Gov. Bill Haslam announced his long-awaited gas tax hike plan last month, and with it came a slew of tax cut proposals as well. Here’s a look at the package, called the Improving Manufacturing, Public Roads, and Opportunities for a Vibrant Economy, or IMPROVE Act.
Dual Gas Tax Hikes
If approved, beginning in July 2017, the gas tax would increase 7 cents per gallon and the diesel tax would increase 12 cents per gallon. Estimated revenue would be $227.8 million, with $39 million going to cities and $78 million going to counties for funding local transportation projects. Municipalities would also be able to hold referendums about implementing a surcharge on sales tax rates for public transit projects. Under Haslam’s plan, the gas tax would also be tied to inflation.
IMPROVE proposes a $5 average increase in vehicle registration fees, a $100 fee paid by those who own electric vehicles, and a 3 percent charge on rental cars.
Open Container Law Change
Under this measure, open containers of alcohol would no longer be allowed for passengers in a vehicle. Currently, Tennessee allows this if the driver is not drinking, but doing so blocks the use of $18 million in federal funds allowed annually for road projects.
As part of the effort to sweeten the deal, the IMPROVE Act includes a variety of tax breaks. One is a cut to the state franchise and excise tax, the separate taxes paid each year by businesses. Franchise tax is collected on real property owned or used by businesses, and excise tax is collected on business earnings.
Haslam also proposes reducing the grocery sales tax rate to 4.5 percent and cutting the Hall tax on dividends and interest by an additional 1.5 percent in 2017 and another 1.5 percent in 2018. Per legislation passed in 2016 to phase out the Hall tax, this tax will be eliminated completely by 2022.
It remains to be seen whether Haslam’s plan will get enough support. Following the announcement of IMPROVE, legislators were already working on alternative proposals, The Tennessean reported. Additionally, some believe a gas tax isn’t necessary and that transportation projects need to be articulated more clearly and specifically.