In Fiscal Year (FY) 2011, Tennessee collected $19.1 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 the charts below, Tennessee’s state and local tax burden (tax collections divided by personal income) was the second lowest in the nation for FY 2011 at 8.2 percent—or 21.2 percent below the national average of 10.5 percent. Unfortunately, the tax burden has grown over time by 15.4 percent to 8.2 percent in FY 2011 from 7.1 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 at a 6 percent tax rate. Additionally, relative to the national average, the property tax burden is 36 percent lower (2.2 percent vs. 3.5 percent).
However, Tennessee has problems with the corporate income tax (11th highest at 0.56 percent) and the sales tax (8th highest at 3.52 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 9.44 percent which is the highest in the country.
J. Scott Moody has over 18 years 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 Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.