Tennessee Taxpayers Association

The Tax Foundation is  a national tax research group located in Washington, DC.  Its mission is to provide citizens with information regarding taxes at all levels.  It is a nonpartisan organization and we can tell that it does a very good job.

We are sending out a partial copy of the  July 1, 2009, post on their research page, The Facts on Tennessee’s Tax Climate report.  Some of these statistics indicate that Tennessee has a favorable tax climate in many areas. 

Following is the report:

Tennessee’s State/Local Tax Burden Among Nation’s Lowest
During the past three decades Tennessee’s state and local tax burden has consistently ranked among the nation’s lowest. Estimated at 8.3% of income, Tennessee’s state/local tax burden percentage ranks 44th highest nationally, well below the national average of 9.7%. Tennessee taxpayers pay $3,160 per capita in state and local taxes.
Tennessee’s State-Local Tax Burden, 1977-Present
Other States’ State/Local Tax Burdens
Historical Chart Comparing All States’ State/Local Tax Burdens from 1977 to 2008

Tennessee’s 2009 Business Tax Climate Ranks 17th
Tennessee ranks 17th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states ranked as follows: Kentucky (34th), Virginia (15th), North Carolina (39th), Georgia (27th), Alabama (21st), Mississippi (19th), Arkansas (35th) and Missouri (16th).
50-State Comparison of Business Tax Climates (data only)
2009 State Business Tax Climate Index, Sixth Edition (full study)

Tennessee’s Individual Income Tax System
Tennessee’s personal income tax system consists of a flat 6% rate on exclusively dividend and interest income. No other personal income is subject to state taxation. Tennessee’s 2006 individual income tax collections were $32 per person, which ranked 43rd among states levying personal income taxes.
50-State Table of Individual Income Tax Rates
50-State Table of State Individual Income Tax Collections
50-State Table of State and Local Individual Income Tax Collections Per Capita

 

Tennessee’s Corporate Income Tax System
Tennessee’s corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Tennessee’s rate ranks 29th highest nationally. In 2007, state-level corporate tax collections (excluding local taxes) were $183 per capita, which ranked 18th highest nationally. 
50-State Table of Corporate Income Tax Rates, 2000-2009
50-State Table of State and Local Corporate Income Tax Collections Per Capita and Per Household, 2005
50-State Table of State Corporate Income Tax Collections Per Capita, 2006

Tennessee Levies Sales Tax above National Median; Cigarette Tax among Lowest in Nation
Tennessee levies a 7% general sales or use tax on consumers, above the national median of 6%.State and local governments combined collected $1,360 per capita in general sales taxes in 2005, which ranks 5th highest nationally. Tennessee’s gasoline tax stands at 21.4 cents per gallon, ranking 34th highest nationally. Tennessee’s cigarette tax stands at 62 cents per pack of twenty and ranks 38th highest nationally. The sales tax was adopted in 1947, the gasoline tax in 1923 and the cigarette tax in 1925. 
50-State Table of Sales and Excise Tax Rates
50-State Table of State and Local General Sales and Gross Receipts Tax Collections Per Household and Per Capita, Fiscal Year 2005

Tennessee Property Tax Collections Low
Tennessee’s local governments collected $683.96 per capita in property taxes during fiscal year 2006, which is the latest year the Census Bureau published state-by-state property tax collections. Tennessee is one of the13 states that collect no state-level property taxes. Its per capita property tax collections in FY2006 rank 42nd nationally.
State property tax collections per capita by state

Federal Tax Burdens and Expenditures: Tennessee is a Beneficiary State:
Tennessee taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of Federal tax collected in 2005, Tennessee citizens received approximately $1.27 in the way of federal spending. This ranks the state 19th highest nationally and represents a rise from 1995 when Tennessee received $1.07 per dollar of taxes in federal spending (25th highest). Neighboring states and the amount of federal spending per dollar of federal taxes collected were: Kentucky ($1.51), Virginia ($1.51), North Carolina ($1.08), Georgia ($1.01), Alabama ($1.66), Mississippi ($2.02), Arkansas ($1.41) and Missouri ($1.32).
Comparing the amount of federal taxes sent to Washington with the amount of federal spending coming back to the state

Email this post

By now all employers should have received an increased tax bill for the first quarter of Tennessee Unemployment taxes.   The extra tax payment is due before July 31, 2009.

 This new tax is a result of  recent legislation which increased the taxable wage base and added a surcharge to the tax rates. 

