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Description
House Appropriations Subcommittee- February 28, 2021- House Hearing Room 1
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A
Good
afternoon
like
to
call
to
order
the
house
finance
ways
and
means
appropriations
subcommittee,
the
members
of
this
committee
have
been
in
finance
hearings
thanks
to
chair
lady
hazelwood
all
day
so
they're
tearing
so
because
we're
not
going
to
transact
any
business
we're
going
to
suspend
with
calling
the
roll.
So
mr
gerard
gaino
and
his
staff
can
go
ahead
with
their
presentation,
and
then
they
can
catch
up
online
or
in
person
as
soon
as
they
walk
through
the
door.
A
A
I'm
sorry,
not
revenue,
tdot,
environment,
concert,
environment
conservation,
economic
community
development
and
the
mega
site
authority
themselves.
So
you
guys
can
stay
tuned
you're
going
to
have
a
brief,
er
discussion
today
than
you
expected.
So
that
being
said,
mr
gergeno,
if
you
would
please,
for
the
record,
introduce
yourself
and
who's
with
you
today
and
you
may
begin.
B
Thank
you
very
much,
mr
chairman,
and
members
of
the
community,
really
appreciate
the
invitation
to
be
here
with
you
today
to
talk
about
franchise
and
excise
tax.
Here
at
the
table
with
me
is
jeff
biarki
he's
our
director
of
research
sort
of
helped
me
answer
questions
as
they
arise.
We
have
some
other
colleagues
from
the
department
here
with
us
in
the
audience
as
well.
B
Mr
chairman,
these
first
two
slides
are
going
to
look
familiar
because
I
I
included
them
in
the
sales
tax
presentation,
but
I
think
they're
relevant
here
as
well.
For
some
of
the
similar
reasons,
I
won't
spend
a
lot
of
time
on
them
because
we've
talked
about
them
before,
but
I
just
wanted
to
reiterate
in
connection
with
franchise
and
excise
tax
that
it
is
our
second
largest
tax
in
terms
of
the
revenues
collected
by
the
department
of
revenue
to
fund
the
budget
and
f
e
comes
in
at
about
19
percent.
B
B
B
You
file
on
one
return,
the
same
for
the
most
part,
the
same
entities
are
subject
to
both
taxes
and
they're,
essentially
administered
and
reported
together
as
f
and
e
tax
f
e
tax
collections.
What
do
they
fund?
They
generally
almost
exclusively
go
to
the
general
fund,
as
opposed.
We
talked
quite
a
bit
in
the
sales
tax
about
different
allocations,
but
with
fne,
the
the
actual
use
of
the
tax
is
much
more
straightforward.
It's
a
general
fund
to
tax.
B
B
So
when
you
go
to
fill
out
your
tennessee
excise
tax
return,
which
is
in
essence,
a
it's,
a
it's
a
corporate
income
tax,
just
like
the
federal
corporate
income
tax,
when
you
go
to
fill
out
your
tennessee
excess
tax
return,
you
don't
start
from
square
one
you've
already
computed
federal
taxable
income
so
that
you
can
file
your
federal
corporate
tax
return
with
the
irs
and
that's
really
the
starting
point
for
your
tennessee
excess
tax
return.
So
you
take
your
federal
taxable
income.
You
bring
that
down.
B
Another
important
part
of
excise
tax
is
apportionment,
however,
and
this
would
be
a
factor
in
a
return
filed
by
a
company
doing
business
in
more
than
one
state
doing
business
in
tennessee
and
elsewhere.
That's
filing
returns
in
more
than
one
state
you
have.
There
has
to
be
a
methodology
for
how
much
of
their
total
income
is
attributed
to
their
tennessee
activities
and
is
subject
to
our
tax
versus
their
activities
and
and
the
in
the
taxes
imposed
by
other
states,
and
so
that's
what's
generally
referred
to
as
apportionment
and.
C
B
For
example,
in
tennessee.
We
now
have
a.
We
generally
have
a
three
factor
formula,
but
sales
are
weighted
more
heavily
than
property
and
payroll,
and
then
for
manufacturers-
and
this
was
the
big
change
in
the
improve
act
for
manufacturers.
