Tennessee is currently facing a $494.2 million shortfall in tax revenues, according to the latest revenue numbers released by the state. The decline in revenue is primarily due to a drop of $277.5 million in the three taxes on business activity and corporations – business, franchise, and excise. These figures cover the first nine months of the state’s fiscal year from August 2023 to April 2024, with April being the highest revenue month for Tennessee.
Missed projections in state business taxes have been an ongoing issue throughout the year, as noted by Don Bruce, director of the Boyd Center for Business & Economic Research. Franchise and excise collections are challenging to forecast due to their volatility. Factors such as high interest rates and a falling inflation rate have contributed to this decline in revenue collections.
The impact of last year’s tax cut, estimated to result in a $237.5 million revenue loss, has also played a role in the current shortfall. When combined with the effects of the tax cut, tax collections are down by almost $515 million. This discrepancy between estimates was one of the reasons why Democratic lawmakers opposed a new business tax enacted this year, which is expected to cost $400 million annually.
The Tennessee General Assembly’s Fiscal Review Committee, assisted by the Department of Revenue, devised these estimates for both the tax cut and new business tax. These factors have highlighted how challenging it can be accurately forecasting revenue collections in a changing economic landscape.
