By Griffin Aerts, JD

As part of his proposed budget for 2017, Governor Bill Haslam recently announced the first piece of legislation for his NextTennessee legislative agenda, the “IMPROVE Act” (“Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy”).

The IMPROVE Act would raise the gas tax—which has not been raised since 1989—by 7 cents/gallon on regular fuel and 12 cents/gallon on diesel fuel. The Act would also index the gas tax to the CPI. This increase in revenue would be spent helping advance the state’s $10 billion in backlogged road and bridge projects.

The Governor’s plan would balance the gas tax increase with a series of tax cuts, including a move to a voluntary single-sales-factor apportionment formula (SSF) for manufacturing companies. SSF encourages businesses to invest in new property and hire new employees because these activities would not increase their franchise & excise tax base. This move is expected to cut over 100 million in franchise and excise taxes for manufacturing businesses in the 2017-2018 fiscal year.

Haslam emphasized the importance of supporting manufacturing businesses in Tennessee in his State of the State address: “They are the firms that in addition to their own jobs, bring a long trail of supplier jobs with them. The average manufacturing job creates an additional three jobs out of their supplier ranks.” A move to SSF would help attract new manufacturing jobs to TN by putting us on a level playing field with competing states (6 out of 8 neighboring states have SSF) as well as benefitting the manufacturing businesses already located here.

The governor’s plan is expected to be met with resistance from legislators cautious of any increase in taxes, but the manufacturer tax break should prove to be a popular counter-balance measure.