 Legal advice has indicated to us that employers should pay the increase in unemployment tax under protest.   There may be a constitutional challenge to the legislation and if the taxpayers have not paid the taxes under protest, they may have to forfeit a refund of the additional taxes.  

 Legal advice also indicates that each employer should make sure the payment check clearly indicates “Paid Under Protest”.  It is also recommended that “Paid Under Protest” be written on the transmitting document and a short letter sent indicating that the taxes are being paid under protest.

 This year the Legislature enacted legislation permitting the Department of Labor and Workforce Development to increase taxes on employers in order to keep the reserve fund in a positive balance. Both the wage limits and the tax rate were increased.

The recent legislation increased the taxable wage base from $7,000 limit to $9,000 limit and an additional fee of .6% on all premium rates was added.

These increases are reported to produce more than $240 million dollars in annual revenue.

The Department of Labor Commissioner James Neeley estimated that the additional tax would cost employers $108 per employee.

There was considerable controversy in the House side of the Legislature as the bill advanced toward passage. It appeared to us that answers to some questions posed were not completely understood.  There was enormous stress on the extreme urgency that we must raise taxes on employers in order to keep the Federal Government from taking over the State’s unemployment compensation system.

Some Legislators asked the sponsors and Labor Department representatives if there were possible alternatives to an increase; such as, employees sharing the costs, not extending the benefits, increasing the taxes by smaller amounts, or obtaining funds from general revenues. Some Legislators felt that the placing all the increase on the employers was plainly the wrong time to increase taxes on employers when unemployment is so high.

Other Legislators reasoned that increased taxes would be an incentive for employers to lay off, or not hire, more employees in order to save taxes. These Legislators felt that increasing this tax was taking us in the wrong direction in the middle of a deep recession.

Taking a position on this bill was indeed a problem for the Legislators. No-one wanted to deny extended benefits to unemployed workers and no-one wanted the Department’s reserve to be exhausted which was warned to be low and would default if the bill was not passed.

The American Recovery and Reinvestment Act made $141 million dollars available to Tennessee to extend unemployment benefits for up to 20 weeks to unemployed workers. In order to receive these funds, Tennessee agreed to extend unemployment benefits to part time and seasonal workers.

Also, included in the requirements, were increased benefits for unemployed workers with dependents at $15 each per week for those dependents under 18 years old.

Legislators were told that the $141 million from the Federal Government would take care of these extra benefits for about six years at $25 million per year. The question would not be answered if Tennessee would continue these benefits on its own at the end of this period.

Other Legislators were confused about sunset provisions. There were some. The increased wage base for the increased reserve does sunset once the reserve reaches $1 billion, but would decrease some when the reserve reached $900 million. The increased tax rate would sunset after the reserve reaches $ 600 million.

The reasons for this tax increase are definitely a problem. Some Legislators were told that Tennessee needs to catch up in its reserves and should tax employers more to be equal with other states. We are not sure about this and do not favor tax increases just to keep up with other states.

We feel that other sources of revenues should have been explored before increasing taxes by $240 million against employers. It was never satisfactorily explained that other sources or other methods of taxes were even considered.

While the unemployed deserve compensation and should not be denied, taking $240 million away from employers is going to make it difficult for the employers and may even cause more unemployment. There was also no fairness in the bill by making large employers who lay off more employees pay more of the additional taxes.

It appears to us that this legislation could have considered other sources of revenues for the unemployed, been more fairly distributed among employers, and now may even wind up being unconstitutional.

Email this post

Re: SB 2196 / HB 2175 – A Bill to Recognize Foreclosure Effects upon Assessment Values

Tennessee Taxpayers Association prepared and presented this bill to the Legislature in order to permit Tennessee assessors to recognize that values in neighborhoods decrease from the effect of foreclosures.   The Shelby County Assessor of Property, Cheyenne Johnson, supported the concept of this bill before it was filed.  We do not believe that opponents in the Legislature would have initially accepted it without her assistance.

Prior to the passage of this new law, statutes, rules, and precedents prevented sales made at foreclosure from being used to establish values for other properties. 

This new law will make it possible for the assessors and the boards of equalization to treat taxpayers fairly in appraising their homes at what they are really worth; not some fictitious price higher than the true market value. Without this new law, it would have been very difficult (perhaps impossible) for Tennessee’s taxpayers to receive true justice reflected by real market values.  