We
went
to
a
an
elective
single
sales
factor
which
means
in
computing
their
taxable
income,
a
portion
to
tennessee
versus
other
places.
If
they
do
business
in
multiple
states,
they
don't
look
at
property
and
payroll
at
all.
They're.
Only
looking
at
sales
and
that
can
be
advantageous
to
those
businesses,
so
we
could
talk
for
the
whole.
B
You
know
we
could
have
a
whole
session
on
apportionment.
I
don't
mean
to
go
down
a
rabbit
hole,
but
I
just
want
to
stress
sort
of
the
importance
of
how
you
determine
what
is
taxable
is
is
is
very
important
in,
in
conjunction
with
looking
at
the
rate
they're,
both
very
important
to
determining
the
actual
liability
of
a
given
company.
B
Real
quickly,
you
know,
usually
folks,
are
interested
in
a
comparison
of
rates.
This
is
a
map
from
the
tax
foundation
of
the
various
corporate
income
tax
rates.
So
our
what
would
be
our
tennessee
excise
tax.
We
have,
as
I
mentioned,
six
and
a
half
percent
rate
that
is
sort
of
middle
of
the
road
nationally.
It
is
in
the
top
tier
as
far
as
our
the
southeast
region,
but
again
the
method.
B
B
A
large
percent
of
the
revenue
from
f
e
tax
comes
from
a
very
small
percentage
of
the
taxpayers,
so
40
percent
give
or
take
looking
at
tax
year,
19
40
percent
of
the
revenue
came
from
just
18
1
hundredths
of
the
taxpayer.
0.18
of
the
taxpayers,
74
of
the
revenue
came
from
fewer
than
2
percent
of
the
total
taxpayers,
and
in
contrast,
if
you
look
at
sort
of,
if
you
look
at
the
sort
of
the
bottom,
85
percent
of
taxpayers
account
for
only
4.5
percent
of
the
tax.
B
B
B
So
it
really
plays
out
over
time,
and
I
think
both
of
those
factors
as
well
as
others,
sort
of
lend
themselves
to
sort
of
the
volatility
that
we
talk
about
a
lot.
I
know
we
talk
about
that
a
lot
in
general,
but
most
of
that
or
the
biggest
part
of
that
the
biggest
factor
single
factor
is
franchise
and
excise
tax,
and
this
slide
is
we
call
it.
The
volatility
chart
we've
been
looking
at
this
and
using
this
for
a
while.
B
It's
a
there's
a
lot
on
this
chart,
but
in
essence,
what
you're
seeing
there
is:
the
relative
volatility
of
franchise
tax
sales
tax
versus
the
economy
as
a
whole.
If
you
look
at
those
two
lines
at
the
bottom
that
the
the
dash
is
that
those
represent
gdp
and
also
the
consumer
price
index,
so
proxies
for
the
economy
as
a
whole,
and
you
see
that
those
they
are
quite
low
in
terms
of
volatility
and
and
really
flat.
B
B
That
curve
has
really
gotten
steeper.
So
it's
the
most
volatile
and
over
the
last
10
to
14
years,
it's
become
more
increasingly
volatile,
just
in
terms
of
the
percent
change
from
year
to
year,
and
so
finally,
mr
chairman,
this
is
a
a
bar
graph
that
sort
of
illustrates
that
going
back
to
2008,
there's
14
years
on
this
graph,
and
you
can
really
see
it's
hard
to
find
two
years.
That
look
the
same.
B
I
think
if
you
look
at
fy
10
and
11,
there
they're
pretty
close
to
the
same,
but
otherwise
it's
pretty
different
every
year
and
you
see
four
years
which
showed
you
know
significant
growth,
but
you
also
see
four
years
that
were
negative
growth.
Now,
as
you
pointed
out,
we
were
speaking
earlier.
One
of
those
years
was
a
rate
cut.
