The Tennessee lawmakers’ vote last week to phase out the state’s 6 percent Hall Income Tax on interest and some investments over a six-year period will have local ramifications for both Signal Mountain and Walden.
The House voted 66-17 for a conference committee report while senators voted for it earlier on a 29-1 vote.
The Hall Tax – which would be abolished in its entirety in 2022 – was enacted in 1929 and raises about $300 million annually for state and local governments with locals received three fifths of the revenue.
In the upcoming fiscal year, the levy would go from 6 percent to 5 percent, resulting in up to a $28 million reduction for the state and about $14 million for local governments.
In the last fiscal year, the town of Signal Mountain received roughly $900,000 from the Hall tax, or about 15 percent of their revenue from that year, officials said.
“We were anticipating the 1 percent drop this year,” councilman Chris Howley said.
Mayor Dick Gee said the despite the time the council has to make preparations, the impact of the legislature’s decision will be significant.
“It will certainly make a large difference in our budget,” Gee said. “We’ll have to develop a plan to replace that income to maintain the level of service we provide today.”
While the council said they have nothing planned immediately, they agreed that it would be a big topic of discussion in the coming months.
The elimination of the Hall tax’s effect on the town of Walden will be similarly felt. As the tax is gradually eliminated, Walden will have to make due with less until a tax increase is necessary to offset the revenue loss, Mayor Bill Trohanis said.
“The Hall tax reduction will require municipalities to critique their budgets even more,” he explained.
Conservative proponents have chipped away at the levy for years and complete elimination has been pushed by groups including Americans for Prosperity-Tennessee.
House Finance Committee Chairman Charles Sargent, R-Franklin, today said abolishing the tax would help Tennesseans and encourage more people and companies to move to the state.
During his presentation to the House, Sargent boasted that since Republicans took control of state government, there has been the elimination of the state’s inheritance tax, a half penny cut in the state’s sales tax on food, and reductions in the Hall.
With the planned six-year phase out of the Hall in 2022, Sargent said, the total cumulative cuts will have amounted to “almost $1.97 billion.”
But Rep. G.A. Hardaway, D-Memphis, said the loss of revenue would harm local governments and force them to turn to property taxes due to what he said was an effort by majority Republicans to help the “rich.”
Lawmakers were acting on a conference committee report that ironed out differences between the two chambers.
Staff writer Shane Foley contributed to this story.