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Tennessee To Become the Eighth No-Income Tax State

July 26, 2016

 

Tennessee became the eighth state to fully eliminate the personal income tax in April of this year. Labor income had been non-taxable already, but investment income was subject to a tax since 1929. The new law eliminates the so called Hall Tax on investment income, truly making Tennessee an income tax-free state. The new law has a six year phase in, so investment income will be still subject to tax until 2022.

 

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are the other states that currently do not impose an income tax. New Hampshire does not impose an income tax on labor. but does impose an investment income tax like that in Tennessee. Many of these states earn tax income from unusually high natural resources exports or tourism. Alaska and Texas benefit from high energy residuals. Nevada benefits from gaming revenues. Florida relies on a robust tourism industry. 

 

Maryland, Virginia, and the District of Columbia are expected to impose income taxes on its residents for the foreseeable future. This is in addition to real property tax, fuel taxes, communications taxes, excise taxes, personal property tax, sales tax, estate tax, and a variety of fees and other niche taxes. The three jurisdictions rely heavily on taxes imposed on income from and activities by federal workers, as well as the industries clustered around metropolitan DC that serve the federal government. 

 

Some states that do not have income taxes impose unusually high taxes in other areas. New Hampshire is notorious for high personal and real property taxes and fees. Even Virginia, which has an income tax, imposes a stiff personal property tax on individual residents in additional to businesses. Maryland and DC impose personal property tax only on businesses. Virginia has offset some of this negative perception over personal property tax by keeping its income tax slightly lower than that of Maryland and DC and by steeply abating business taxes on large employers.

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