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2016-17 Tennessee State Tax Planning Guide



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The 109th General Assembly enacted significant changes to tax laws in Tennessee in its 2015-16 session impacting both individuals and businesses. For individuals, lawmakers passed landmark legislation that reduces and eventually phases out entirely the Hall Income Tax on stock dividends and bond interest. The law will remove the last vestiges of any type of personal income tax in Tennessee by Jan. 1, 2022.

While that legislation received a great deal of media attention, much larger and more fundamental changes are in store for business taxes. The adoption of Gov. Bill Haslam’s Revenue Modernization Act in 2015 was aimed at increasing and stabilizing business tax revenues as well as leveling the playing field between Tennessee and out-of-state competitors. The changes put Tennessee in line with other states that have adopted similar nexus and market-based sourcing measures that, in general, offer states a new way to capture more revenue without large tax increases on in-state businesses.

The state also continued to tweak its economic development incentive programs. In 2015, lawmakers expanded tax credits for equipment purchased for research and development. It also created credits for moving back-office functions to Tennessee, even if a headquarters itself is not moved. In 2016, to spur more development in rural parts of Tennessee, the state made it easier for businesses to receive valuable tax credits for job creation in distressed counties under the Rural Economic Opportunity Act. That act also increased grants to those counties for site and infrastructure development.

Meanwhile, nearby states made changes to tax structures — some slight adjustments, others more pronounced.

The guide explores some of the major changes in Tennessee and highlights tax news in nearby states.