The Hall Tax Repeal and What it Means in Tennessee


Tennessee has never had a state income tax on earned income, but the 6% Hall Tax (named for its sponsor, Senator Frank S. Hall), enacted in 1929, is a tax on unearned income, specifically on interest and dividends*. The Hall Tax is in effect, the only “income tax” in Tennessee.

In the final week of the 2016 session of the Tennessee General Assembly, the Assembly voted to phase out the Hall Tax by 2022. If the governor signs the bill into law, and he is not expected to veto it, Tennessee will be well on its way to having no state income tax on income of any kind.

Repeal Provides Tax Relief for Retirees

Because the Hall Tax applies to interest and dividend income (from corporations, investment trusts, and mutual funds—including capital gains distributions from mutual funds), over half the tax paid to the state from the Hall Tax ($303 million in fiscal 2014) comes from middle class retirees who have invested in 401K’s or mutual funds. The average tax liability in 2014 was about $1,400 per person—a significant amount of tax that will be relieved for retirees by the repeal of the Hall Tax.

Loss of Hall Tax Revenue Will Actually Benefit the State

Lost tax revenue can be detrimental in some cases, but the repeal of the Hall Tax will actually provide significant benefit to the state according to Andy Ogles, state director of Americans for Prosperity-Tennessee, a leader in the grassroots support for the repeal. He has said the repeal of the Hall Tax will make Tennessee an even more attractive destination for retirees and owners of Subchapter S corporations.

In their testimony on the Hall Tax , the Tennessee Department of Economic and Community Development said Tennessee has about 400 venture capital investors, while competing states with similar population and no penalty on income investment have twelve times this number. The repeal of the Hall Tax is expected to attract more venture capital investors to the state which will grow the number of jobs in Tennessee—a benefit to the state’s economy in many ways.

*The tax applies to people who maintain their legal residence in Tennessee, including part-year residents who live in the state at least six months of the year. The tax is levied on interest/dividend income that totals over $1,250 per person or $2,500 for married couples filing. Some exemptions do exist for blind people, quadriplegics, and people over.