In Fiscal Year (FY) 2015, Tennessee collected $21.3 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Tennessee taxpayers can afford this level of taxation.
As shown in Chart 1, Tennessee’s state and local tax burden (tax collections divided by private sector personal income) was the fifth lowest in the nation for FY 2015 at 11.4 percent—or -21 percent below the national average of 14.4 percent.
As shown in Chart 2, Tennessee’s tax burden has increased over time by 31 percent to 11.4 percent in FY 2015 from 8.7 percent in FY 1950.
As shown in Chart 3, Tennessee’s 11.4 percent tax burden is greater than these combined industries: retail trade (7.3 percent), accommodations and food services (3.7 percent), and utilities (0.2 percent).
Tennessee’s low state and local tax burden is driven primarily by the fact that it does not have a broad-based state individual income tax—though the state does tax interest and dividends, called the Hall income tax. More good news for taxpayers, the Hall tax is being phased out with the 6 percent rate falling to 5 percent in 2016 with full elimination by 2022. Additionally, relative to the national average, the property tax burden is -33 percent lower (3 percent vs. 4.4 percent, respectively) and ranked as the 7th lowest in the country.
However, Tennessee’s tax burden would be even lower were it not for the corporate income tax which was 40 percent higher than the national average (0.75 percent vs. 0.53 percent, respectively) and ranked as the 8th highest in the country. Additionally, the sales tax was 37 percent higher than the national average (4.4 percent vs. 3.4 percent, respectively) and ranked as the 10th highest in the country.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Tennessee—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The Tennessee counties with the highest local government tax burden include:
The Tennessee counties with the lowest local government tax burden include:
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 65 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.