Advanced Underwriting Consultants

Question of the Day – March 14

Ask the Experts!

Here’s the question of the day.

Question:  Are taxable distributions from a non-qualified deferred annuity subject to the Tennessee state income tax (Hall tax)?

Answer:   Yes.  Dividend and interest income in Tennessee is generally subject to the Hall tax.  Such income in excess of a small exemption amount is taxed at a flat rate of 6 percent.

The instructions to the Tennessee income tax return lists the type of income that is subject to the tax:

Taxable Income….

3. Any distribution which does not qualify as a return of capital and is otherwise taxable. (Emphasis added.)  In order to qualify as a return of capital, it must be shown that part of the shareholder’s investment is being returned to the shareholder and that, as a result, the capital of the company is actually reduced.

See http://www.state.tn.us/revenue/forms/indinc/inc250.pdf.

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