PLUSES AND MINUSES
Estimated annual revenue gain or (loss) from tax and fee changes:
• Amazon sales tax, 2014: $32.4 million
• Intangible expenses: $12.5 million
• Expungement fees: $16.4 million
• Gift tax: ($14.9 million)
• Food tax: ($20.4 million)
• Inheritance tax, 2016: ($104.1 million)
Source: State budget
NASHVILLE -- Tennessee's Republican governor and legislative leaders are touting an estimated $164.1 million in tax cuts set to take place by 2016 through phasing out the state's inheritance tax, eliminating the gift tax and lowering the sales taxes on groceries from 5.5 percent to 5.25 percent.
"We cut taxes really three times," Gov. Bill Haslam said, noting that last year lawmakers also trimmed the Hall income tax on interest and dividend income. "This year it was fairly significant."
But while giving breaks with one hand, lawmakers are taking some of that money back with the other.
For example, lawmakers passed legislation requiring Amazon.com to begin collecting state and local sales taxes in 2014. The Internet retailing giant has three distribution centers in Tennessee, including two in Hamilton and Bradley counties.
Lawmakers also approved Haslam's legislation tightening definitions of "intangible" expenses corporations can claim against state franchise and excise taxes. Those expenses include payments on items like patents and trademarks to separate but affiliated out-of-state companies.
Some are legitimate expenses, but the Revenue Department argues some deductions are simply a ruse to reduce taxes.
The Amazon provision is expected to raise $22.8 million a year for the state and $9.64 million for local governments.
Stricter accounting on "intangible" expenses should raise more than $12.5 million, a legislative analysis states.
Altogether, that's right at $45 million a year.
But lawmakers raised some fees in the civil and criminal justice area. They made it easier for people convicted of many nonviolent crimes to have their records expunged, while raising the fee for doing so from $50 to $350.
That should generate about $16.4 million a year, with $7 million going to the general fund, $2.4 million to the Tennessee Bureau of Investigation, $700,000 to public defenders and $6.3 million to prosecutors, who will have to process the requests.
Sales taxes account for 54 cents of every dollar the state collects.
Dick Williams, chairman of the advocacy group Tennesseans for Fair Taxation, said that, as a whole, this year's actions don't do enough for most state taxpayers.
"It's a sort of continuation for tax breaks [for those who] don't need it as much as others, and a pretty small tax relief on the food tax," Williams said. "We appreciate that, but think the food tax ought to be [reduced] more as long as it's replaced" elsewhere in the tax code.
He said Tennessee's tax structure is "unfair and inadequate" so that "upper-income families are paying much less than their share of income than lower-income families."
"Death tax" to die in 2016
The state will lose an estimated $104.1 million in revenue annually when the inheritance tax is eliminated, Revenue Department estimates show.
Opponents of the levy call it the "death tax."
Tennessee is among 19 states with inheritance or estate taxes. In Tennessee, the rate ranges from 5.5 percent to 9.5 percent.
Last fiscal year, 845 families paid $98 million in inheritance taxes.
The phase-out first raised the exemption to $1.25 million, then $2 million in 2013-14, and $5 million in 2014-25 before eliminating the tax in 2016.
Dropping the tax on estates of $5 million or more will affect 39 families a year, Revenue Department officials project.
The gift tax will end July 1, costing the state about $15 million a year. The tax ranges from 5.5 percent to 16 percent on gifts of $13,000 or more to family members, and gifts of $3,000 or more to nonfamily members.
Senate Speaker Ron Ramsey, R-Blountville, said he thinks the state's tax-cutting priorities are in the right order.
"I'm going to say I'm the one that doesn't neccessarily advocate for doing away with the sales tax on food," Ramsey said. "I think that everybody needs a stake in their government."
Republicans and Democrats agree the tax on food is the most stable portion of the state sales tax, but Democrats argue it needs to be trimmed more in fairness to everyone.
As for phasing out the inheritance tax, Ramsey said that will "increase the job creators' capital" and generate more jobs.
"I do believe that by eliminating the death tax we'll have a net increase in revenues coming in to the state of Tennessee," he said.
In April, Democratic Caucus Chairman Mike Turner, of Nashville, scoffed at that position. He argued that while farmers should be helped, eliminating the inheritance tax entirely helps few.
"I don't think all these other 6 million [people] are really all that excited about this," Turner said. "If I was paying an inheritance tax, I might be excited."
Cutting the state's sales tax on food affects everyone, Turner said.
Conservative economist Arthur Laffer, a transplant to Tennessee who formerly advised President Ronald Reagan on tax cuts, championed the elimination of the inheritance tax.
Laffer wrote a report saying wealthy people were fleeing Tennessee to other states that don't have such taxes. He argued that killing inheritance and gift taxes a decade ago would have generated 220,000 additional jobs.
But the Washington, D.C.-based Institute on Taxation and Economic Policy, a think tank that focuses on tax fairness and sustainability, called Laffer's report "severely flawed" and said it "fails to provide any evidence for this dramatic claim."
Contact staff writer Andy Sher at 615-255-0550 or email@example.com.