It’s only fair that when the state is fiscally healthy, some of that money be returned to the taxpayer. Tonight, I am announcing a proposal to cut the professional privilege tax in half and return $40 million to individuals and small business owners who every year pay this arbitrary and unfair tax. — Gov. Bill Lee, 2020 State of the State Address to the Tennessee Legislature, Feb. 3, 2020

The privilege of earning a living in the state of Tennessee should not come with a tax.

Yet Tennessee lawyers face precisely that scenario and have for years. We are in a small, select group of unlucky professionals situated within a very small minority of states who must pay a toll for the privilege of practicing our profession in our home state. There are approximately 23,000 attorneys licensed to practice law in Tennessee, of whom around 13,000 are members of the TBA. All of those lawyers must pay the annual $400 professional privilege tax regardless of their income, employment status, Tennessee residency status (a whopping 82% of the lawyers who are taxed are Tennessee residents) or whether practicing law is their main profession.

Eliminating (or at least reducing) the burden of this tax on lawyers has been a TBA priority for several years. I’d like to talk a little about how we got here and what we’re doing at the government affairs level to address the imposition of this tax on Tennessee lawyers.

The professional privilege tax in Tennessee was initially enacted in 1992 as part of a $276 million tax increase. At the outset, 21 categories of professionals were taxed at a rate of $200 per year. In addition to lawyers, the initial professions who were taxed ranged from accountants to engineers, architects to optometrists, audiologists to veterinarians, and many in between. A twenty-second category of professionals (those who serve as agents for athletes) was added in 1996. The tax was doubled to $400 per year in 2002 as part of a $993 million tax increase. Thus, as of 2002, 22 professions were taxed annually in the amount of $400 per practitioner.

Interestingly, major league basketball and hockey players were added to the list in 2009 at a rate of $2,500 per game, up to three games per year, but the legislature exempted the players from that tax in 2014 based on a bill sponsored by now-Senate Majority Leader Jack Johnson. While as many as 22 different professions have been assessed a privilege tax at some point since the inception of the tax in 1992, the tax has been whittled away over time until only four professions remain: financial planners, stockbrokers, lobbyists and lawyers. While the number of professions has dwindled, the state’s coffers have not. When the initial legislation passed, Tennessee was experiencing a significant budget shortfall. However, the picture of  Tennessee today is a very different one.

On March 11, 2022, Tennessee Department of Finance and Administration Commissioner Butch Eley announced that Tennessee tax revenues exceeded budgeted estimates in February. February revenues totaled $1.2 billion, which was $212 million more than the budgeted estimate. Privilege taxes were $14.4 million more than the February estimate, and on a year-to-date basis, August through February, privilege tax revenues were $103.5 million more than what had been estimated. Year-to-date revenues for six months were $2.15 billion more than the budgeted estimate. The general fund recorded $2.02 billion in revenues more than estimates, and the four other funds totaled $126.7 million more than year-to-date estimates.

Thus, despite legislative reprieves provided to nearly every original profession, and despite the very different financial landscape of the state, lawyers continue to face the imposition of this tax that our own governor has called “arbitrary and unfair.”

It’s not just the governor who has hinted at the notion that the professional privilege tax is — and should be — on its last legs. Lt. Gov. Randy McNally spoke to the National Federation of Independent Business’s (NFIB) Small Business Day in Nashville on Feb. 15, 2022. He said, “I think this year might be the year that we get through finishing off the professional privilege tax. And that was a tax that was enacted back during the McWherter administration, and I voted against it then. And then it was raised from $200 to $400 during the Bredesen administration and I voted against it during that time.”¹

House Speaker Cameron Sexton, on his website, states the following: “Under conservative leadership, we have eliminated more than $645 million in taxes since 2011 … and we continue to slash taxes on Tennesseans impacted by the professional privilege tax. With a large budget surplus, we should look for new ways we can return more money to the citizens of Tennessee.”²

On June 28, 2022, House Majority Leader William Lamberth published an op-ed in the Portland Sun. In it, he wrote: “[W]e have continued a multi-year commitment to eliminate the professional privilege tax levied on certain individuals to practice their profession. Republicans in 2019 passed legislation eliminating the professional privilege tax for 15 licensed professions. This year, physicians were eliminated.”³ However, Tennessee lawyers must continue to pay.

