Bredesen floats sales tax hike on luxuries

Bredesen floats sales tax hike on luxuries

April 15th, 2010 by Andy Sher in Politics State

NASHVILLE - Gov. Phil Bredesen on Wednesday asked legislative leaders to consider eliminating the local sales-tax cap on the purchase of single big-ticket items in order to raise $85 million to plug the latest state's budget shortfall.

The plan would apply to major purchases with a value exceeding $3,200. But it specifically exempts sales of vehicles, boats and manufactured homes, administration officials said.

"We're floating this idea to fix the budget hole - what amounts to an additional $105 million shortfall," Bredesen press secretary Lydia Lenker said, confirming lawmakers' accounts of the governor's proposal. "We feel it's a better option than what the next round of budget cuts would look like."

The governor's 2010-2011 budget already provides for 9 percent cuts affecting many functions of government.

Among those present at Democrat Bredesen's weekly breakfast meeting with legislative leaders was Lt. Gov. Ron Ramsey, R-Blountville, the Senate speaker, who later said, "I just don't think it would get the votes in the state Senate.

"There's no way in the world I could support it," Lt. Gov. Ramsey said. "It's the worst time in the world to be raising taxes."

State Revenue Commissioner Reagan Farr, who helped craft the plan, said that by specifically excluding vehicles, boats and manufactured homes, it largely would apply to "luxury items - jewelry, furs, upper-end furniture. And then businesses - office furniture, computers."

He noted that under current law, the first $1,600 of the purchase price of any single item is subject to the state's 7 percent sales tax rate plus an additional local option sales tax that may not exceed 2.75 percent.

To deal with a budget crisis in 1999-2000, state lawmakers passed new provisions stating that on purchases of single items costing between $1,600.01 to $3,200, the item is subject not only to the 7 percent state tax rate but an additional 2.75 percent state levy.

Purchases on items exceeding $3,200 already are taxable at the 7 percent state rate. The new proposal would add another 2.75 percent to the purchase of single items exceeding $3,200 - except for motor vehicles, boats and manufactured homes.

Mr. Farr said those three big-ticket items were excluded because they are the "most common items purchased in the state that cost more than $3,200."

Lt. Gov. Ramsey, who is running for governor, said "consumers don't often make purchases over $3,200. It's usually small businesses that do. They have to buy backhoes" and other equipment.

Democratic Caucus Chairman Mike Turner said "we've got to come up with something. We have very few places left to cut without really hurting people. We're down to cutting veterans and children and education and things like that."

He noted, "I'm not saying lifting the cap is it. But we've got to come up with something. This is another option."