TN Hall Income Tax

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climbhigh
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TN Hall Income Tax

Post by climbhigh »

Hello All - is anyone familiar with Tennessee's "Hall Income Tax" on investments? Its a 6% tax on "taxable interest and dividend income...exceeding $2,500 married filing jointly."

According to the information on the state's website, capital gains from the sale of real estate, stock, etc., are not subject to the tax but capital gain distributions from
mutual funds are taxable. What about ETFs? Last year I had about 8k in capital gains from a vanguard mutual fund (mid-cap index fund) and 5k in cap gains from vanguard ETFs (small cap ETF and energy ETF). Am I responsible for paying tax only on the mutual fund or on everything?

Thanks,
Chris
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JDCarpenter
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Re: TN Hall Income Tax

Post by JDCarpenter »

I pay on the ETF cap gain distributions, but have not contacted the department of revenue or done extensive research on it (not enough at stake yet). Here is the language that led me to the conclusion that it is taxed:

[In discussion of what is taxable income, from https://apps.tn.gov/etax/glossary.html ]:
Income from investment trusts and mutual funds, including capital gain distributions, whether in cash or additional stock, is taxable. Portion of income derived from bonds of U.S. Government and its agencies or bonds of the state of Tennessee and its counties and municipalities is exempt.

Any distribution which does not qualify as a return of capital and is otherwise taxable. In order to qualify as a return of capital, it must be shown that part of the shareholder's investment is being returned to the shareholder and that, as a result, the capital of the company is actually reduced. ...
Given this language and the close familial resemblance with open end mutual funds and investment trusts, seems taxable.
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pshonore
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Re: TN Hall Income Tax

Post by pshonore »

Seems odd that they tax CG distributions from funds, but seem to exempt CGs from sale of stock.
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Toons
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Re: TN Hall Income Tax

Post by Toons »

climbhigh wrote:Hello All - is anyone familiar with Tennessee's "Hall Income Tax" on investments? Its a 6% tax on "taxable interest and dividend income...exceeding $2,500 married filing jointly."

According to the information on the state's website, capital gains from the sale of real estate, stock, etc., are not subject to the tax but capital gain distributions from
mutual funds are taxable. What about ETFs? Last year I had about 8k in capital gains from a vanguard mutual fund (mid-cap index fund) and 5k in cap gains from vanguard ETFs (small cap ETF and energy ETF). Am I responsible for paying tax only on the mutual fund or on everything?

Thanks,
Chris
I am very familiar with the Hall Tax as I live in Tn and will be paying 6% of interest and dividend on the same.
If you received a 1099-Div then that income is to be reported,Ordinary Income,Capital gains distributions. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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JDCarpenter
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Re: TN Hall Income Tax

Post by JDCarpenter »

pshonore wrote:Seems odd that they tax CG distributions from funds, but seem to exempt CGs from sale of stock.
With respect to most income taxation structures, and especially in the case of the Hall Tax, mere oddity is not very remarkable. :?
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Toons
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Re: TN Hall Income Tax

Post by Toons »

pshonore wrote:Seems odd that they tax CG distributions from funds, but seem to exempt CGs from sale of stock.
1099B-Transactions are Not reportable. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
dixiechicken
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Re: TN Hall Income Tax

Post by dixiechicken »

This is a year later but it is important for people to realize that only cap gain DISTRIBUTIONS from mutual funds are taxable under the Hall tax. If you sell the mutual fund (or stock or ETF) and have a capital gain that is NOT taxable.
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oldcomputerguy
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Re: TN Hall Income Tax

Post by oldcomputerguy »

dixiechicken wrote:This is a year later but it is important for people to realize that only cap gain DISTRIBUTIONS from mutual funds are taxable under the Hall tax. If you sell the mutual fund (or stock or ETF) and have a capital gain that is NOT taxable.
At least under the Hall tax.
:wink:
tbradnc
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Re: TN Hall Income Tax

Post by tbradnc »

Since I retired I've owed more to the state of TN courtesy of the Hall tax than I've owed to the Feds.

Dupree offers a few bond funds that are exempt from the Hall tax. http://www.dupree-funds.com/fund/TNTIX.html
jrhelp
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Re: TN Hall Income Tax

Post by jrhelp »

tbradnc wrote:Since I retired I've owed more to the state of TN courtesy of the Hall tax than I've owed to the Feds.

Dupree offers a few bond funds that are exempt from the Hall tax. http://www.dupree-funds.com/fund/TNTIX.html

Look at the expense ratio of this fund. Seems like paying the Hall Tax on a Vanguard product would be a better option
tbradnc
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Re: TN Hall Income Tax

Post by tbradnc »

jrhelp wrote:
tbradnc wrote:Since I retired I've owed more to the state of TN courtesy of the Hall tax than I've owed to the Feds.

