"This is especially true in Tennessee where the combined state and local sales tax is already one of the highest in the country and the outlook for some fiscal relief from an income tax appears unlikely," the paper said.
The TACIR paper said limits on local taxing authority "severely restrict" funding opportunities for Tennessee's local governments and may affect citizen services.
"Local governments in Tennessee have few taxing options available to them, and they rely primarily on the property tax and the local option sales tax. The property tax is the only unrestricted revenue source for local governments in Tennessee," the TACIR paper noted. "The local option sales tax is capped at 2.75 percent, applies only to the first $1,000 of the price of an item, is subject to state sales tax exemptions, and is subject to the requirement that any increases must pass a voter referendum."
Less significant revenue sources for local governments include the wheel tax, the local portion of the state gross receipts tax, the hotel/motel tax, and a local gasoline tax, the TACIR paper said.
Limits to local taxing authority are not unique to Tennessee. Local governments possess taxing and other revenue authority to the extent allowed by state lawmakers under the Tennessee Constitution.
"They are figuratively and literally legal creatures of their states," the TACIR paper said of local governments.
But nationally, the paper stressed that local tax autonomy has declined over the last 20 years, and there are no easy solutions to swelling local government fiscal problems.
The paper also predicted local taxing options will continue to decline over time.
"The evidence in other states already points to an increased dependence on user fees and charges in the local government revenue stream," the paper said. "While not easy to levy and increase, the evidence seems to show that these revenue sources are easier to sell than increased property and sales taxes."
The "greatest unknown," said TACIR, is whether state government will "belly up to the bar" and provide unrestricted intergovernmental aid in areas besides education.
TACIR said local governments' fiscal problems, in part, are fueled by boundary-driven tax bases and their frequent willingness to compete with each other through various tax breaks and giveaways.
"While somewhat in its infancy, more cooperation among local governments in the provision of public services and more sharing of tax-revenue bases would reduce some of the fiscal stress that will continue to accumulate," the paper said.
For more information go to www.state.tn.us/tacir and click on "Publications."