Single Article Cap and other Taxes

 Five years ago I started off with the TML push for an increase in the Single Article Cap.

The municipalities were continuing their push for equality with counties with the 5% commission.

Background

T.C.A. 67-4-704 authorizes municipalities and counties to levy a local business tax. The contents of this statute can be summarized as follows:

  • Authorizes municipalities and cities to levy   a tax on the gross receipts of local retail and wholesale businesses.
  • Establishes a tax schedule that provides the maximum tax rate allowed for retail and wholesale businesses in five different classifications.
  • Requires the municipality or county to remit   15 percent of the local revenues collected pursuant to the statute to   the state.

In July of 2002, the Tennessee General Assembly enacted a tax package (Public Chapter 856 of the Acts of 2002) that was anticipated to raise $933 million in new revenue. The Act included a provision which significantly altered the local business tax. Specifically, the Act made the following changes:

  • Preserved the requirement that the   municipality or county remit 15 percent of the local revenues collected   pursuant to the statute to the state.
  • Created a “state business tax” by   mandating an across-the-board increase in the maximum tax rate provided for   each classification by 50 percent.
  • Required the municipality or county to remit   100 percent of the revenues collected that were attributable to the new “state   business tax” (50 percent increase in the maximum rates) to the state.
  • Prohibited those municipalities and counties   that levied a local business tax in place in 2002 from reducing their tax   rates at a future date.
  • Allowed those cities that adopted tax rates   at a fraction of the maximum, prior to the 2002 amendments, to increase their   rates at a future date; provided the increase did not exceed the new maximum   rates established in the Act.
  • Allowed those municipalities or counties that   had elected not to levy a local business tax to do so at a later date;   provided the new tax did not exceed the new maximum rates established in the   Act.

Problem

As a result of the 2002 amendments (Public Chapter 856) to T.C.A. 67-4-704, municipalities and counties must collect, process, and remit the statutorily mandated portions of the revenues derived from the local business tax to the state. Consequently, the statute requires municipalities and counties to expend additional man hours and resources to perform the tasks associated with the collection and remittance of the state’s portion of the tax.

T.C.A. 8-21-701 seems to acknowledge the likelihood that local governments will incur additional expenses and provides a mechanism whereby counties may recoup a
portion of their costs associated with the mandatory collection and remittance of state taxes and fees. Specifically, 8-21-701 (55) authorizes counties to demand and receive five percent of the total amount collected and paid over to the state to compensate for the costs incurred collecting and remitting state taxes or fees. Therefore, counties are able to recoup a portion of the costs incurred collecting, processing and remitting the state’s portion of the local business tax. However, no such allowance is made for municipalities under Tennessee’s statutes.

Municipalities have to absorb all the costs associated with the state’s portion of the local business tax, while counties are allowed a commission to offset the costs of performing the same state-mandated tasks. Clearly, the absence of comparable legislation authorizing municipalities to levy a five percent commission has led to a disparity between the state’s treatment of municipalities and counties in this area.

Proposed Remedy

Amend T.C.A. 6-56-1 to allow municipalities to charge a commission for collecting state taxes and remitting those revenues to the state. This authority would be identical to the authority extended to the counties in Section 8-21-701 (55)

Anticipated Benefits to Municipalities

Since the inception of the “state business tax” in 2002, municipalities have had to absorb all costs associated with the collection, processing and remittance of the state’s portion of the local business tax.

If the statutes were amended to allow municipalities to charge five percent for performing tasks associated with the “state business tax,” then municipalities would be able to recoup some of the costs incurred as a result of this state mandate; thereby eliminating the current inequity. Last year, alone, Tennessee’s cities were denied an additional $2.8 million in funds they would have received had they, like the counties, been authorized a five percent commission for collecting and remitting the state’s portion of the local business tax.

Here’s the truth:

The Tennessee State Legislature, although wrong in doing so, imposed this tax to raise revenue for the state. The cost associated with the redistribution of these funds by cities and counties is nominal if not close to non existent. Secondly the counties foresaw this and lobbied for relief while the cities sat back and cried.

None of this condones the acts of the state nor the transfer of 5% back to the municipalities but I guess if we are going to be fair about a bad act upon the taxpayers we should probably let this one pass.

Now Today:

Tennessee levies a 7% tax on sales of most merchandise and some services. Local governments are allowed to charge additional taxes up to 2.75% on the first $1600 of the purchase price. For items priced between $1600 and $3200, the state levies a 9.75% tax on the amount exceeding $1600, with no local option tax. For items costing more than $3200, the state ”caps” the tax rate at 7% on the amounts exceeding $3200.

The Tennessean’s for Fair Taxation don’t much like this and I can’t blame them, “The cap is an unjustified tax break for upper income individuals and businesses. If the buyer can afford to buy items that cost more than $3200, he or she can afford to pay tax at the same rate as everyone else.”

Their solution:

Increase revenue for the state and raise Taxes.

In 2011, Single Article Cap Removal Act (SB1417/HB1913) was introduced by Senator Douglas Henry (D) District 21 and Representative Mike Stewart (D) District 52. This bill would:

  • Eliminates the cap by extending the 9.75% rate to the full value of all “big-ticket” items.
  • Exempts mobile homes and manufactured housing if used as the primary residence.
  • Exempts vehicles on the amount exceeding $3,200 up to $10,000.
  • Raise $85 million in additional revenue for Tennessee

I am going to be fair… it was just them but the Tennessee Health Care Campaign, Inc. that wanted to help as well. But they also supported, what I call the Let’s Drive Small Businesses Out of the State Act…. or formerly known as “Tennessee Small Business Protection Act” (SB1614/HB1914) Sponsored by Senator Marrero and Representative Stewart as well as the unconstitutional Out-of-State Sales Tax Act (SB1489/HB1912) Sponsored by Senator Marrero and and that busy Representative Stewart. 

The purpose of this bill was: in order to fund our public structures adequately we must be efficient at collecting the taxes that are due. Many out‐of‐state vendors (internet and catalogue) tempt Tennesseans to dodge sales tax by not collecting it.

League of Women Voters® of Nashville also chimed in on this one.

This is what they say:

The League The League of Women Voters is a nonpartisan political organization encouraging informed and active     participation of citizens in government. It influences public policy through education and advocacy. We never support or oppose any political party or candidate.

The League of Women Voters has two separate and distinct roles.

  • Voters Service/Citizen Education: we present unbiased, nonpartisan information about elections, the voting process, and issues.
  • Action/Advocacy: we are nonpartisan, but, after study, we use our positions to advocate for or against particular policies in the public interest.

To conduct our voter service and citizen education activities, we use funds from the League of Women Voters of Tennessee Education Fund, which is a 501(c)(3) corporation, a nonprofit educational organization. The League of Women Voters, a membership organization, conducts action and advocacy and is a nonprofit 501(c)(4) corporation.

This is what they do:

  • prepared a letter with a compelling rationale for the eligibility expansion of Medicaid (TennCare) in Tennessee that is encouraged under the Affordable Care Act. This letter supported providing adequate health care coverage to thousands of uninsured Tennesseans and also has profound economic repercussions for the entire state.
  • Another issue for legislators this year will be school vouchers (“opportunity scholarships”) and expansion of charter school legislation. We were introduced to the topic in October with our First Friday session on education.
  • urging the expansion of voluntary pre-k classrooms in this year’s budget

They all want more…. and quietly …. behind the scenes… they have been getting it.

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