Senator Jim Kyle (D) of Shelby County and Speaker Lois DeBerry (D) of Shelby County were the legislative sponsors of the bill and we are very grateful for their hard work to effect its passage. Many taxpayers will also be grateful to these sponsors once they protest their assessment values that have been affected by numerous foreclosures.

The bill started as a general bill with local application to only Shelby County because Shelby County had been hit particularly hard by many foreclosures.  Taxes are also much higher in Shelby County than in the other 94 counties. 

However, lawmakers from other counties recognized the value that this bill would have when their counties are reappraised for assessments and taxes. Therefore, an amendment was added  to make the bill have state-wide application. 

This bill should help many struggling taxpayers to possibly avoid foreclosure.  

Thanks again to the legislative sponsors, the Shelby County Assessor, and the Tennessee General Assembly for this new law.

Email this post

Taxpayers Pay Extra Taxes for Appeals Loss Allowance – But Unused Portion is Never Returned

After a county has completed a reappraisal, each local taxing jurisdiction is required to reduce its tax rate in order to generate the same revenue that was produced the prior year.  By keeping the same tax rate, local governments are kept from enjoying a windfall increase in revenues from the increased values .  

Prior to this requirement, local governments could leave the tax rate the same as the year before and claim they did not raise taxes, yet in fact they actually did through the valuation increases.

This reduced rate in Tennessee is called the “Certified Tax Rate”.  In most states it is referred to as the “Truth in Taxation” law.  

If the local governments need additional revenues, they must first lower the rate to the certified amount and then increase the rate.  This lets taxpayers know if a tax rate is increased.  

The system worked fine in Tennessee until the State permitted the local governments to add an estimate of refunded tax dollars to the reduced certified rate. The estimate is what the local government may have to pay to the taxpayers if  the appeals are successful.  

For example, in Shelby County this year the County reduced the tax rate from $4.04 to $3.81 due to the increases in assessments from the reappraisal.  The County then added back an estimated amount of $.21 to anticipate losses due to successful appeals. At this time, we have been unable to obtain the allowance for Nashville and the tax rate has not been set for Knoxville .   We will follow up on these.

This tax rate allowance was based upon estimated assessment losses of over $1.06 billion that will be reduced by appeals.   This amounts to over $40,000,000 in tax dollars estimated to be lost in appeals to the County Board of Equalization.  

That is believed to be well overestimated.   According to the Memphis Daily News, some members on the Commission expressed that everyone knew what was really going on.

The amount which is excessive and not reduced by the appeals should be returned to the taxpayers the following year. 

Our Association was present in the Legislature when the law was proposed to permit the local governments to add the expected tax loss from appeals to the certified rate. 

We recognized that this would be just another way of increasing the tax rate without the local government taking responsibility for the increase.  This was  because there was no provision requiring the local government to return the overestimated losses to the taxpayers.   

Therefore, this Association successfully added the following amendment to the statute permitting this loss estimate:

The state board of equalization shall order recapture of an excessive adjustment in the following year if the certified tax rate is found to have been overstated due to overestimation of the appeals adjustment, and in these cases the jurisdiction may exceed the recapture rate only after public hearing.  TCA § 67-5-1701(a)(5)

This amendment was meant to keep the estimates from getting out of hand. 

We could see that if there was no provision for return or accounting the next year, then there was great incentive to overestimate tax losses and increase local revenues without a visible tax rate increase.

It is the responsibility of the State Board of Equalization to order that the excessive adjustment be recaptured.  If the jurisdiction is going to exceed the recapture as ordered, there must be a public hearing on the matter so the public will know they are not going to receive a return of the overestimated tax losses and that the tax rate is actually being increased, all a part of “Truth in Taxation” as it should be.

This Association will be expecting enforcement of this law in Tennessee cites and counties at the proper time.

 copyright – Tennessee Taxpayers Association – July 2, 2009

Email this post

Could you get your assessment and taxes reduced if your neighbors’ assessments and taxes are lower?

Ask any taxing authority if you, as an owner and taxpayer, may compare your property’s assessment (per sq. ft. or other basis) to your neighbors’ or business competitors’ assessments in order to receive a similar assessment. The answer would probably be this process is not allowed. These authorities assert that this procedure is an improper basis for protest and appeal.

Sound unfair? It is! After all, we always thought we were supposed to be equal in the taxation of our property. To compare to similar properties and equalize assessments and taxes is a basis that taxpayers can understand and feel is fair.

