Tennessee has the Fourth Lowest State and Local Tax Burden in the Nation for FY 2016

Apr 19, 2018

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In Fiscal Year (FY) 2016, Tennessee collected $22.5 billion in state and local taxes—or $3,381 for every man, woman, and child. 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?


To better answer this question, this analysis will calculate Tennessee’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.



Click here to view tax burden data by state, type of tax, and for years 1950 to 2016


Fortunately for taxpayers, as shown in Chart 1, Tennessee’s state and local tax burden (tax collections divided by private sector personal income) was the fourth lowest in the nation for FY 2016 at 11.4 percent—or -20 percent below the national average of 14.3 percent.


Chart 1 Tennessee State and Local Tax Burden FY 2016.jpg


#Tennessee state and local #taxburden in FY 2016 was the 4th lowest in the nation at 11.4%— -20% below US average of 14.3% @keypolicydata #TNpol #TNleg #TNsen #TNgov #PolicyData (click to tweet)


As shown in Chart 2, Tennessee’s tax burden has increased over time by 31 percent to 11.4 percent in FY 2016 from 8.7 percent in FY 1950.


Chart 2 Tennessee State and Local Tax Burden by Type of Tax FY 1950 to 2016.JPG


#Tennessee state and local #taxburden has increased 31% between FY 1950 (8.7%) to 2016 (11.4%) @keypolicydata #TNpol #TNleg #TNsen #TNgov #PolicyData (click to tweet)


Click here to view tax burden data by state, type of tax, and for years 1950 to 2016



To put Tennessee’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Tennessee’s 11.4 percent tax burden is greater than these combined industries: construction (6.7 percent), arts, entertainment, and recreation (2 percent), and educational services (1.5 percent).


Chart 3 Tennessee State and Local Tax Burden vs. Major Industry FY 2016.JPG


#Tennessee state and local #taxburden > combined industries: construction, arts/entertainment, and educational services @keypolicydata #TNpol #TNleg #TNsen #TNgov #PolicyData (click to tweet)


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—and recently repealed its tax on interest and dividends, called the Hall income tax, and is being phased out with the 6 percent rate reduced 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. 4.5 percent, respectively) and ranked as the 5th lowest in the country.


However, Tennessee’s tax burden would be even lower were it not for the sales tax which was 41 percent higher than the national average (4.7 percent vs. 3.4 percent, respectively) and ranked as the 9th highest in the country. Additionally, the corporate income tax was 58 percent higher than the national average (0.8 percent vs. 0.5 percent, respectively) and ranked as the 5th 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 20 Tennessee counties with the highest local government tax burden include:


  • Sevier County, TN (9.3 percent)
  • Lake County, TN (8.0 percent)
  • Haywood County, TN (7.5 percent)
  • Madison County, TN (7.4 percent)
  • Shelby County, TN (6.6 percent)
  • Putnam County, TN (6.0 percent)
  • Perry County, TN (6.0 percent)
  • Anderson County, TN (5.9 percent)
  • Hardeman County, TN (5.9 percent)
  • Bledsoe County, TN (5.8 percent)
  • Lauderdale County, TN (5.7 percent)
  • Hardin County, TN (5.4 percent)
  • Coffee County, TN (5.4 percent)
  • Cocke County, TN (5.2 percent)
  • Van Buren County, TN (5.2 percent)
  • Wayne County, TN (5.2 percent)
  • Hamblen County, TN (5.1 percent)
  • Sullivan County, TN (5.1 percent)
  • Rhea County, TN (5.1 percent)
  • Scott County, TN (5.1 percent)


The 20 Tennessee counties with the lowest local government tax burden include:


  • Loudon County, TN (3.5 percent)
  • Overton County, TN (3.4 percent)
  • Bradley County, TN (3.4 percent)
  • Smith County, TN (3.4 percent)
  • Chester County, TN (3.4 percent)
  • Wilson County, TN (3.3 percent)
  • Johnson County, TN (3.3 percent)
  • White County, TN (3.3 percent)
  • Cheatham County, TN (3.2 percent)
  • Sumner County, TN (3.1 percent)
  • Tipton County, TN (3.1 percent)
  • Union County, TN (3.1 percent)
  • Grainger County, TN (3.1 percent)
  • Unicoi County, TN (3.0 percent)
  • Trousdale County, TN (3.0 percent)
  • Cannon County, TN (2.9 percent)
  • Lincoln County, TN (2.8 percent)
  • Meigs County, TN (2.8 percent)
  • Williamson County, TN (2.3 percent)
  • Fayette County, TN (1.8 percent)


Chart 4 Tennessee Local Tax Burden by County FY 2016.JPG


Click here to view tax burden data by state, type of tax, and for years 1950 to 2016


Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?





Category: Tax Burdens

J. Scott Moody

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.

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