Index places Tennessee 8th on business tax environment list

Index places Tennessee 8th on business tax environment list

January 6, 2022 0 By Jon Styf

Tennessee ranks as the eighth-best state in tax environment for businesses, according to the Tax Foundation’s 2022 State Business Climate Tax Index.

While Tennessee ranked 46th in sales tax, it was individual taxes (sixth-place finish) that pushed the state into the top 10.

“The tax environment for small businesses in Tennessee is very good overall,” said Jim Brown, Tennessee state director for the National Federation of Independent Business (NFIB). “Notably, our state and local tax burden represented 7.0% of incomes in 2019, tied for second-lowest among states and well below the overall national tax burden of 10.3%. Not having an income tax has helped many businesses start and grow, and state leadership has done an outstanding job keeping unemployment taxes low through the pandemic, unlike some other states.”

The Tax Foundation is a nonprofit tax policy group that has operated since 1937. Its annual index is aimed at assessing how each state structures its total tax system and provides thoughts on improving that structure.

The index ranks states in five major tax categories and provides an overall ranking.

“This year, Tennessee finished the phaseout of its Hall Tax, which was levied solely on interest and dividends income, since the state already elected not to tax wage income,” the Tax Foundation report said. “With this change, the only remaining vestiges of non-corporate income tax treatment is in the state’s treatment of S Corporations and a low-rate gross receipts tax that applies to passthrough businesses, improving the state to sixth best on the income tax component. When combined with other states’ worsening treatment of unemployment insurance, this change brought the state’s overall score from 17th to 8th.”

Wyoming, South Dakota, Alaska, Florida and Montana led the Tax Foundation’s rankings. New Jersey, New York, California and Connecticut were the lowest ranking states.

“Areas of opportunity to help Tennessee business owners certainly exist, which would help improve job creation and capital investment, while growing the tax base long term,” Brown said. “NFIB believes reforms to the burdensome, inefficient tangible personal property tax would help many small businesses, as would eliminating the discriminatory professional privilege tax on certain professions, once and for all.

“Lawmakers down the road also may consider reducing Tennessee’s corporate ‘franchise & excise’ tax, which is second highest among neighboring states.”

Tennessee already has collected $1.2 billion more in taxes this fiscal year than it projected in its budget. That total includes sales and corporate taxes.

Franchise and excise taxes were $81.8 million more than estimated in November and are $401.4 million more than estimated for the fiscal year.

This article was originally posted on Index places Tennessee 8th on business tax environment list