Tennessee’s tax revenues have fallen short of projections by $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 three business-related taxes – business, franchise, and excise taxes. These 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.
Missed projections in business taxes have been a consistent issue for the state throughout the year. Don Bruce, director of the Boyd Center for Business & Economic Research, noted that franchise and excise collections are notoriously difficult to forecast due to their volatility, and this year’s economic environment presented even greater challenges.
Over the past two years, Tennessee had seen significant growth in its business taxes, but high interest rates and a declining inflation rate led to a decrease in revenue collections. Higher inflation typically results in higher business tax collections, so as inflation rates dropped, revenue slowed down.
Another factor impacting business taxes was a tax cut implemented last year, which was estimated to result in a $237.5 million revenue loss. This loss was already factored into the budget, further contributing to the overall revenue shortfall. Due to these financial challenges, Democratic lawmakers voted against a new business tax enacted this year, which was estimated to cost $400 million per year. The fiscal review committee and the Department of Revenue were responsible for devising this year’s tax cut estimate.