B
A
You,
commissioner,
for
coming,
if
you
could
back
that
up
one
slide,
I
just
thought
I
would
ask
a
question
based
upon
this
slide
in
particularly,
but
I
can't
I
can't
see
when
it
translates
from
from
you
to
the
dashboard,
the
the
third
red
dip
there
is,
I
think,
the
most
memorable
period
of
services
service
that
I've
had
in
the
legislature.
I
think
this
was
the
year
that
f
e
taxes
were
under
collected
or
the
the
expectations
when
they
were
under
of
what
they
would
be
fell
short.
A
I
guess
the
question
one
of
the
questions
and
I've
I've
got
several,
so
I
apologize
was.
Was
that
because
the
estimates
were
we
were
overestimating
because
we're
realizing
those
or
did
the
actual
collections
themselves
fall
because
people,
because
of
the
single
factor
variant,
because
I'm
trying
to
figure
out
how
we
go
from
one
year
having
something
that's
extremely
volatile
to
three
years
later:
cutting
taxes
by
700
million
dollars.
B
Yeah
I
mean
I
would,
I
would
say
I
mean
first
of
all,
you
know
the
the
two
dips
at
the
beginning,
eight
and
nine
obviously
was
the
result
of
a
recession.
14
was
really
out
of
the
blue
from
our
our
perspective
and
I
don't
think
it
was
estimated
differently.
I
mean,
I
think
it
was
a
typical
estimate
for
that
year.
B
There
were
some
factors
that
were
identified
and
discussed
at
the
time
with
some
changes
in
the
way
some
businesses
within
a
particular
industry
were
moved
around.
You
know,
and
that
sort
of
goes
to
my
other
point
about
a
few
businesses
can
really
impact
collections
if
they
change
what
they're
doing
or
if
they
or
if
their
profits,
you
know
unexpectedly
fall
off
or
that
sort
of
thing.
B
B
The
fne
tax
is
subject
to
business
decisions
as
well
as
the
national
economy.
Again,
another
picture
is,
you
know,
sometimes
folks
rightly
think
about
how
tennessee
is
doing,
but
a
lot
of
the
money
comes
from
big
national
companies
and
it's
their
overall
profit
and
it
depends
on
how
they're
doing
how
companies
are
doing
nationally
that
drives
it
as
much
as
it
is
how
companies
in
specifically
in
tennessee,
are
doing.
B
A
Just
another
follow-up:
one
of
the
comments
that
we
hear
from
industry
is
that
you
know
our
f
e
tax
rate
is
so
high
as
it's
one
of
the
top
five
of
the
highest
ones
in
the
united
states.
I
I'm
not
sure
when
you
take
into
consideration
all
taxation
as
it
relates
to.
That
is
the
case,
but
with
f
e
tax.
A
B
B
The
lack
of
an
income
tax
is,
you
know,
I
think,
very
important
and
what
makes
us
unique
from
a
lot
of
these
other
states.
A
lot
of
these
other
states
have
equal
or
higher
rates
and
an
income
tax.
I
don't
want
to.
I
don't
want
to.
I
don't
know
if
I
should
say
this,
but
al.
Just
looking
at
the
alabama
has
the
same
corporate
excise
tax
rate,
but
also
has
an
income
tax.
B
For
example,
you
know,
and
then
I
think
there
are
a
lot
of
we
do-
have
the
lowest
per
capita
rate
regardless
of
the
mix.
We
do
have
the
lowest
per
capita
sales
and
use
tax
rate
in
the
country,
as
we
talked
about
before,
and
now
without
an
individual
income
tax
with
less
burden
directly
on
the
individuals
we
do
have
a
we
get
a
larger.
B
B
A
I'm
just
going
to
keep
asking
questions
if
members
want
to
be
on
the
list,
I'm
happy
to
do
that.
The
as
it
relates
to
overall
taxation,
when,
when
we
looked
at
doing
the
single
factor
back
in
2017,
I
guess
it
was
the
revision
during
the
improve
act.
One
of
the
things
that
still
surprised
me
based
upon
your
presentation
today,
is
that
15
of
these
rate
payers
of
f
e
tax
represent.
I
think
it
was
95
95
or
you
said
it
a
different
way.
