Tennessee’s $494 Million Business Tax Revenue Shortfall: What it Means for the Future and How to Stabilize collections

Tennessee’s Business Tax Revenues for 2023-24 Continue to Fall Below Predictions

In recent news, Tennessee tax revenues have fallen short of projections by a staggering $494.2 million. According to the latest revenue numbers released by the state on Friday, the decline in revenue is primarily due to a $277.5 million drop in the state’s business, franchise, and excise taxes on business activity and corporations. These latest numbers cover the first nine months of the state’s fiscal year from August 2023 to April 2024, with April being Tennessee’s highest revenue month, accounting for roughly 28% of business taxes collected.

Despite these challenges, the Tennessee General Assembly recently enacted another business tax, estimated to cost $400 million per year. Democratic lawmakers opposed the new tax citing concerns over revenue loss and budget accuracy. However, Don Bruce, director of the Boyd Center for Business & Economic Research at the University of Tennessee explained that franchise and excise collections are challenging to forecast due to their volatility.

The ongoing issue of missed projections in state business taxes has been an ongoing concern throughout the year. In today’s economic climate, with high interest rates slowing down the U.S economy and a decrease in inflation rates, Tennessee has seen a decline in revenue collections. The Fiscal Review Committee and Department of Revenue were responsible for estimating the impact of last year’s tax cut and new business tax cuts that was estimated to result in a $237.5 million loss in revenue that was already factored into budget projections when combined with other factors such as inflation rates it makes it harder for them to predict future revenues accurately.

In conclusion, it is imperative that Tennessee addresses this revenue shortfall soon and finds ways to stabilize tax collections for future years. The state should focus on improving its ability to forecast volatile revenues such as franchise and excise collections while also exploring alternative sources of revenue streams such as value-added taxes or other forms of income-generating policies.

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