In Tennessee, as you correctly note, the (5% in 2016) Hall tax is a state tax levied on investment income. If the total amount of your interest income from bonds, notes, and dividends from stock are less than $1,250 (or $2,500 for a married couple), then you are entirely exempt from either having to pay this tax, or filing a Tennessee Hall tax return. (There are some other exemptions as well, such as one based on age and income.)
However, and with respect to the question you ask, the technical determination of whether or not someone is legally required to file a Tennessee Hall tax return doesn't depend on calculating whether someone actually owes the tax or not, but rather on whether or not they have interest and dividend income exceeding the $1,250 (or $2,500) filing threshold. Perhaps this concept is best illustrated by an easy example.
Let's say that we have a hypothetical married couple, John and Jane Doe. They own a stock and bond portfolio consisting entirely of US Treasury Bonds (which are exempt from state taxes everywhere, even Tennessee), and in-state Tennessee municipal bonds (which are tax-exempt by both the federal government and by Tennessee). Furthermore, let's say that the total amount of such interest income they receive annually from these bonds is $10,000.
Thus, with $10,000 of Tennessee tax-exempt interest income, and a state tax owed therefore of $0, do John & Jane Doe still need to file a Tennessee state Hall tax return? Yes, unfortunately Tennessee law says that they still do have to file the return, even if they don't actually have to pay any Tennessee tax.
Hopefully this simple example effectively illustrates the point: there's a fundamental difference between being required to file a tax return, and actually owing taxes. Knowing this, and applying these facts to your own individual circumstances, you should now be able to determine for yourself if you (legally) need to file a Hall tax return . . . or not.
Still, there are other rules (and exemptions) to filing a Hall tax return, and you are therefore respectfully encouraged to explore them. You can read about those rules, and other Hall tax matters, in the short (6) page Tennessee Department of Revenue booklet found here:
http://www.tn.gov/assets/entities/revenue/attachments/indincguide.pdfThank you for asking this important question.
