August 13, 2004

Tennessee Ends Year With Mammoth Revenue Surplus

The state of Tennessee ended the 2003-04 fiscal year with more than $380 million in surplus tax revenue, the Department of Finance and Administration said today.

Revenue collections for a fiscal year budget run from August 1 through July 31. According to the F&A press release, the state collected $712.3 million in tax revenue, a paltry $568,000 less than the budget estimate for the month. For the year, the state collected $380.3 million more than the budgeted estimate. To put it more simply: The state collected $380.3 million more from Tennessee taxpayers than it needed to balance the state budget.

Almost half of the surplus came from the state's sales tax - a tax that politicians and activists who wanted to create a state income tax a few year ago claimed was obsolete and unable to produce sufficient revenue growth. Those claims appear to be unfounded as the sales tax generated $186.6 million more revenue in fiscal year 2003-04 than was anticipated.

The state's primary business taxes, the franchise and excise tax, generated $113.3 million in surplus revenue for the fiscal year, a sign of a growing economy.

Total tax revenue from the state's 19 different taxes and fees rose 7.24 percent in FY 2003-04 compared to the year before. Revenue from the much-maligned sales tax was up 6.44 percent. Both numbers are more than sufficient to offset the rising cost of government due to inflation and population growth.

So, how does 6.44 percent revenue growth stack up historically? According to a spreadsheet of tax revenue data from 1983 through 2003, provided to me by the Department of Finance & Administration, the average year-over-year growth of tax revenue adjusted for tax-rate changes, was 4.77 percent from 1989 through 2003. The 6.44 percent growth in fiscal year 2003-04 is the second-highest growth rate in the last 10 years, and well above the 10-year average growth rate of 4.73 percent.

Also, the 7.24 percent growth of revenue from all taxes and fees is higher than the average growth rate of 4.39 percent from 1989 through 2003.

For the year, the state collected $9.12 billion, up from $8.5 billion the year before, including $5.8 billion in sales tax revenue, up from $5.45 billion the year before. For the rest of the data, here is the spreadsheet.