According to the latest numbers released by the state, Tennessee’s tax revenues have fallen short of projections by $494.2 million. The primary reason for this decline is a $277.5 million decrease in business, franchise, and excise taxes related to business activity and corporations. These figures cover the first nine months of the state’s fiscal year from August 2023 to April 2024.
April is typically the highest revenue month for Tennessee, with approximately 28% of the state’s business taxes collected during this time. However, the state has been struggling with missed projections in business taxes throughout the year.
Don Bruce, director of the Boyd Center for Business & Economic Research at Vanderbilt University, explained that franchise and excise collections are challenging to forecast due to their volatility, especially in an unusual economic environment like this year. Despite significant growth in business taxes over the past two years, high interest rates and a declining inflation rate have impacted revenue collections.
The decline in business tax revenue can also be attributed to last year’s tax cut, which was estimated to result in a $237.5 million revenue loss. Despite being already factored into the budget, tax collections are down almost $515 million when considering the shortfall and tax cut.
Democratic lawmakers voted against a new business tax enacted this year due to concerns about revenue estimates and other issues related to it. The fiscal review committee and Department of Revenue were involved in calculating this year’s tax cut estimate as well as estimating revenue for other sources such as sales taxes and personal income taxes.
