State Considers Singular Exchange Tax

State lawmakers are discussing a ”singular exchange tax” proposal which would cut the state sales tax from 6 percent to 3 percent but expand it to include professional services such as accountants, attorneys, and even beauty shops which currently are not taxed.

A University of Tennessee economist says such a tax could benefit the state.

Dr. Bill Fox says a low-rate, broad-based tax on income, goods and services could boost tax revenues and simplify the state’s tax structure.

“The singular exchange proposal is a very low-rate, broad-based sales tax and a very low, flat-rate broad based income tax, and it-s a tax on profits,” Fox said. “The proposal would eliminate a number of the taxes that we have, including the state and local sales taxes and also a number of other small taxes in Tennessee, creating a simplified system and one where the taxes are set at low rates.

“It proposes a lot of simplification its better revenue growth. That is the major advantage of this plan.”

The plan is sponsored by Rep. Keith Westmoreland of Kingsport.

Fox says there’s concern that some Tennessee service companies could lose business to firms in other states under the plan. He says keeping the tax rate low — at about 3 percent — could prevent that.

“One concern is we would be taxing some things that neighboring statesand other states around the country are not taxing, such as many professional services, for example,” Fox said. “We can do that if our rates are very low, but if our rates get higher it becomes a political problem and an economic problem.

“We could discourage Tennessee professional services. An accounting firm, for example, might be disadvantage because it would have to pay that tax and other firms in other states that operate in Tennessee do not.

That-s the kind of concern I have. The best protection is just to keep the rate low. If we do that it won’t be a serious problem.”