United States

Tennessee enacts Hall income tax phase-out

Total repeal as early as 2022

TAX ALERT  | 

On May 20, 2016 Tennessee Gov. Bill Haslam signed SB 47, enacting a legislative phase-out of the state’s Hall income tax, a tax on interest and dividends, first enacted in 1929. Tennessee does not otherwise impose a tax on personal income.

Pursuant to SB 47 and beginning in fiscal year 2015, the Hall tax will be reduced for the next fiscal year contingent on state revenue growth exceeding 3 percent over the previous fiscal year. The reductions are 1 percent each year until the tax has been reduced to 3 percent, where the reductions will continue at a rate of three-fourths percent. The following schedule illustrates the reduction assuming the 3 percent state revenue growth rate is achieved each year:

  • Tax Year 2016: 5.0 percent
  • Tax Year 2017: 4.0 percent
  • Tax Year 2018: 3.0 percent
  • Tax Year 2019: 2.25 percent
  • Tax Year 2020: 1.5 percent
  • Tax Year 2021: 0.75 percent
  • Tax Year 2022: 0.0 percent / repealed  

For any year where the state revenue growth does not exceed 3 percent over the previous year, the tax rate will remain the same rate as the current year, but will continue to be reduced once state revenue exceeds 3 percent for any subsequent fiscal year. Once the Hall tax is completely phased out, Tennessee will join Alaska, Florida, Nevada, South Dakota, Texas, Washington state and Wyoming, in excluding individual income from a state tax.

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