A
A
B
So
that's
at
the
that's,
that's
the
85
at
the
at
the
pay
in
the
least
85
percent,
paying
the
least
at
the
top
end
of
of
the
actual
payers.
You
know
you
can
slice
it
in
different
ways.
I
have
a
table.
I'd
be
happy
to
share
with
you,
but
the
top
two
percent
of
payers
pay
and
that's
around
a
couple
of
thousand
taxpayers-
probably
pays
almost
75
percent
of
the
total
tax,
the
top
0.18
percent,
a
few
hundred
pay
40
of
the
total
tax.
A
Thank
you
with
that.
I
guess
the
challenge
is
is
with
the
volatility
chart
that
should
scare
anyone
based
upon
you
showed
earlier
and
with
so
few
number
of
rate
payers,
paying
85
percent
of
the
of
the
tax.
How
would
one
if
they
wanted
to
cut
taxes?
How
could
they
do
it
now
that
singles
factor
sales
valuation
is
different?
B
What
you
don't
know
is
is
2023
gonna,
be
the
same
as
2019.
I
mean
that's
right,
I
mean
those
years
could
look
quite
different
and
then
and
then,
if
you've
made
a
change.
On
top
of
that,
I
think
it's
what
you're
getting
at
mr
chairman,
if
you
make
a
change
on
top
of
that,
then
that
sort
of
maybe
could
compound
that
that
that
change
in
in
collections
well,
obviously,.
A
A
week
ago,
we
weren't
talking
about
a
a
an
oil
crisis
in
a
war
across
the
other
side
of
the
world,
either.
So
right,
maybe
now
it's
not
a
good
time
to
consider
any
change,
but
but
I
do
think
it's
important
for
us
as
we
continue
to
see
over
collections
and
and
to
look
at
this,
these
numbers
to
see
if
there's
a
way
that
might
be
better
going
forward
as
it
relates
to
taxation
policies
of
this
nature.
A
I
guess
when
you
look
at
75
percent
of
those
people,
if
you
were
to
change
it
if
they
represent,
I
think
I
don't
want
to
mess
up,
but
if
two
percent
of
those
taxpayers
represent
74
percent
of
the
f
e
tax,
my
question
is:
do
you
what
percentage
of
those
two
percent
use
the
new
factor
or
the
of
the
single
factor,
sales
or
the
apportionment
tax
under
the
three
criteria?
Would
you
say
they're
pretty
evenly
spread
out
or
most
of
that
two
percent
is
in
one
category
or
the
other.
A
My
expectation
is
that
that
two
percent,
based
upon
the
over
collect
based
on
collections,
that
two
percent
is
probably
a
95
chance.
They're
all
doing
it
the
same
way
right
and
that
if
you
were
going
to
effectuate
some
change
in
revenue
based
upon
those
that
two
percent,
that
it
would
be
good
to
know
how
they're
calculating
f
and
e
tax
and
their
advanced
payments
or
their
projected
payments.
A
D
Thank
you,
mr
chairman,
and
apologize
to
you
and
to
our
company
for
being
just
a
minute
late
when
I
came
in
so
you
may
have
already
talked
about
this,
for
my
sake,
because
I
don't
know,
if
I
really
learned
how
is
f,
how
do
they
base
paying
f
and
e
tax
on
annual
sales?
What
can
you
talk
about
that
for
just
a
second.
B
What
you
first
do
is
you
file
your
federal
corporate
income
tax
return
and
we're
only
talking
about
corporations,
llcs
and
limited
partnerships,
we're
not
talking
about
sole
proprietorships
or
general
partnerships,
we're
talking
about
entities
that
are
separate
from
their
ownership
right.
So
for
those
types
of
entities
they're
going
to
be
filing
a
corporate
income
tax
return
on
their
net
income,
you
bring
that
down
to
tennessee.
You
make
some
adjustments
that
are
specific
to
our
state
and
you
come
up
with
your
tennessee
net
corporate
income.
B
That's
excise
tax
franchise
tax
is
on
a
same
companies,
the
same
corporations
or
llc's
or
lps,
but
it's
on
their
net
worth
or
the
amount
of
property
they
have
in
the
state
and
that'll
give
you
a
figure.
