Tennessee Legislature Says ... Pardon Our Gas ... Tax Increase

After that title, this better be a good post, huh? Well, it’s been the number one story out of the legislature this year, but legislators have no interest in talking about it. It’s an unmentionable from their perspective because it has the two words that most Republican legislators fear the most … Tax and Increase.

The Politics

Governor Haslam has failed in previous years to gain the political consensus to fund Tennessee’s roadways, but this year, his proposal leaves nothing to chance. His second term is nearing its end, so he is putting on the full-court press (note the obligatory March Madness reference) to get the gas tax increase this year, and he has already made some concessions to keep the proposal viable.

Heck, he named the bill (SB1221/HB534) is the “IMPROVE Act.” How could a legislator not vote for that, right? The tax on out-of-state companies two years ago was the Revenue Modernization Act, so Governor Haslam has increased the rhetoric with IMPROVE, but again, he wants this bill to pass and to prove that he can gain a consensus on an important measure like this.

The Bill

The bill includes about 70 pages of specific projects in every county across the state, identifying who will benefit from the proposal. I’m talking about specific roads, so someone in Sumner County would benefit from proposed improvements to Vietnam Veterans Parkway, I-65 from Davidson County to the Kentucky state line, and expansion of the Hwy. 109 bypass in Portland. Absent from the list is completing the widening of Hwy. 109 to from Gallatin to I-40, which would pave the way for more Tennessee fans from Sumner County to be able to make a more expeditious trip to see their Vols play, but I guess we cannot have everything…Now that I think about it, listing certain roads could make some folks oppose the bill because their project is left off.

The proposal goes further to cut the sales tax on groceries, a popular tactic that politicians have used in recent years to show that tax cuts are not just benefitting the wealthy. But in that regard it also takes the next step in the phase-out of the Hall income tax by accelerating proposed tax cuts from 2016. 

The bill helps the elderly, the disabled and disabled veterans with broadened property tax relief. The bill also provides a weekly apple pie to every Tennessean … oh wait, got a little carried away there.

Not to leave business out of the mix, the proposal includes a popular change for Tennessee manufacturers – single sales factor for apportionment of franchise and excise tax. This is something that the Chamber has been trumpeting for years, and many states surrounding Tennessee have made this move long ago. Again, everyone gets something in this bill just so long as Governor Haslam gets his gas tax increase.

One interesting provision is the Local Option Transit Surcharge. This is a provision that allows a local jurisdiction to add a surcharge to such taxes as the local sales tax, business tax, tourism taxes, motor vehicle taxes, rental car taxes, and the property tax. Seems a little inconsistent than what is in the rest of the bill, but that’s because this is a nod to Nashville, Davidson County and their efforts to have a Transit Improvement Program. The catch with this provision is that the local government must propose the increase, and the voters of the local jurisdiction must approve such an increase through a referendum. Davidson County is probably the only jurisdiction in Tennessee that could even fathom such an effort, so this is a very narrow provision despite being drafted broadly.

The Road Ahead

As alluded above, the bill changed from its original form with reductions in the rates and the removal of indexing feature. There has also been an initial move to phase in the increase over three years. At this stage, however, everything could change. The changes to date have come out of the Senate, and the House has continued to kick the can down the road, exhibiting much more reluctance to take a position on whether to support the increase or not. With more hearings scheduled for this week, we may get a better picture of what the House may be willing to do.

As we have seen in the past, when it comes to votes ontax increases in Tennessee, this legislature has a difficult time casting those kinds of votes – not wanting to go on the record as potentially raising taxes on Tennessee voters. Looks like there will be such a vote this year, so all those Republican primary challengers are watching closely to see how that plays out. Good news did come out on Monday when the Americans for Tax Reform informed legislators that the road funding proposal as amended by the Senate does not violate their pledges not to raise taxes.

All that said, this vote should be a lay-up (second obligatory March Madness reference). Roads are a fundamental purpose of government, and based on the number of potholes on the interstates these days and the need to improve bridges and roads, we need to take the step to fix it – That is if the Legislature if willing to talk about it. We’ll see!