In Fiscal Year (FY) 2013, Tennessee collected $20.5 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 taxpayer can afford this level of taxation.
As shown in Chart 1, Tennessee’s state and local tax burden (tax collections divided by personal income) was the third lowest in the nation for FY 2013 at 8.1 percent—or 22 percent below the national average of 10.3 percent. Unfortunately, as shown in Chart 2, the tax burden has grown over time by 15 percent to 8.1 percent in FY 2013 from 7 percent in FY 1950.
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, at a 6 percent tax rate. Additionally, relative to the national average, the property tax burden is 36 percent lower (2.1 percent vs. 3.2 percent).
However, Tennessee has problems with the corporate income tax (9th highest at 0.5 percent) and the sales tax (9th highest at 3.4 percent). The reason for Tennessee’s high sales tax burden is because of high state and local statutory tax rates. In fact, the Tax Foundation found that the combined state and local tax rate is 9.45 percent which is the 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: Sevier County, TN (5.9 percent), Shelby County, TN (4.3 percent), and Davidson County, TN (3.8 percent). The Tennessee counties with the lowest local government tax burden include: Fayette County, TN (1.3 percent), Trousdale County, TN (1.3 percent), and Meigs County, TN (1.4 percent).
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.