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In 1929, the Tennessee General Assembly enacted a tax on income derived from stocks and bonds. This tax was labeled the Hall income tax for Senator Frank Hall who introduced the bill. Counties and municipalities received a distribution of three-eighths of the Hall income tax that was collected in their jurisdictions with the remaining five-eighths of the tax going to the state.
Based on research done by Tennessee County Services Association, approximately 80 to 85% of the local revenue from the Hall income tax went to cities, with the remainder going to counties based on taxpayers living in the unincorporated areas. The amount received by counties varied greatly from county to county. Many smaller rural counties only received small amounts under the Hall tax while counties with a wealthier population or a heavy retirement community received larger amounts. The amount received under the Hall tax by counties also varied annually quite a bit based on market fluctuations.
In 2016, however, the Tennessee General Assembly passed a bill that began a phase out of the Hall income tax. The tax was reduced to 4% of taxable income for the tax year beginning January 1, 2017 and further reduced by 1% each subsequent year. The tax was fully phased out on January 1, 2021. Although the Hall income tax didn't account for a substantial amount of revenue for most county governments, counties should be aware for planning purposes that the Hall income tax will not be collected in 2021 and subsequent budget years.