A state board is proposing a sweeping change to make computer software used in business subject to property taxes, a move that some business leaders contend could drive up costs and hurt job growth in Tennessee.
"This would be a significant chunk of change," said Hayes Ledford, the Chattanooga Area Chamber of Commerce’s director of public affairs.
Carl Hartley, a Chattanooga attorney representing some businesses, said the change could put a considerable tax bite on some companies whose businesses are heavily based on computer use, such as banks, finance companies, leasing firms and insurance businesses.
Officials at UnumProvident Corp., the Chattanooga-based insurer with 3,000 workers in the city, said the shift could add a substantial cost to doing business in Tennessee. Spokeswoman Mary Clarke Guenther said UnumProvident buys a lot of software.
"We have 600 software applications in use throughout the company," she said, adding that not all of its computer work is based in Chattanooga.
Currently, there is no consistent approach to determining what business software should be considered taxable, according to the executive secretary of the State Board of Equalization, which proposed the change.
However, software already is taxed as property in some Tennessee counties, said Kelsie Jones. He said county assessors have taken "varying approaches" in making distinctions about not only taxing software, but the kinds, as well. For example, Mr. Jones said, some tax operational software but not that which is applicational.
The new rule would provide a uniform standard across the state, he said.
"One of the reasons for the proposal comes down to consistency. The rule as proposed would quit worrying about distinctions," he said. "All software becomes assessable."
Hamilton County Assessor of Property Bill Bennett said his office has taxed operational software at companies where it has done audits for six or seven years. The proposed rule "would take the gray area out," Mr. Bennett said.
The board has set a Jan. 23 hearing on the change in Nashville. Mr. Jones said staff members will receive comments on the proposal, consider changes, and at a later date it could go back to the board for a vote.
Ray Childers, president of the Chattanooga Manufacturers Association, said the proposal has "serious implications" for businesses. Mr. Childers said he is concerned the change may be done administratively rather than legislatively.
"I understand there may be constitutional issues," he said.
State Sen. DavidDavid Fowler,Fowler R-Signal, R - Signal RSignal Mountain, said he is so concerned that he has asked that a bill be drafted to permit the Tennessee General Assembly to consider the issue.
"I do think it’s a major change in tax policy with economic ramifications that needs to be considered by the legislature," he said. "It may be the legislature agrees with the rule change."
Mr. Ledford said the rule change would hurt service companies and high-tech manufacturers as well as small and medium-size businesses.
"It’s an added burden," he said.
Mr. Jones said Tennessee isis aa low-taxlow - tax lowtax state, and taxing computer software would be just one component of a number that businesses consider. Also, he said, the state offers tax incentives to companies considering moving to the state.
Mr. Jones said the rule change was coming from the state level. He said the personal property section in the state comptroller’s office works with county assessors in Tennessee.
"The board will listen for reasons for or against the change," Mr. Jones said. He said he did not know how much revenue a change would bring in, nor did Mr. Ledford. Revenues generated from a property tax on software would go to the county in which the tax was assessed.
In Georgia, Catoosa County Chief Appraiser Dale McCurdy said his office doesn’t tax computer software as property. He said he believed that the state exempted software in the late 1990s.

Proposed tax change worries businesses in TN