Here’s the conclusion from a state think tank’s report that will be no surprise to anyone here: Memphians’ taxes are high and inequitable.
It’s the unequivocable conclusion from the Tennessee Advisory Commission on Intergovernmental Relations’ report, “Who Pays More: Local Tax Burdens on Tennessee Households by County.” The report analyzed the tax burden of people in the 19 Tennessee counties with populations of more than 65,000 people.
“The highest effective property tax is found in Shelby County, reflecting the impact of an extremely high property tax rate in Memphis,” the report’s executive summary said. “Memphis has the highest combined county and city nominal tax rate in the state…Total local taxes are regressive, since each of the three taxes (property tax, sales tax and wheel tax) is separately regressive. Regressivity refers to lower income persons paying a higher percent of their income for taxes than do higher income persons.”
And that in a nutshell is the huge obstacle facing Memphis. The high cumulative tax rate drives people, especially the middle class, out of Memphis, leaving the regressive tax burden to fall even more heavily on low income Memphians.
The cumulative city-county tax rate for Memphians is $7.4732 per $100 of assessment; in Knoxville, it’s $5.50; in Chattanooga, it’s $5.356; and in Nashville/Davidson County, it’s only $4.69.
TACIR reported that the effective property tax rates were lowest in Sevier County at .35% (benefiting from its strong tourism industry) to the highest in Shelby County at 1.29%. No other county had an effective tax rate of more than .95% and that was Nashville/Davidson County.
A telling fact in the report is that the tax burden for a family of three in Tennessee’s wealthiest county – Williamson County – is only $230 more a year. What makes that remarkable is that median value of housing there is $267,700 compared to $118,200 in Shelby County and median household income there is $94,372 annually compared to $54,924 in Shelby County.
Tale of the Tape
Here’s the tale of the tape on the tax structure in Shelby County:
Families making $20,000 to $29,000 pay 5% of their incomes in taxes.
Families making $30,000 to $39,999 pay 4.7% of their incomes in taxes.
Families making $40,000 to $49,999 pay $3.2% of their incomes in taxes.
Here’s the kicker: families making $50,000 to $69,999 pay 2.8%.
Addicted To Regressive Taxes
If there’s any consolation, and this is cold comfort indeed, Shelby County is #3 of Tennessee’s most regressive counties among 95 – behind Williamson County and Nashville/Davidson County.
In its report, TACIR looked at property tax rates, local option sales tax rates and wheel taxes.
The average adjusted property tax rate in Tennessee was $2.337. Shelby County’s is $4.09, the highest in Tennessee.
The average local option sales tax rate in Tennessee is $2.42. Shelby County’s is 2.25%, while about 35 counties have maxed out at 2.75%.
The average wheel tax among the 55 counties who have them was $35.16, with the highest in Crockett County. Shelby County’s wheel tax is $50 for private cars and $20 for motorcycles.
“In terms of tax burdens, no Tennessee counties are progressive,” the TACIR report concluded. “Williamson County’s local tax burden is the most regressive in Tennessee. Gibson and Hancock Counties have the least regressive tax burdens.”
While local efforts to expand tax sources are well-intended, in the end, the current tax structure is so badly flawed that even new sources are just stopgap solutions that don’t address the fundamental flaws in the system.
TACIR spotlighted this reality with its reliance on the District of Columbia report – “Tax Rates and Tax Burdens in the District of Columbia – A Nationwide Comparison.” It looks at the District and the largest cities in each of the 50 states. The report, which we have frequently cited here for several years, said that families earning $25,000 were ranked 31st in their tax burden among the 51 cities while families earning $100,000 and $150,000 were ranked 46th.
We Can’t See Up From Here
By the way, the average tax burden for the 51 cities paints a graphic portrait of Memphis’ tax structure’s inequities (remember TACIR focused on the entire county) – Memphians who earn $25,000 pay 10.8% of their income in taxes; 6.0% at $50,000; 5.8% at $75,000; 4.9% at $100,000 and 4.3% at $150,000. In other words, the equity of the system is upside-down.
For perspective, consider that the 4.3% in Memphis for families earning $150,000 compares with the following rates: Philadelphia, 11.1%; Providence, 11.4%; Baltimore, 10.1%; Atlanta, 10.2%; Columbus, 10.2%; Louisville, 10.0%; and Little Rock, 9.2 . “The three cities with the least progressive state and local tax systems are Las Vegas, Nevada; Sioux Falls, South Dakota; and Memphis, Tennessee,” concluded the 56-page District of Columbia report.
In analyzing the tax burden of District of Columbia residents, a previous report concluded that the problem there happens because the city “does not have the authority to tax nonresident income earned within its borders. Nonresidents earn about 2/3 of all income in the District of Columbia.” While the district’s dilemma is obviously more dramatic than ours, the same principle applies here, where about 20 percent of the $2.2 billion earned here is by nonresidents, who pay no part of their income to support the infrastructure that creates the jobs they hold.