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Chattanooga boosters for years have touted the area for its natural beauty, mild climate, walkable downtown, friendliness and outdoor activities. Now they can add another plus to that list — no income taxes.

Tennessee genuinely became a no-income-tax state in 2021 with the final phase of the elimination of the Hall Tax on investments. Tennessee is just one of eight income-tax-free states across the union, along with Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

After several years of gradual step-downs, the Hall Tax on dividend and interest income went to zero, a move some see as making Tennessee more attractive to retirees in particular.

Over half the tax paid to the state from the Hall levy was derived from retirees who invested in 401Ks or mutual funds. The average tax liability in 2014 was about $1,400 per person, according to the accounting group PHB CPAs.

Marissa Bell, the Chattanooga Tourism Co.'s public relations manager, says the city is a good destination for retirees whether they "come for a visit and fall in love or they seek us out."

"The same reasons people love to visit Chattanooga are also what make it a great place for retirees," she says. "We are also a good place for grandkids or extended family to visit with great family-friendly attractions and experiences."

Roshan Amin, chief executive of Chattanooga-based hotel company Dynamic Group, says he thinks removing the Hall Tax will woo more retirees.

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Photography by Robin Rudd / Fishermen try their luck from the bank and a boat in the Tennessee River just upstream from Sullivan's Landing boat ramp along U.S. Highway 41 in Marion County.

"That's part of what drives someone to choose Tennessee over Georgia or Alabama," he says.

That population segment also will need amenities such as tourism-related services, grocery stores, and other services, Amin says.

"You need to have things people require to live and enjoy living," he says.

Pandemic-related tax changes

The pandemic fueled a variety of key tax changes for 2021 within the Coronavirus Aid, Relief, and Economic Security (CARES) Act that provided a $2.2 trillion economic stimulus, and then the $900 million coronavirus relief measure.

Potentially the biggest tax benefit was that direct payments made to Americans are viewed as advance tax credits, which aren’t taxable income. For people who met income thresholds, the payments were $1,200 per person in the CARES Act, and then $600 in the second round.

Also, the CARES Act waived required minimum distributions from retirement plans for 2020 tax returns and enabled some retirees to have lower taxable incomes and owe less in federal income taxes, according to Yahoo Money.

On the downside for taxpayers, however, unemployment payments are considered taxable income.

In addition, while the CARES Act allowed employers to defer the employee portion of the Social Security tax in their paychecks for the rest of 2020, the deferred amounts had to be paid back by the end of April 2021 and employers would withhold more in taxes in the first paychecks of the year. But the second relief measure extended the repayment deadline to Dec. 31, 2021, Yahoo Money reports.

According to the Journal of Accountancy, the relief measure clarified that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program loan to businesses.

Justin Owen, chief executive officer of the Nashville-based conservative-leaning think tank Beacon Center, says the Hall Tax targeted retirement income.

"Retirees seek locations that allow them to maximize their savings throughout retirement, and that always put Tennessee at a disadvantage against states that do not tax retirement income," he says. "Now that the Hall Tax is repealed, that is one less strike against Tennessee as a retirement-friendly destination."

Beacon Center long pushed to end the Hall Tax, which was instituted in 1929 and applied a 6% levy. The center says the Hall Tax "had long existed as an asterisk to Tennessee's proud claim to be income tax-free."

The state Legislature agreed in 2016 to start phasing out the Hall Tax. From the 6% rate, the levy was reduced each year though 2020. The Tax Foundation estimates about 200,000 Tennessee households paid the Hall Tax.

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