Despite these public statements of Tennessee leaders, the tax remains on the books for Tennessee lawyers. As noted above, Gov. Lee proposed a $200 reduction in 2020, but the legislature did not approve the reduction. Again, in 2021, Gov. Lee proposed a reduction. This time, the proposed reduction was $100. At the last moment, the proposal was struck from the budget amendment, and legislative leadership hinted that the $100 reduction was little more than an insult and that more robust reductions would come our way in 2022.

Alas, that was not to be. During the 2022 term of the General Assembly, TBA’s government affairs team spent countless hours advocating for the interests of our members and for the complete removal of the tax for lawyers. Multiple meetings with House and Senate leadership led us to develop a cautious optimism: our team heard consistently from legislative leadership, both privately and publicly, that a complete repeal of the tax (or at least a reduction) was a high legislative priority. Indeed, our bill to reduce the tax received over 90 co-sponsors in the legislature. Heading into the end of the session, we felt as confident as one can feel about impending legislation, and all signs pointed to the conclusion that Tennessee’s lawyers would soon join the other professions who had been exempted from this onerous tax.

Adding to the optimism, once again the governor also appeared to be an ally. In April of 2022, his budget included a $100 reduction of the tax, paving the way for action by the legislature for tax reduction or elimination for lawyers. However, on Easter Sunday, we heard for the first time that our position was in jeopardy. Ultimately, when the legislature reconvened on the Monday after Easter, the writing was on the wall. Despite our best efforts, despite positive feedback from legislative leaders, despite the governor’s support, despite the removal of the vast majority of professions from this ongoing tax burden and despite the robust financial condition of the State of Tennessee, the legislature refused to reduce or eliminate the tax on lawyers.

By my math, I have paid the state of Tennessee approximately $8,400 over the years for the privilege of serving as a lawyer in Tennessee. Like you, I have paid this tax, along with my yearly licensing fee to the Board of Professional Responsibility 

and my costs of maintaining compliance with Tennessee’s continuing legal education requirements. I’ve paid it while I’ve repaid student loans, while I worked as a law clerk, while I worked for the state and as a small business owner in my own private practice. I suspect I speak for all of us when I say I think we’ve paid enough.

So, what can you do? First, we encourage attorneys across the state to bring up the need to eliminate the professional privilege tax any time you encounter members of the legislature. Second, support candidates who support our profession. We are asked all the time to write checks in support of candidates. I humbly suggest you write checks to candidates who are committed to making eliminating the professional privilege tax for attorneys a top legislative priority. Third, join us for the TBA Day on the Hill on March 22, 2023. Put the date on your calendar now. We need a full court press. And finally, donate to LAWPAC at www.tba.org/lawpac. Now more than ever, TBA needs the funds to be able to contribute to the campaigns of legislators who help us stop bad legislation from passing and help us pass our legislative priorities.

Lawyers are great advocates, and it’s time we advocate for ourselves. |||

TASHA C. BLAKNEY is a partner in the law firm of Eldridge & Blakney PC and is the president of the Tennessee Bar Association. She is engaged in criminal defense and general civil litigation on behalf of both plaintiffs and defendants, primarily in the areas of personal injury, wrongful death, workers’ compensation, medical malpractice, contract disputes, employment law and business litigation.

NOTES

1. National Federation of Independent Business, “McNally Optimistic General Assembly Will Eliminate Professional Privilege Tax,” Feb. 16, 2022, www.nfib.com/content/news/tennessee/watch-mcnally-hopeful.
2. Cameron Sexton: Speaker of the House, “Issues,” accessed Aug. 15, 2022, www.cameronsexton.com/issues.
3. Lamberth, William, “Tennessee Republicans deliver historic tax cuts amid inflation,” June 28, 2022, www.theportlandsun.com/opinion/tennessee-republicans-deliver-historic-tax-cuts-amid-inflation/article_434a7d66-f42e-11ec-9287-0355644c4bbf.html.