NASHVILLE — Gov. Bill Lee has signed into law a $400 million measure the Republican is calling the "single largest tax cut" in Tennessee history.
The legislation, dubbed the "Tennessee Works Tax Act," permanently cuts taxes on small businesses while providing a three-month holiday this year on most food sold in grocery stores.
"It will allow dollars to stay in the hands of the taxpayers and businesses where that money is best spent," Lee told reporters during a bill-signing ceremony Thursday at Lipscomb University, where he was flanked by nearly a dozen business leaders and two cabinet members. "That was a collaborative work together with the General Assembly. I want to thank the members of the General Assembly."
Consumers will save an estimated $273 million on the sales tax holiday from Aug. 1 through Oct. 31. The act, passed amid soaring state surpluses, pauses the state's 4% tax on groceries as well as local sales tax on food, which can go as high as 2.75%. Local governments will be reimbursed for their tax loss.
Food and food ingredients are defined as liquid, concentrated, solid, frozen, dried or dehydrated substances that are sold to be ingested or chewed by "humans" and are consumed for their "taste or nutritional value."
While consumers may call the tax break sweet, the holiday doesn't apply to candy. Also excluded from the sales tax holiday are alcoholic beverages, tobacco and dietary supplements.
The new state budget passed by lawmakers that takes effect July 1 "makes one of the largest tax cuts in Tennessee history for businesses and families, while setting aside $250 million for our rainy-day fund," Senate Finance Committee Chairman Bo Watson, R-Hixson, said in April following passage of the budget.
The legislation provides tax relief to small businesses an estimated $150 million in annual business tax relief. Provisions include raising the exemption threshold for the state business tax, exempting the first $50,000 of net income from the excise tax and protecting the first $500,000 in property investment from the excise tax.
Another $64 million is going toward simplifying tax administration and conforming with the federal bonus depreciation provisions of the 2017 Tax Cuts & Jobs Act. It's intended to let businesses more quickly recover costs and further incentivize investment in Tennessee production.
Yet a third provision provides a foundation for supporting Tennessee's continued economic growth, aligning the state with more than 30 other states by adopting "single sales factor" apportionment for franchise and excise tax.
The franchise tax is based on the greater of net worth or the book value of real or tangible personal property owned or used in Tennessee. The excise tax is based on net earnings or income for the tax year.
"In Tennessee we are committed to low taxes," Senate Majority Leader Jack Johnson, R-Franklin, said in a news release. "We believe that Tennessee businesses and citizens are in the best position to decide how to spend their own money, and these tax cuts demonstrate that we practice what we preach."
House Majority Leader William Lamberth, R-Portland, said in the release that the tax cuts mean more money for Tennessee citizens to invest, spend and save.
The tax cut bill "provides meaningful reforms that further solidify Tennessee's standing as the most well-managed, fiscally stable state in the nation where families and businesses thrive," he said.