Germantown Mayor Mike Palazzolo wants Tennessee Gov. Bill Haslam to take his foot off the gas pedal when it comes to phasing out the Hall tax on dividend and investment income. And in a Wednesday, Feb. 8, letter to Haslam, Palazzolo makes a case for local governments getting a greater share of Hall tax revenues as the income tax is phased out.

Mike Palazzolo

Haslam’s acceleration of the Hall tax phase-out is a key part of his proposal to raise the state’s fuel tax but drop other taxes to make the revenue neutral overall.

As part of that, Haslam has proposed a 1.5 percent cut in the Hall income tax, dropping it to 3.5 percent in the new fiscal year. The tax on dividends and investment income is to be phased out by 2022. At the rate of 1.5 percent a year, it would be eliminated two years before that.

“Germantown has designated the use of these tax dollars to support capital improvement programs throughout the city,” Palazzolo wrote in the letter to Haslam. “To fully replace the Hall (tax) during the five-year phase-out would require a 55-cent increase in property taxes based on our current rate.”

By his estimate, the city of Germantown would lose $204,000 a year.

Palazzolo is seeking the support of 18 other city and county mayors across the state for a bill sponsored by Republican state Sen. Brian Kelsey of Germantown and Republican state Rep. Tim Wirgau of Buchanan. The bill would change the funding formula for the redistribution of Hall tax revenues, with local governments getting a larger portion in the years leading into its phase-out, which would happen over five years instead of three.

“We get 37.5 percent at the municipal level and the county level,” Palazzolo told The Daily News of the Hall tax revenue. “Go ahead and give us the state portion as well. So it would double our Hall income tax (revenue) and we would do that over the five-year phase-out so it can allow us to plan better for short-term and long-term CIP needs in all of these communities across the state.”

Among the mayors getting the letters from Palazzolo are Memphis Mayor Jim Strickland, Shelby County Mayor Mark Luttrell and Collierville Mayor Stan Joyner, as well as Nashville Metro Mayor Megan Barry, Chattanooga Mayor Andy Berke and Knoxville Mayor Madeline Rogero.

Haslam has argued that the increased revenue from his proposed fuel tax hike would make up for the loss local governments would otherwise experience with an accelerated Hall tax phase-out.

Palazzolo says that is true for most local governments across the state but not Germantown and 14 other city and county governments.

“Since we are losing so much in Hall, it actually affects us negatively,” he said.