HB 127 – SB 1307
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
February 22, 2025
Fiscal Analyst: Justin Billingsley | Email: justin.billingsley@capitol.tn.gov | Phone: 615-741-2564
HB 127 – SB 1307
SUMMARY OF BILL: Expands the authority to impose a local transit tax surcharge to all
local governments. Expands the use of revenues derived from a local transit tax surcharge to include
highway and bridge projects.
Removes local transit tax surcharges from being included in any local government’s calculation of
spending thresholds for road purposes, which must be met for a local government to receive certain
revenue attributable to past rate increases to the gasoline tax. Specifies that a local government is
eligible to collect, receive, and administer proceeds of a local transit tax surcharge only if it
appropriates and allocates funds for road purposes from local revenue sources in an amount not less
than the average of the five preceding fiscal years; except bond issues, federal revenue-sharing
proceeds, and local transit tax surcharges must be excluded from the computation of the five-year
average. Furthermore, if a local government fails after July 1, 2025 to appropriate and allocate such
average amount for road purposes, then the amount of revenues that would otherwise be allocable
to such local government must be reduced by the amount of the decrease below such average, and
such amount not allocated to the local government due to such decrease must be allocated to the
Highway Fund, to be used by the Department of Transportation for the improvement of state
highways in the local government’s jurisdiction. Specifies that such state funds are in addition to the
funds otherwise allocated for improvements in the local government’s jurisdiction in that fiscal year.
FISCAL IMPACT:
OTHER FISCAL IMPACT
Due to multiple unknown variables, any impact on local government revenue or expenditures
cannot be reasonably quantified.
Assumptions:
Impact to the Metropolitan Government of Nashville-Davidson County (Metro)
• Metro is the only local government to have implemented a local option transit tax
surcharge.
• In November of 2024, voters within the jurisdiction of Metro voted to implement a 0.5
percent increase to its local sales tax option rate, thereby raising such rate from 2.25 percent
to 2.75 percent, the proceeds of which will fund Metro’s transportation program.
• This tax increase took effect on February 1, 2025.
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• Tax collections from such surcharge are unknown at this time, as tax returns for February
2025 are not due until March 20, 2025.
• Pursuant to Tenn. Code Ann. § 67-3-901(m), a county is eligible to receive revenues from
the increase in taxes imposed by Chapter 181 of the Public Acts of 2017 if the city
appropriates and allocates funds for road purposes from local revenue sources in an
amount not less than the average of the five preceding fiscal years; however, such
computation cannot include bond issuances and federal revenue sharing proceeds.
• This legislation will prohibit the aforementioned calculations from including any local
transit tax surcharge revenue in the calculation of such averages.
• Due to only recent imposition of such surcharge, Metro does not currently include revenue
collected from its local options transit tax surcharge in the calculation of its five-year
average.
• In FY23-24, Metro collected $710,962,087 in local sales tax collections from imposition of
the local options sales tax of 2.25 percent.
• Gross taxable sales in Metro for calendar year 2024 totaled $31,598,314,978 ($710,962,087 /
2.25%).
• Therefore, this surcharge of 0.50 percent is estimated to result in an increase in local sales
tax revenue for Metro exceeding $157,991,575 ($31,598,314,978 x 0.50%).
• In the absence of this legislation, the Metro could use all or a portion of this amount of
$157,991,575 to meet such spending threshold concerning funds used for road purposes;
however, it is unknown whether Metro would include such surcharge revenue in calculation
of such average.
• For purposes of this fiscal analysis, it is assumed that Metro would not supplant current
funds earmarked for road purposes with revenue collected from imposition of this local
transit tax surcharge, but rather use such revenues for projects specific to its transportation
improvement program.
Impact to Local Governments other than Metro
• Besides Metro, Blount, Hamilton, Knox, Montgomery, Rutherford, Shelby, Sullivan,
Sumner, Washington, Williamson, and Wilson counties, as well as the cities of Chattanooga,
Clarksville, Knoxville, and Memphis are currently authorized to impose a local transit tax
surcharge, but do not.
• It is unknown to what extent this legislation will impact the future decisions of the
aforementioned local governments to impose a local transit tax surcharge.
• Additionally, this legislation authorizes all local governments to impose a local transit tax
surcharge and further, allows collections from such tax to be used for bridges and highways,
instead of such funds being limited to use on public transit system projects and services.
• Pursuant to Tenn. Code Ann. § 67-4-3206, before such surcharge may be imposed, the
respective local government must develop and adopt a transportation improvement
program by ordinance or resolution by majority vote of the local government’s legislative
body.
• It is unknown how many local governments will adopt a local transit tax surcharge directly
as a result of this legislation; however, it is assumed that any imposition of such tax will
occur in outlying years, as such local governments would need adequate time to develop a
transportation improvement program in order to pass the necessary ordinance or
resolution.
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• Due to multiple unknown variables, including, but not limited to which local governments
will seek to impose a local transit tax surcharge and when such tax would take effect, any
increase in local government revenue and any resulting expenditures cannot be reasonably
quantified.
• Any impact on state Highway Fund is estimated to be not significant.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director