TN Interest and Dividends Tax Question (sales, rental, how much)

[Siberia]

If I understand how TN state income taxes work, basically if you have "earned income" (income from wages), then there is no state tax taken out. But if you have interest and dividend "un-earned income", then the state taxes such at 6%?

If this is the case, then CDs and stocks paying interest and dividends would be taxed at 6% by the state.

Question is this, what about farm rental land that is incorporated and pays out "dividends" to the owner in order to distribute the rental income? Would that fall under the 6% state interest/dividend tax?

Thanks for your input.

[insanesmooch]

Here is the link to the page with information on it. It should answer your question.
http://www.tennesseeanytime.org/tnan.../whofiles.html

[Siberia]

Originally Posted by insanesmooch

Here is the link to the page with information on it. It should answer your question.
http://www.tennesseeanytime.org/tnan.../whofiles.html

Thank you for the link! Here is the defining link for types of income:

http://www.tennesseeanytime.org/tnan...ax/income.html

It makes me sad that taxes have to be so complicated in America, and the TN state tax is no exception. Wow...perhaps someday we will have a Federal and State consumption tax that replaces every income, property, sales, etc tax that is complicating the entire country and creates a consolidated tax that is electronically payed each time anything is purchased (copy of the state sales tax electronic system). Of course then folks would understand how much is actually lost to government taxes...LOL...probably not a good idea after all...

[mrradio]

I ran an accountancy firm in New York. Tennessee taxes are not only low but they are the absolute essence of simplicity. When I say "low" do not be misled by those who complain about the 9% or so sales tax. I can prove to anyone that you are far better off with a comparatively high sales tax than an income tax of virtually any sort. Property taxes are already low here.

When a taxing entity starts up a new tax, they have to hire employees, get space and equipment, etc. thereby increasing the bureaucracy and the underlying costs-which must be paid in yet higher taxes- before any new taxes are even collected. It is far more efficient and cheaper to slightly raise an existing tax. It is also more difficult for a taxing entity to fool people with smoke-and-mirror games because a populace is focused on a few taxing structures rather than many. You don't have to watch as many things while they try to pull a fast one.

Finally you must look at the TOTAL tax load-property,sales, income, estate, etc. It doesn't matter whether they take it out of your right pocket or your left pocket, it costs you. TN wins hands down in my book for low total taxation.

[hiknapster]

What about the lower-middle class? Wouldn't it be more advantageous for them to have a state income tax that they could get back in a refund, as opposed to a high sales tax that they can never recoup, especially if they don't have enough deductions to itemize?

[mrradio]

No one should EVER pay enough taxes to get a refund. When someone gets a refund of taxes they have, in effect, lent money out without getting paid interest, certainly not a good thing to do.

Sales taxes are the most efficient (read "cheapest") way for a taxing entity to accomplish their goal. There are fewer payees (thousands of stores, etc. as opposed to millions of individuals) to supervise thus keeping costs as low as possible.

[Siberia]

Originally Posted by mrradio

No one should EVER pay enough taxes to get a refund. When someone gets a refund of taxes they have, in effect, lent money out without getting paid interest, certainly not a good thing to do.

Sales taxes are the most efficient (read "cheapest") way for a taxing entity to accomplish their goal. There are fewer payees (thousands of stores, etc. as opposed to millions of individuals) to supervise thus keeping costs as low as possible.

I've had to pay fines myself by not submitting taxes in quarter in which I had no income...due to the estimated tax forced payment system. Annuitizing isn't always an option. THus, paying more than will ever be needed is sometimes forced by the fines and fees of the estimated tax system (federal).

I too agree that the sales tax is optimal. Very difficult to fraud (thus legit taxpayers pay less as tax evaders are forced to pay...unlike the income system where cash income becomes virtually untrackable and extremely difficult to tax). I would love to see a federal flat tax set up on the same computers that currently do each state sales tax. Such would lower the rates for those who pay there income taxes, and would put more emphasis on "consumption taxation" versus "income". THus it would, in the long term, lead citizens to save more due to not wanting to loose their income to taxes through instant gratification sort of purchases. Also with a flat tax on consumption, those below the poverty line for income could get reimbursed monthly for what they had paid out, thus the poor would not pay any federal tax. I really think it is a win win system...buy more,pay more....buy less, pay less...living poor, pay no more. Americans would be in control of their taxation, and the government would have to run more like a private company and deal with fluctuation in revenues when recessions occur.

[rolaren1]

Siberia, just a small correction. You wrote that:

"But if you have interest and dividend "un-earned income", then the state taxes such at 6%?

If this is the case, then CDs and stocks paying interest and dividends would be taxed at 6% by the state."

However per the TN gov website at: Individual Income Tax

under the faq link "what are nontaxable dividends and interest see:

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