How
much
is
my
the
net
worth
of
my
company
and
the
rate
is
0.25
or
25
cents
per
hundred
dollars
of
value?
Okay,.
D
B
Be
really
I
mean
that
would
be
difficult
to
do
and
there's
so
much
that
goes
into
it.
You
know,
a
major
corporation
is
a
complex.
You
know
and
and
depends
on
how
they're
structured
in
so
many
factors
you
know
we
would,
without
speaking
about
any
particular
company.
You
know
we.
We
could
look
at
what
information
we
have
based
on
their
current
structure
and
what
they
do
in
the
state,
but
that
might
not
tell
us
a
lot
about
what
they
do
in
the
state
in
the
future
right.
B
D
B
C
Thank
you,
mr
chairman
and
good
afternoon.
Gentlemen.
Thank
you
for
being
here
on
the.
If
you
could
go
back
to
the
the
map
with
the
fne
tax
charts,
you
know
just
glancing
at
it.
Tennessee,
as
you
said,
is
we're
sort
of
median,
particularly
in
southeastern
number
of
places
in
the
northeast
and
some
other
places
that
are
higher,
but
there's
one
like
glaring
exception,
north
carolina
2.5
percent.
B
B
B
C
I
think
would
be
an
interesting
case
study,
particularly
since
you
said
they've
stepped
that
down.
You
know
fairly
recently
to
see
how
that
impacted,
their
business,
growth
and
and
other
things,
and
if
they're,
you
know,
I'm
saying
the
goal
would
be
to
not
only
keep
yourself
whole
tax-wise
but
to
grow
your
tax
base
and
if,
if
they
were
successful
in
doing
that
with
the
lower
tax
rate,
that
would
be
interesting
and
then
just
another
sort
of
general
question.
C
C
B
Yeah
first
thing
to
be
clear:
on
not
every
company
apportions:
there
are
plenty
of
companies
that
operate
just
within
tennessee.
They
don't
really
extend
their
business
outside
the
state
and
they
don't
file
in
other
states,
and
so
they
don't
apportion
at
all.
You
know:
there's
it's
not
a
issue
for
them,
but
for
multi-state
companies
really
I
mean
it
really
comes
down
to
proportions.
B
You
know
it's
not
so
much
where
you're
headquartered
I
mean.
If
you
are
headquartered
here,
you
may
have
more
employees
here,
for
example,
on
the
other
hand,
you
may
be
a
you,
may
be
a
national
company
doing
business
in
50
states
and
your
headquarters.
Staff
that
you
put
here
may
be
a
really
really
small
number
compared
to
your
total
employees
right.
So
it
may
not
be
much
of
a
factor
at
all
to
move.
B
You
know
a
headquarters
staff
here
or
I
don't
mean
to
talk
in
extremes.
We
may
have
a
relatively
smaller
impact,
bringing
your
headquarters
here
if
the,
if
your
headquarters
in
terms
of
headcount
is
relatively
small
compared
to
all
your
employees
everywhere,
you
know,
so
it's
really
a
factor
of
how
much
of
your
payrolls
in
tennessee
versus
everywhere
and
your
property
and
your
sales,
and
it's
it's
really
highly
individualized,
depending
on
what
type
of
business
you
are.
B
B
B
So
if
your
customer's
out
of
state
you're
going
to
have
a
significantly
smaller
sales
factor
than
if
your
customers
in
state
and
just
it's
just
a
lot
of
different
factors
that
go
into
it,
you
know
I
don't.
I
don't
think
putting
your
headquarters
here
is
going
to
drive
that
so
much
as
just
your
overall,
you
know
business
structure
and
and
and
what
you
have
in
a
lot
of
different
states
for
your
business
as
a
whole,
as
opposed
to
just
your
your
headquarters.
C
Thank
you.
I
know
it's
just
one
of
the
things
you
know
you
always
think
about
just
like
any
business,
it's
easier
to
retain
a
customer
that
you
have
than
to
gain
one
that
you've
lost
and
the
more
sticky
factors
you
have
tying
a
customer
to
you,
the
better
off
you
are,
and
it
just
seems
if
you
have
a
headquarter,
a
company
headquartered
in
tennessee,
then
it's
more
difficult
for
them
to
you
know,
take
their
business
away
from
the
state
than
if
they
don't
so.
