TACIR Approves Reports on Privilege Tax and Legislative Compensation

Thursday, December 08, 2016 | 11:43am

The Commission concluded its reports on two studies at its December 2016 meeting.  The first, The Privilege Tax in Tennessee:  Taxing Professionals Fairly, responds to Public Chapter 1024, Acts of 2016 which directed the Commission to study the history of the professional privilege tax in this state, the intent of the tax, other states’ laws imposing professional privilege tax or similar tax, and alternatives for eliminating or phasing out the tax and make recommendations relative to the professional privilege tax.  The Act also directed the Commission to study the original language of Senate Bill 556 and House Bill 678, which would have phased out the tax over five years, Senate Bill 1919 by Bowling, House Bill 1951 by Hazlewood, which would have exempted some out-of-state professionals from the tax, and Senate Bill 167 by Bowling, House Bill 601 by Durham, which would have exempted audiologists and speech pathologists from the tax on the professional privilege tax.

The report says that after the General Assembly passed legislation in 2000 extending franchise and excise taxes to limited liability entities, some professionals that organize their businesses as limited liability corporations, limited partnerships, or limited liability partnerships and also pay the professional privilege tax argued that they were being double-taxed.  Although no legislation has been introduced to specifically address this concern, a common approach in such instances with other taxes is to provide a credit for one of the taxes against the other.  In addition, it says that if Tennessee were to eliminate its professional privilege tax all at once, it would cost the state an estimated $88 million a year in revenue.  If instead the tax were phased out over five years, as it would have been by the original version of Senate Bill 556, House Bill 678, state revenue would decrease by $17.6 million in the first year and by $264 million over five years.  Extending the phase-out period over a longer time would reduce the cumulative loss in revenue further.

The second report, Legislative Compensation:  Comparing Tennessee to Contiguous and Peer States responds to Senate Joint Resolution 463, which directs the Commission to conduct a survey of Tennessee’s surrounding states and compare the 2015-16 legislative compensation to that of Tennessee’s General Assembly to determine whether Tennessee legislators are adequately compensated and fully reimbursed for expenses.  On most aspects of legislative compensation, Tennessee is similar to its comparison states and falls close to the middle.  Tennessee’s legislators are paid an annual salary, a district office expense allowance, and may participate in the state’s health insurance and retirement programs.  In addition, they can be reimbursed for certain travel expenses.  During the 2015-16 General Assembly, state senators and representatives received a salary of $20,884 and $12,000 annually for district office expenses.  The report

  • recommends allowing legislators to decline all or part of their travel expense reimbursements so that they do not incur a tax liability for reimbursements they do not wish to receive;
  • discusses the possibility of paying larger office expenses to legislators serving geographically large districts;
  • discusses the possibility of using Metropolitan Nashville-Davidson County’s boundary as the delineating factor for travel reimbursement rather than the current 50-mile limit;
  • suggests the option of compensating legislators for intra-district travel expenses; and
  • suggests the option of creating an independent legislative compensation commission that could recommend or determine fair and appropriate compensation.