Extras on Excise: What’s Next for Tennessee’s Professional Privilege Tax?


 

Tennessee attorneys, accountants, dentists and physicians may be all too familiar with the state’s professional privilege tax—a $400 tax levied for the privilege of engaging in certain occupations within the state. However, two adjustments that occurred during the 2016 legislative session may be a sign of more changes to come, including a possible reduction or phase-out of the tax. 

Individuals licensed or registered in one of 22 occupations, whether or not those individuals are actually practicing in Tennessee, are currently subject to the annual tax, which has been imposed since 1992. 

In an effort to make things easier for taxpayers and to aid with collection of the tax, the general assembly enacted H.B. 1634 this year, which adds a new section, §67-4-1712, to the Tennessee code. The new section requires the department of revenue to notify each person subject to the tax of their liability, the due date for the tax, and electronic filing requirements. Notification must be done by May 1 each year. 

But the new notification requirement does not take effect until July 1, the start of the 2016-2017 fiscal year. So take note if you are licensed in one of the following occupations in Tennessee, because the tax is due June 1: 

  • Accountants
  • Architects
  • Attorneys
  • Audiologists
  • Broker-Dealers
  • Chiropractors
  • Dentists
  • Engineers
  • Investment Advisors
  • Landscape Architects
  • Lobbyists
  • Optometrists
  • Osteopathic Physicians
  • Pharmacists
  • Physicians
  • Podiatrists
  • Psychologists
  • Real Estate Principal Brokers
  • Securities Agents
  • Speech Pathologists
  • Sports Agents
  • Veterinarians

Bills that would reduce or repeal that tax were also considered this legislative season. 

S.B. 556, first introduced in 2015, was an attempt to repeal the professional privilege tax through an $80 reduction occurring annually from 2016 through 2020, when the tax would be fully phased-out. The gradual reduction/phase-out would have decreased state revenue each year, costing the state approximately $77.3 million dollars a year after the tax was fully phased-out, according to S.B. 556’s March 2015 fiscal note

However, a March 2016 rewrite of the bill eliminated the reduction and phase-out of the tax, and instead directs the Tennessee Advisory Commission on Intergovernmental Relations (TACIR) to study the history and intent of the tax, other states’ professional privilege taxes, and alternatives for phasing-out the tax, to avoid the fiscal impact eliminating the tax would have on the state. Proposals about exemptions from the tax for certain occupations or for nonresidents will also be considered.

TACIR must report its recommendations to the general assembly by Jan. 1, 2017.

   

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should the professional privilege tax be reduced or phased-out? 

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