Scorecard: The biggest bills in business

Liz Engel Clark
Monday, Jun 4, 2012

NASHVILLE – It’s been dubbed a successful session, one that will continue the state on a course to economic recovery, or so says the Tennessee state Chamber of Commerce. The 107th General Assembly is in the books. Finished. Over and done.

Among the group’s headlined accomplishments, the passage of a $31.5 billion budget, a ban against saggy pants in schools and its earliest adjournment since 1998. But state senators and representatives also took care of a few business-related bills while in Nashville this year. Here’s a breakdown of those key pieces of legislation and what they may mean for your business:

Passed the Unemployment Insurance Accountability Act of 2012

What it does: This bill creates stricter rules regarding unemployment benefits. It strengthens the definition of employee misconduct to ensure that those who have been fired for cause no longer receive benefits. It also enacts new work search requirements for unemployment beneficiaries. Those collecting unemployment benefits must provide detailed information regarding contact with at least three employers per week or must access services at a career center. The act also requires the state Department of Labor and Workforce Development conduct 1,000 random audits weekly to ensure the integrity of beneficiaries’ job searches.

The law also lets state officials deny claims to workers who reject “valid job offers” or who fail or refuse to take employer-mandated drug tests. One controversial provision pushes those receiving benefits into taking jobs that pay less money than the worker’s prior employment. For example, after 13 weeks of unemployment benefits, jobless workers are required to accept “suitable work” at 75 percent of their former pay or face termination from the program. After between 26-38 weeks, recipients are obligated to take “suitable work” paying 70 percent of their former salary. After 38 weeks, the threshold falls to 55 percent.

“A true jobs agenda is compromised of elements that help both job creators and job seekers. Government cannot create jobs but it can help remove burdens from employers and help the unemployed find work. This bill does both,” said Lt. Gov. Ron Ramsey. “Nothing cures both social and economic ills like good paying jobs. This reform will inject accountability and fairness into our unemployment system further nurturing the pro-jobs, pro-business climate for which Tennessee is known.”

What proponents say: This bill will discourage abuse and spur jobless workers to find new employment more quickly.

What critics say: Some provisions could empower employers to take advantage of workers and unfairly move to deny them state benefits when they are laid off or fired.

Repealed the inheritance tax/repealed the gift tax

What it does: The Tennessee General Assembly repealed Tennessee’s 5.5-16 percent graduated tax on gifts, effective Jan. 1, 2012, and inheritance tax in phases by 2016.

Local attorney Joy Buck Gothard called the gift tax the “unknown tax.” Many people didn’t know, she said, that Tennessee even had a gift tax on transfers worth more than $13,000 per year; people would unwittingly deed property to their children, inadvertently causing a tax liability that might go unnoticed for years, only to come to light when the parent died. With its repeal, Connecticut is now the only state with a state gift tax.

As far as gifting opportunities and considerations:

Estate planning. Middle income individuals who wish to transfer ownership of assets to their children as a tool of estate planning are benefitted by the gift tax repeal. Previously, the burden of the gift tax often discouraged the transfers. A couple who wanted to deed their farm worth $500,000 to their child would owe more than $30,000 in Tennessee gift tax. No more.

Transfer penalties. It is very important to plan for asset transfers in middle, not old, age so that no penalties are attached to the gifts made, such as the “five-year lookback” period for qualifying for Medicaid benefits for nursing home care.
Capital gains taxes. It is also important to consider that when land is gifted, the donee takes the donor’s income tax basis in the property. The donee does not get the “stepped-up basis” in the property (to that of fair market value at the date of death) that is acquired on land which is inherited when the owner dies. The net effect is that if the land is sold by the donee, the donee must report the amount of capital gains using the basis of the donor – which is often very small for houses built by the parents many years ago, or family farms that were bought for a paltry sum in the 1930s or ‘40s. And it is a likely bet that capital gains tax rates will increase in the next few years. Many choose to gift investments or cash rather than land because of the loss of basis.

There is a federal gift tax, although it does not apply unless a gift is in excess of $5.12 million (for 2012). However, any gift in excess of $13,000 per year must be reported to the IRS, and partial use of the exemption amount of $5.12 million is noted. Very wealthy families are considering large gifts (up to the full $5.2 million) in 2012 while the gift tax exemption is so high.

