Will Tennesseans get a break? Legislation introduced

Inflation may have stabilized from its 2022 peak, but the pain of this price spike continues to weigh heavily on Tennessee buyers.

That’s one reason political leaders in Tennessee and Nashville are considering cutting the grocery tax.

Here is the latest discussion to reduce or lower the food tax in Tennessee and Nashville:

How much is the grocery tax in Tennessee?

The state imposes a 4% tax on food products, which is in addition to local taxes. In Nashville, the local tax is currently 2.25%, bringing the total grocery tax in Davidson County to 6.25%.

On November 6, Representative Aftyn Behn, Democrat of Nashville, introduced the “Ending the Grocery Tax by Closing Corporate Loopholes Act.” The bill would cut about $700 million the state receives each year from its 4% grocery tax, officials said.

Behn proposed making up for lost revenue by closing corporate tax “loopholes.”

Meanwhile, Nashville Mayor Freddie O’Connell said this week he is considering the implications of reducing Davidson County’s 2.25 percent grocery tax. That tax will increase to 2.75 percent when the newly approved transportation tax increases Nashville sales taxes by a half-cent starting February 1. This will bring the total tax rate shoppers will pay on their grocery bills to 6.75%.

“We will look at a number of things as we approach the fiscal year 2026 budget,” O’Connell said. “We’ll have a new CFO on board, and we want to evaluate things knowing that it’s an evaluation year, but it’s probably something we’ll at least look to get a cost estimate on.”

What is Tennessee’s proposed food tax cut?

Behn proposed a “corporate minimum tax” to fund a statewide elimination of the 4 percent grocery tax. It would only affect businesses paying no franchise or excise tax, she said.

“We have cut corporate taxes so much that corporations pay nothing,” Behn said. His bill “would require the Department of Revenue to examine total worldwide revenue and identify the share paid to Tennessee. It would recover lost revenue that belongs to Tennessee.”

Why does Tennessee charge a grocery tax?

Tennessee is one of 13 states that imposes a grocery tax on residents, according to the nonprofit Center on Budget and Policy Priorities.

However, Tennessee offers a reduced rate on its grocery tax compared to states that charge the full sales tax rate.

“Three of these states – Alabama, Mississippi and South Dakota – charge the same sales tax rate on food as they do on other goods and services,” CBPP officials wrote in a 2022 national report on the impact of taxes on food products. “In four other states, consumers pay the full state sales tax, but recoup some of those extra costs by claiming a credit when they file their taxes. Six states tax groceries to a certain extent but charge a reduced rate.”

The CBPP determined that the tax is a burden on “workers and families least able to afford it” and allowed reduced rates and tax credits to help ease the cost pressure.

In 2023, heads of state granted a three-month holiday from paying the food tax, from August to October.

Residents saved up to $288 million, or about $100 per family, during the three-month tax relief program, state Department of Revenue officials said.

Do Democrats and Republicans agree on reducing taxes on food products?

Short answer: sort of.

Behn and other Democratic leaders say his food tax cut would help residents while requiring businesses, which have benefited from a recent reduction in franchise and excise taxes, to pay more.

Republicans, including Rep. William Lamberth, Republican of Portland, argue that a corporate tax increase would ultimately be passed on to consumers through higher prices for goods and services.

Lamberth sponsored a bill passed earlier this year that allows local municipalities to reduce their grocery tax, opening the door for O’Connell to reduce fees in Nashville.

“Reducing the food tax is an idea we have supported for years, but paying for it by punishing the business owners who create our jobs and their employees is socialism at its worst,” Lamberth said in a statement. “Rep. Behn’s bill will raise business taxes by $800 million. It might work in liberal California, but not in Tennessee.”

Behn responded to Lamberth saying:

“With state revenue projections looking bleak, I welcome any creative ways to finance the elimination of the grocery tax from my colleagues, which would ensure that the largest businesses pay what they owe so that the burden does not fall on Tennessee’s working families.”