Nevertheless, in the present system, you cannot use such as a basis for equalization.

Some years ago you could compare assessments to achieve fairness in taxation, and it worked well. In recent times, the State Board of Equalization has held, and enforced in the various counties, that equalization is achieved through application of an “overall sales ratio”.

Unfortunately, Tennessee is not alone in this application. Numerous states do the same, i.e. Florida. On the other hand, others, such as Texas specifically permit practical comparisons of assessments as a basis for appeal.

Now what does overall sales ratio mean and how does it work?

The Division of Property Assessments, under the guidance of the State Board of Equalization, performs sales ratio studies for each of our 95 counties. Simply put, this process is nothing more than comparing the assessor’s appraisals of properties which have sold to the sales prices and developing a percentage. For example, if the assessor’s appraisal is $95,000 and the property sold for $100,000, the sales or appraisal ratio for that property is 95%.

They also mix commercial, industrial, and residential sales all together and calculate an overall ratio. The State performs this function every two (2) years.

Once the ratio for a county is published, the taxpayer is technically stuck with only one way to a reduction; which is, prove that the assessor’s appraisal is above market value. Then, the taxpayer is entitled to the State’s form of equalization consisting of multiplying the proven market value times the overall sales ratio for the taxpayer’s county.

It is easy to see that if the ratio is 100%, and many are, then the taxpayer gets nothing in the way of equalization, only the market value. If the ratio is 95%, then the taxpayer gets a 5% reduction from the market value, but only after having first proved the market value of the property.

What a bad deal for the taxpayer! If the taxpayer cannot prove the taxpayer’s property is appraised at more than market value, even though his neighbors or competitors enjoy lesser assessments and taxes, the taxpayer loses. Practical fairness is no longer a factor.

What is wrong with using only an overall sales ratio method of equalization? Let us review a few things:

1. The overall part is clearly erroneous. We have classification in our State. Commercial and Industrial properties are assessed at 40% of value, Residential and Farms at 25% of value. There should be separate ratios applied from separate sales studies. There are clearly many more sales of residential properties than commercial and industrial properties. To mix all the sales of all the classes of properties together will produce an erroneous distorted result. That result is usually a higher ratio which favors the local governments over the taxpayers.

 

2. The studies are performed only every two (2) years. Several years ago the procedure was changed from every year presumably because as real estate values increase (at least on a historical basis recent economic downturn not considered) each year, the ratio would go down each year and would favor the taxpayer.

 

3. The assessors have the right to challenge and eliminate sales from the studies. Each county taxing jurisdiction desires a high ratio, so the pressure is there to eliminate those sales which would lower the ratio. Otherwise, the county could lose revenue through having a lower appraisal ratio applied to values. Please keep in mind that the appraisa ratio is automatically applied to all tangible personal property assesments. Therefore, there is even more pressure on the ratio.

 

4. The method for selecting sales to include in the study may be flawed because a review of the State’s sales ratios for 2008 indicate that most fall within 90% to 100%. This is a clear disadvantage to a taxpayer who feels that the taxpayer has been discriminated against in the appraised value.

 

5. Use of only the sales ratio method of equalization has relieved the assessors from the burden of explaining why a taxpayer’s neighbors may be assessed on a lower basis.

 

6. By eliminating practical comparison equalization, therefore the assessors do not have to justify to anyone any unequal appraisals. This has opened the door for possible political favoritism for some taxpayers over others. Before the market value and appraisal ratio system, the taxpayers were the best watchdogs of the property tax system by exposing any unequal appraisals or assessments to the boards of equalization.

 

Our firm has developed a proprietary method for introducing as much direct comparable evidence as we can to help equalize our clients’ taxes. We recommend the taxpayer present as much information as any body hearing the tax case will allow. Even though this evidence may not be considered, it could persuade the hearing body to consider more closely your other arguments to value.

In fact, our Counsel advises us there may be a legal basis for overturning overall ratio only equalization.

First, they advise that the State statutes provide that boards are unlike courts and are not restricted to strict rules of evidence. Further, they point out that the Tennessee Constitution requires equality and uniformity of assessment ratios within each class or subclass of property.

Practical equalization is what taxpayers understand and is the only way the general public will be able to use our system effectively. Practical equalization will also ensure that all taxpayers are treated as equally as possible. If not, at least it can be pointed out to the boards of equalization in a form everybody can understand.

copyright – Tennessee Taxpayers Association – July 1, 2009

Email this post