Inheritance tax. Not so fast on the repeal of the Tennessee inheritance tax, Gothard says. The full repeal is scheduled for Jan. 1, 2016 – over three years from now. The new law provides a “phase out” of the tax by raising the exemption each year for the next three years:

Jan. 1, 2012 -- $1 million
Jan. 1, 2013 -- $1.25 million
Jan. 1, 2014 -- $2 million
Jan. 1, 2015 -- $5 million
Jan. 1, 2016 -- Repeal

This means that if you die before the magic hour, the Tennessee Department of Revenue may still come knocking.

By Jan. 1, 2014, lots of individuals and couples may rest easy, knowing that their total estate will not exceed $2 million (unless it’s pushed over by the $1 million life insurance policy that many young parents are wise enough to have). But if your estate is in the rate of $2 million to $5 million (or more), you owe it to your family not to take a chance.

Federal estate tax – still alive and well. The IRS assesses estate tax payments when an estate exceeds $5 million per person, or $10 million per couple.
The concept of “portability” provides that if one spouse dies and his estate is only $2 million, that the surviving spouse has $8 million of exemption left before her estate would incur estate tax.

No guarantees. Laws can be changed at the whim of any state Legislature. Estate planning is made difficult because of its uncertainty, both in guessing how long you will live, and what our elected representatives will do in any given year. Most experts in the estate tax field did not predict either of these surprising changes in the law.

What proponents say: Coupled with Tennessee’s lack of a true income tax, Tennessee is positioning itself as one of the most tax-friendly states in the nation. It will increase consumer and business spending.

What critics say: Eliminating the gift tax will cost Tennessee $15 million a year in revenue, some Democrats say, while phasing out of the inheritance tax by 2016 will cost the state another $94 million a year.

Restructured the Tennessee Regulatory Agency

What it does: Overhauls the TRA, which regulates utilities in the state, determines the rates for most for-profit utilities and sets service standards. The bill changes the agency from a four-member, full-time board – with salaries of $152,000 per year – to a five-member, part-time board – who is paid $36,000 – with a full-time executive director to manage the agency’s day-to-day operations.

What proponents say: The measure will save the state at least $350,000 a year.

What critics say: The overhaul was unwise and unnecessary, since the makeup of the authority was effective.

Expanded the use of the state’s Fast Track program

What it does: Creates the Fast Track economic development program, which will aid companies in a variety of new ways, including relocation expenses, temporary office space, capital improvements, retrofitting and other expenditures not previously covered by FastTrack infrastructure or job training grants.

Tennessee appropriated $217.5 million in FastTrack grants over the past three budget cycles. The 2012-13 fiscal year budget, which takes effect July 1, includes another $80 million.

The expansion was a major stump for Gov. Bill Haslam. He pitched the idea when rolling out his 2012 legislation agenda during a visit to Cookeville in January.

“This is a great bill,” Rep. Ryan Williams (R-Cookeville) said. “I’m really excited about it. It’s the kind of policy that helps rural communities and will broaden how businesses can use this money.”

What proponents say: It will help drive economic development in rural and distressed areas of Tennessee.

What critics say: The bill passed 92-0 in the House and 29-1 in the Senate, although it was quietly opposed by Lt. Gov. Ron Ramsey, who questioned whether the state should cover corporate expenses. Haslam was forced to abandon a companion bill that would have allowed the state to seek more detailed information from companies getting taxpayer-funded grants. Critics objected to provisions that allowed such companies to keep ownership information secret.

And what about the bills that didn’t pass? While we’re still waiting on the full report card, the Tennessee Chamber of Commerce and Industry did ID some so-called “jobs killers,” including:

1. The “guns in trunks” legislation, which pitted the business lobby against Second Amendment supporters.

The Tennessee Chamber openly opposed the legislation, along with a dozen other business-related groups, like the Tennessee Hospital Association, Tennessee Business Roundtable, Tennessee Retail Association and others. In a hand-delivered letter, the chamber wrote, “If an employer or property owner – from a retail store to a factory to a daycare center to a hospital to an educational institution – wishes to prohibit individuals or employees from bringing firearms on their property, they should have the right to do so…Supporters of this legislation argue that this enhances individual rights, but you cannot expand rights for one person by restricting the rights of another.”

2. A solar bill that was killed. This bill would have changed the taxation of solar installations and is going to a summer study committee since there were a lot of lingering questions. The bill would have raised the taxable value of solar equipment, which is 0.5 percent of the purchase price. There are concerns about the legality of the current tax rate

3. Legislation that would have put “Tennessee Contractors First.” This bill would have given preference to in-state contractors on state projects, authorizing allowances for Tennessee businesses in the evaluation of bids and proposals. It failed in the house and was deferred in the Senate.