The Chatter Class: Taking exception with tax exemption

Monday, May 19, 2008 at 2:20am

Businesses and their lobbyists don’t often get terribly worked up about arcane legislative language.

But they did at the state House last week in the waning hours of this year’s General Assembly over an attempt to close a tax-exemption loophole created under former Gov. Don Sundquist in 2000.

The loophole or exemption, depending on one’s viewpoint, allows family-owned non-corporate entities investing in commercial real estate an exemption on franchise and excise taxes.

Yes, a real cure for insomnia. The impact, however, supposedly would be widespread, affecting not only wealthy old-line families but also small family-owned real estate businesses.

The exemption stayed untouched but the whole exercise — hearings and calls for more data — was an example of how relatively easy a provision can slip into law and how difficult changing it becomes after people have conformed to it.

Even more so than wealthy families taking advantage of the exemption, small businesses used it to own real estate and pay rent to themselves.

Changing the exemption/loophole was part of a “technical corrections” piece of legislation aimed generally at closing tax loopholes as a way to generate tax revenue for the cash-strapped state government. That’s how the exemption got there eight years ago when legislators tweaked the 1999 Tax Revision and Reform Act.

Ironically, the Republican Sundquist administration had attempted — prior to launching an income tax effort — to close business tax loopholes and grab money from business a decade ago. The FONCE law was established then as a way to protect family wealth tied up in business and real estate interests.

Of course, messing with business tax law tends to draw the ire of the business lobby, even their wrath in some cases. The political rhetoric became quite fascinating with the administration and its supporters stirring the pot while those trying to save the exemption did their fair share.

Apparently, lobbyists with the Nashville law firm Waller Lansden Dortch & Davis led the charge in fighting the change. National Federation of Independent Business in Tennessee worked the issue hard to hold the line.

There was talk that Waller was representing the May family, which has proposed May Town Center at Bells Bend and owns a bunch of Nashville real estate. The response on that from Waller government liaison types was a definitive “not true.” Waller was registered with Nashville Wire, MidSouth Wire and Rollins Associates on the issue. Working beyond that would be against the law.

Supposedly, ending the exemption would bring the state $15 million.

Or would it? There wasn’t a clear number on what it would generate. The figured ranged from $17 million to $50 million.

The lobbyists were off trying to find an offset of some sort. Word was they were trying to take it from Wal-Mart. That would have meant Waller was working against a client, which isn’t likely.

Some 8,600 entities take advantage of the exemption, according to state estimates. Maybe. No one knows for sure, say the opponents to ending the exemption.

So like every good battle over tax exemptions, there was a flurry of activity and nothing changed. Now, though, there will be an effort to figure out impact and actually put some hard numbers to the issue.

Interestingly, there probably wasn’t the same sort of studies done eight years ago showing why such an exemption was needed or who it would help or how much it might cost.

The Chatter Class appears Mondays in The City Paper. Comments may be sent to

Filed under: City Business