Dupree offers a few bond funds that are exempt from the Hall tax. http://www.dupree-funds.com/fund/TNTIX.html

Look at the expense ratio of this fund. Seems like paying the Hall Tax on a Vanguard product would be a better option
I reached the same conclusion.
jlawrence01
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Re: TN Hall Income Tax

Post by jlawrence01 »

The TN Hall Income Tax seems to be a popular topic since the Wall Street Journal editorial on the Hall Tax came out last weekend. Do realize this tax has been in effect for nearly a century. (1929) It is a tax that impacts retirees disproportionately.

https://en.wikipedia.org/wiki/Hall_income_tax

When i was looking at retirement locations, I looked at KY, TN, and AZ. While Tennessee was said to have no personal income tax by many, the presence of the Hall Tax and the high sales tax (capped at 9.75%, averaging 9.4% statewide) WITHOUT exemptions for food and medicine made Tennessee the highest tax state of the three for my income level the next ten years. This despite being a state "with no income tax."
Carter3
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Re: TN Hall Income Tax

Post by Carter3 »

It's one of the things I frequently debate with regard to funding taxable account. One thing that I missed over the years was that it is taxing the CG on distributions, not the sale. Thanks Toons. glad to see so many fellow Tennesseans. :sharebeer
Last edited by Carter3 on Thu Mar 24, 2016 4:50 pm, edited 1 time in total.
Nowizard
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Re: TN Hall Income Tax

Post by Nowizard »

Most anyone can avoid most of the Hall tax with minimal planning. Those who invest in CD's and bonds can avoid the tax entirely with prudent choices. Interest from credit unions, Tennessee chartered banks, federal bonds, state bonds and many other items are deductible. Distributions from IRA's and SS are not taxed. It is a very small tax when compared to states with income taxes.

Tim
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JDCarpenter
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Re: TN Hall Income Tax

Post by JDCarpenter »

jlawrence01 wrote:The TN Hall Income Tax seems to be a popular topic since the Wall Street Journal editorial on the Hall Tax came out last weekend. Do realize this tax has been in effect for nearly a century. (1929) It is a tax that impacts retirees disproportionately.

https://en.wikipedia.org/wiki/Hall_income_tax

When i was looking at retirement locations, I looked at KY, TN, and AZ. While Tennessee was said to have no personal income tax by many, the presence of the Hall Tax and the high sales tax (capped at 9.75%, averaging 9.4% statewide) WITHOUT exemptions for food and medicine made Tennessee the highest tax state of the three for my income level the next ten years. This despite being a state "with no income tax."
Thanks--I haven't gotten to last weekend's papers yet! This quote from the article is revealing:
According to the Tennessee Department of Revenue, nearly half of all those filing this tax are seniors. About 40% of those paying the Hall Tax have income of less than $75,000 a year.
I haven't gone out of my way to structure our finances in light of this tax; having most funds in IRA/401k at retirement will be beneficial in this particular regard. Maybe even offset some of the federal hit. :?

Given that we left Illinois when we moved here, our overall tax burden is substantially less (and will continue to be so when we retire).
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Youngblood
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Re: TN Hall Income Tax

Post by Youngblood »

Both my wife and I (Tennessee residents) both have a significant pensions and not being taxed on this income is greatly appreciated.

In addition, CD's are not taxed.

So yes, you pay on dividends and capital gains from mutual funds or individual stocks but not capital gains on the sale of these.

Also, distributions from IRAs and 401(k) plans are exempt from the tax.

YB
"I made my money by selling too soon." | Bernard M. Baruch
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Toons
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Re: TN Hall Income Tax

Post by Toons »

We retired to Tn.
Really like living in this part of the world.
Hey, you are going to pay taxes where ever you live ,
one way or the other.
Sales tax is over 9%.
Pensions ,Ira withdrawals not taxed.
Yes Hall tax gets 6% of divs,cap gains distributions over 2500 joint.
Will I own them some money in April?
You bet
Does it bother me?
None whatsoever.
I invest money and investors have capital gains and dividends.
I would rather have the cap gains and dividends and pay taxes than,,,,
Not.
Don't mind paying my share at all.
I have no plans to leave this area :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Youngblood
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Re: TN Hall Income Tax

Post by Youngblood »

Toons wrote:We retired to Tn.
Really like living in this part of the world.
Almost twelve years ago we moved from Fairfax, Virginia and retired in Tennessee and love it here too.

Virginia has an income tax and a personal property tax (including autos) and much higher RE tax.

Good to be your neighbor. :happy

YB
"I made my money by selling too soon." | Bernard M. Baruch
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Toons
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Re: TN Hall Income Tax

Post by Toons »

Youngblood wrote:
Toons wrote:We retired to Tn.
Really like living in this part of the world.
Almost twelve years ago we moved from Fairfax, Virginia and retired in Tennessee and love it here too.

Virginia has an income tax and a personal property tax (including autos) and much higher RE tax.

Good to be your neighbor. :happy

YB
Our "family' lives in Virginaia,,as we used to .
Tidewater Va,area,,gridlock.
Now we go visit them,,, :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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tcassette
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Re: TN Hall Income Tax

Post by tcassette »

My wife and I moved to Tennessee from Nebraska for my new job over 5 years ago. Compared to the property and income taxes in Nebraska, our Hall Tax in Tennessee is a very acceptable fraction. That said, I support abolishing the Hall Tax because of its negative reinforcement on savings and investment, especially for seniors.
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