A
Thank
you,
chair,
lady,
just
as
a
follow-up,
so
an
idea
just
to
make
sure
I
understand
apportionment
would
mean
I
build
up
or
own
a
facility
that
distributes
products,
goods
and
services
inside
tennessee,
but
I
might
send
them
to
kentucky
north
carolina,
georgia
or
surrounding
states,
but
they're
able
to
apportion
a
portion
of
that
tax
into
the
other
states.
Is
that
what
you
mean.
B
Yeah,
it's
really
a
matter,
I
guess
may
as
an
analogy
sales
tax.
You
think
your
your.
Ultimately,
your
tax
liability
as
a
business
depends
on
how
much
is
taxable
the
base
and,
what's
the
rate
applied
to
that
base
right
for
sales
tax,
something
like
sales
tax,
pretty
straightforward.
The
base
is
what
you
pay
for,
whatever
you
bought.
You
know,
there's
not
a
lot
of
variation
in
that
it's
the
the
price
you
paid
for
the
goods
you
purchased,
it's
all
about
the
rate
right
for
fne.
B
Your
revenues
minus
your
expenses,
but
it's
also
for
those
multi-state
companies
that
do
business
in
in
more
than
one
state.
We
have
to
have
a
system
for
the
states
to
basically
divide
up
the
pie,
divide
up
the
income
and
how
much
is
taxable
in
tennessee
versus
you
know,
alabama
georgia
et
cetera,
and
that's
that's
apportionment,
we're
talking
about
apportioning
among
the
states
that
companies
total
net
income
and
there's
a
traditional
formula
of
prop
three
three
factors:
property,
payroll
and
sales.
Traditionally
it
was
equally
weighted.
B
You
know
several
years
couple
decades,
there's
been
more
and
more
sort
of
variation
in
that
standard.
That
original
standard
three
factor
formula
in
how
the
factors
are
weighted,
there's
been
a
trend
toward
putting
more
weight
on
sales
because
in
essence,
when
you
place
a
weight
on
property
and
payroll
you're
calculating
their,
how
much
is
subject
to
tax
based
on
property
and
payroll.
B
So
that's
why
the
states
have
an
incentive
to
place
more
weight
on
sales
and
less
weight
on
property
and
payroll,
and
that's
that's
the
trend
and
then
the
farthest
extension
of
that
is
to
place
100
of
the
weight
on
sales
and
disregard
property
and
payroll
together.
And
that's
what
we've
done
for
manufacturers.
A
Thank
you,
commissioner.
I
don't
have
any
more
questions
on
my
list,
but
as
the
cheerleader
asked
previously
about
the
study
about
north
carolina,
if
you
could
share
that
information
with
her
office,
if
you,
when
you
get
a
chance,
I
would
appreciate
it
also
the
information
we
discussed
about
the
two
percent
paying
the
74.
A
If
we
could
figure
out
what
the
the
strata
looks
like
or
or
or
the
different
types
there,
whether
there's
some
similarities
there,
I
think
the
key
going
forward.
If
we
know
74
of
of
the
tax
is
paid
by
two
percent
of
the
folks
and
they're
all
paying
the
same
way
to
me.
If
we
were
going
to
cut
taxes
for
a
group,
that'd
be
a
good
place
to
look
to
get
the
others
and
do
some
kind
of
change
that
the
others
could
conform
to.
A
A
A
We
appreciate
that
and
then
the
following
week
we
will
have
a
discussion
on
the
seventh
about
new
market
tax
credit
and
community
enhancement
taxes
and
then
the
following
week
on
march
14th,
if
you
notice
there
was
no
mega
site
presentation
here
today
at
the
at
the
discussion
with
the
speaker
and
the
stakeholders,
we've
determined
to
make
that
a
a
day
all
and
of
its
own.
So
we'll
have
multiple
speakers
and
they'll
be
coming
on
march.
The
14th.