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, taxable amounts over the limits are charged a flat state of Tennessee rate of 5%.
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.pdf
The current (2016) 5% rate is down from 6% (in 2015). Currently, there is Tennessee law in place to continue the annual rate cuts, at 1% per year, until the Hall tax is phased out completely in the year 2022. Please see the following Tennessee General Assembly webpage for more on the state law repealing the Hall tax:
http://wapp.capitol.tn.gov/apps/BillInfo/default.aspx?BillNumber=SB0047&GA=109
Thank you for asking this important question.
