Tennessee 2023-24 business tax revenues continue to fall short of predictions

Published 2:38 pm Thursday, May 23, 2024

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By Adam Friedman

Tennessee Lookout

Tennessee tax revenues are now $494.2 million short of projections, the latest revenue numbers released by the state on Friday show. 

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Driving the revenue decline is a $277.5 million combined drop in the state’s three taxes — business, franchise and excise — on business activity and corporations. The latest numbers cover the first nine months of the state’s fiscal year from August 2023 to April 2024. 

April is Tennessee’s highest revenue month, with roughly 28% of the state’s business taxes collected during it. 

Missed projections among the state business taxes have plagued the state the entire year. 

Don Bruce, director of the Boyd Center for Business & Economic Research, said franchise and excise collections are “notoriously difficult to forecast due to their volatility,” and this year, the state faced an even more unusual economic environment. 

For two years, Tennessee saw significant growth in its business taxes, setting a new, higher bar for revenue collections. But high interest rates slowed down the overall United States economy and a falling inflation rate meant the state collected less revenue. 

Bruce said higher inflation usually leads to higher business tax collections, so as it has receded, those revenues slowed down.

The other factor impacting business taxes was last year’s tax cut. The Tennessee General Assembly’s Fiscal Review Committee, with help from the Department of Revenue, estimated that it would result in a $237.5 million revenue loss. 

But this number was already factored into the budget, meaning tax collections are down almost $515 million when combining the shortfall and tax cut. 

A miss in these estimates was one of several reasons Democratic lawmakers voted against another business tax enacted this year, estimated to cost $400 million per year. The fiscal review committee and the Department of Revenue also devised this year’s tax cut estimate.