in Tennessee’s tax regulations, it is clear that Amazon’s proposed distribution activities will meet the standards, defined by the U.S. Supreme Court and the Tennessee Court of Appeals, that require a business to collect and remit the Tennessee sales tax.
  • A public hearing on the proposed regulation amendment is scheduled for Friday, February 25, 2011, at 1:30 PM CST on the third floor of the Tennessee Tower, 312 Rosa Parks Avenue, Nashville, TN.

What are the costs to Tennesseans of this under-the-table, backroom deal?

  • The deal will cost Tennessee in excess of $64 million in revenue each year. ? The City of Chattanooga will give up an estimated $720,000 each year. Hamilton County will give up $435,000 in revenue (but Amazon will pay the school tax portion of its tax bill–$430,000). ? Local retail competitors of all sorts (Amazon sells a lot more than books) will be at a permanent price disadvantage since they are legally obligated to collect retail sales tax. (Amazon’s sales topped $24 billion in 2009—one of the worst years for U.S retailers.)

What about the jobs that Amazon will create with its distribution centers?

It is estimated that Amazon will hire 1400 full time workers and 2000 seasonal workers. Here is an interesting calculation in that regard:

  • On the assumption that full time workers will average $30,000 annually and seasonal workers will be employed for two months, the total annual payroll would be in the vicinity of $55 million.
  • This cost is roughly equal to the tax revenue lost to Tennessee. So, in one sense, the citizens of Tennessee end up paying the wages of all of Amazon’s Tennessee employees each year . . . and forever!
  • Any job created by Amazon’s under-the-table, backroom deal could well be offset by the loss of employees currently working at Tennessee’s existing distribution centers, due to the unequal playing field created for Amazon.

TFT? wants? to? know: In? the ?Amazon? deal,? where ?is ?the ?revenue?? Where? is ?the ?justice?

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Press Releases

TFT: Replace Hall Tax with ‘Broad Based Tax on Income with Generous Exemptions and Modestly Graduated Rates’

Press Release from Tennesseans for Fair Taxation, Jan. 28, 2011:

A Bill has been introduced in the legislature to reduce the “Hall” Income Tax over time and eliminate it by 2015 (SB0033 by Burks/HB0046 by Sexton). Another bill (HB0122 by Sargent/SB0108 by Johnson) has been introduced to increase the amount of income exempted from the “Hall” tax to reflect inflation up to a maximum exemption of $2,500 for individuals or $5,000 for persons filing jointly.

In the Hall Tax, named after its 1929 sponsor, Sen. Hall, Tennessee actually has an income tax. The rate of 6% is only on dividends from stocks and interest on bonds. Currently, the first $1,250 per individual or $2,500 per joint return is exempt. Since 2000, those exemptions were increased to $16,200 and $27,000 respectively for those over 65. Certain blind persons, quadriplegics, prisoners of war and several technical situations are completely exempt from the tax, as detailed in Title 67, Chapter 2 of Tennessee law (see http://www.tennessee.gov/revenue/taxguides/index.htm).

This tax is collected by the state, but more than one-third of it is returned to the city or the county in which the taxpayer lives.

Legislators and the public rightfully believe that this tax is especially hard on retirees and others on fixed income. The current tax is counterproductive to encouraging saving and in attracting additional retirees to the State. However, with the current budget shortfalls in state and local governments, we cannot afford to lose in the range of $200 million in revenue per year without at least replacing it with a more appropriate revenue source.

Tennesseans for Fair Taxation (TFT) proposes to replace the Hall tax and our excessive reliance on a high sales tax, also hard on all persons on fixed or modest income, with a broad based tax system as follows:

  • lower sales tax,
  • no sales tax on food and
  • a broad based tax on income with generous exemptions and modestly graduated rates.

Such a system could be designed so most Tennesseans would pay less in state taxes while raising sufficient revenue to prevent most of the cuts in services and jobs anticipated in coming budget years.

The TFT proposal is reason enough NOT to pass the proposed constitutional amendment

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Press Releases

Income Tax Supporters Gathering in Nashville Saturday

Press Release from Tennesseans for Fair Taxation, Sept. 22, 2010:

WHAT: “It’s Time to Act” : Tennesseans for Fair Taxation Annual Meeting 2010

WHEN: Saturday, Sept. 25, 9:30 a.m. to 4 p.m.

WHERE: Second Presbyterian Church, 3511 Belmont Blvd., Nashville, TN

Tennesseans will soon elect a new governor who will be faced with one of the most dire budget shortfalls in state history. Federal stimulus funds and the use of non-recurring funds in the 2010-11 state budget helped Gov. Bredesen avoid a $1.5 billion budget shortfall, but he has warned state employees and departments to expect further layoffs and program cuts. Meanwhile, unemployment remains at historic high levels, tax revenues are not meeting projections, and Tennessee families are suffering from a lack of investment in much-needed social services and public structures.

Tennesseans from across the state will gather in Nashville Sept. 25 to discuss the context of the state’s current economic crisis and share solutions that would give most Tennesseans a tax cut while still raising $1 billion in additional revenue. The event, “It’s Time to Act”, is hosted by Tennesseans for Fair Taxation, a statewide non-profit seeking to create a more fair and progressive tax structure that ensures adequate revenues for the benefit of all Tennesseans.

“Campaign claims that an income tax would harm job creation and employment in Tennessee are simply not supported by research,” says TFT Executive Director Elizabeth Wright. “Modernizing Tennessee’s tax structure by eliminating the sales tax on food, reducing the general sales tax, and implementing a personal income tax would actually stimulate the economy, create new jobs, help small businesses, and with TFT’s proposals, give two-thirds of Tennesseans a tax break.”

The day-long event is open to the public and will feature a workshop by nationwide economic experts United for a Fair Economy called “Bankers, Brokers, Bubbles and Bailouts: The Causes and Consequences of the Financial Crisis.” Attendees will also engage in a state budget forecast with Mike Murphy, a member of the Tennessee Budget Working Group. TFT will also host a plenary session to share its tax modernization proposals that would raise $1 billion in additional revenue for the state while giving two-thirds of Tennesseans a tax cut.

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Press Releases

Group Says Enacting State Income Tax Would Reduce TN Sales Tax

Statement by John G. Stewart, Chair, Tennesseans for Fair Taxation, on the Tax Foundation’s Report on State Tax Rates, Aug. 23, 2010:

The Tax Foundation is correct in pointing out that Tennessee has the highest combined state and average local sales tax rate in the country. This means that lower income families pay a far higher percentage of their income to the state than do higher income families—about 12% for lower income families compared to about 3% for higher income families. This is grossly unfair and destructive to most Tennessee families.

What can we do about it? Tennesseans for Fair Taxation has for many years advocated cutting our sales tax in half and eliminating the food tax entirely. We also propose enacting an income tax with generous exemptions, such that a family of four earning $45,000 would be totally exempt. This approach evens out the tax burden for all Tennesseans, plus it gives about 70% of Tennesseans a tax cut from what they are currently paying to the state.

Our approach would also generate about $1 billion of additional revenue so that crippling budget cuts in education, economic development, public safety, child support, and environment can be avoided.

If ever there was a win—win—win proposal, this is it.

“Washington, DC, August 19, 2010 – Tennessee has the highest combined state and average local sales tax rate of 9.44%, and the Alabama cities of Birmingham and Montgomery are tied for the highest combined state, county and city sales tax rates among major metropolitan areas at 10%, according to two new Tax Foundation reports on state and local sales taxes.”