Newspaper article News Sentinel

State Business Taxes Get Review

Newspaper article News Sentinel

State Business Taxes Get Review

Article excerpt

NASHVILLE -- Leaders of the legislative committee that oversees Tennessee's tax laws say they believe a state Department of Revenue study of a downward spiral in collections from businesses will lead to an administration push for changes to the state's franchise and excise levies next year.

"I think you'll see a 'technical corrections 2.0' or something like that," Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, said.

"Now that we know there's a problem, we have to logically go through the process of deciding what to do about it," said House Finance Committee Chairman Charles Sargent, R-Franklin. "It's a very complicated situation, but I think we'll get there."

Under former Gov. Phil Bredesen, the Department of Revenue would annually file a "technical corrections" bill on state tax statutes, typically with the stated purpose of closing loopholes that tax lawyers and accountants had discovered and were using to reduce company tax payments to the state.

The bills were often roundly criticized by Republican legislators, and Gov. Bill Haslam

See Change, 14A

dropped the practice -- and doubtless would avoid using the term "technical corrections" in any future endeavor.

But state collections in the current fiscal year are $222.4 million below projections made when the current budget was adopted in April of 2013 with most of the shortfall coming in franchise and excise collections. That has led to state budget cuts, both in the current year and for the next fiscal year, starting July 1. One casualty was pay raises for teachers and state employees that Haslam planned in February but scrapped in April after tax collection data was updated.

The franchise tax is a levy on either a company's net worth or its properties held in Tennessee, whichever is greater. The tax rate is 25 cents per $100 of that value. The excise tax amounts to a corporate income tax, levied at 6.5 percent. Both involve complicated formulas and myriad exemptions.

There have been multiple ideas on what is causing the revenue loss -- ranging from exploited loopholes to a normal cycle of business ups and downs -- and Haslam has ordered the Department of Revenue review to be completed by the year's end, declaring it premature to speculate in the meantime. The governor said any change must be approached cautiously because a revision to one part of the state tax law can cause "50 other issues" elsewhere in dealing with companies and trying to promote job creation in a "business friendly" atmosphere.

A Nashville tax lawyer, writing in the national publication State Tax Notes, contends the problem isn't really that complicated. Brett Carter cites the relocation in 2012 of McKesson Corp.'s pharmaceutical distribution center from Memphis to Olive Branch, Miss., just across the state line. Using figures from national sources and from pending lawsuits for tax refunds, Carter calculated that move alone cost the state up to $150 million per year in lost revenue, not just from McKesson but from pharmaceutical companies whose products were being stored in the company's warehouses, triggering state franchise tax payments for those companies as well when treated as part of property in Tennessee. …

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