Tennessee consumers pay the second highest tax of any state in the country on what they buy, but Gov. Bill Lee wants to provide a bit more tax relief this year, at least for grocery shoppers.
A new study by the Tax Foundation said the combined average state and local tax rate in Tennessee of 9.548% is second only to Louisiana’s 9.55% average and, unlike 37 other states that exempt grocery purchases from their sales tax, Tennessee still imposes a 4% state levy on all food purchases, which combined with local taxes in Hamilton County results in a 6.25% tax rate in Chattanooga on most food items.
But after giving consumers a one-month reprieve on grocery sales taxes last year with proceeds from the Covid-19 pandemic relief aid for the state, Lee is proposing to extend the sales tax holiday on food to three months in the state’s next fiscal year.
“Decades of smart fiscal stewardship have enabled us to weather the national economic storms and do so while maintaining a healthy savings account and cutting taxes for Tennesseans,” Lee said in his State of the State speech last week. “So, this year, we’re cutting taxes again.”
Last August, Tennessee used its budget surplus from pandemic relief aid and other revenues to remove the sales tax on grocery items for 30 days. The sales tax moratorium was the longest of any state last year and saved consumers an estimated $80 million in sales taxes they would have otherwise paid on food items during that month, according to the Tennesee Department of Revenue.