The tax rate prior to 2016 was 6 percent, applied to all taxable interest and dividend income over $1250 per person ($2500 for married couples filing jointly).
[11] The first $1,250 of a person's interest and dividend income that would otherwise be subject to the Hall tax is exempt from taxation.
[13] Evasion of the Hall income tax may be prosecuted as a Class E felony, with penalties of up to two years in state prison and up to $3,000 in fines.
[6][16] A principal reason for the large variability in revenues is the application of the tax to capital gains distributions from mutual funds.
A 2004 report by the Tennessee Advisory Commission on Intergovernmental Relations observed that capital gains from investments had displayed "roller-coaster behavior" over the preceding eight years.
The Tennessee Advisory Commission on Intergovernmental Relations identified this variability, coupled with increased investor participation in mutual funds, as the main cause of fluctuations in Hall tax collections during the same period.
[6] Three-eighths of Hall income tax payments are distributed to the local government of the municipality or county where the taxpayer resides.
[6][19] The government of the City of Belle Meade receives over one-third of its revenue from the Hall income tax.
[20] Other Tennessee municipalities identified as highly dependent on the tax, based on 1997 data, are Forest Hills, Allardt, Lookout Mountain, Slayden, and Walden.
[21] The Hall income tax has been the subject of chronic criticism, primarily for being regressive and for having a negative impact on retired people.
[6] The proposals for major changes to the Hall tax failed because of the lack of alternative sources of revenue.
[27] Other critics have suggested that the tax discourages people from saving and hinders efforts to encourage retirees to settle in Tennessee.
It advocated repealing the tax "to encourage wealthy and retired individuals to move to Tennessee" and cutting state spending to offset the lost revenue.
[30][31] In the 2011 General Assembly, eight bills were introduced to reduce or eliminate the Hall tax, including a total phase-out comparable to the one enacted in 2017.
[32] The only one that passed was a measure to increase the income exemptions for persons over 65 by $10,000, to $26,200 for individual taxpayers and $37,000 for joint filers.