In a state where an income tax is absent, Tennessee’s Grocery Tax Holiday commenced on August 1, giving residents a brief respite from this unique tax burden. As one of only 13 states in the nation that levy a grocery tax, the Volunteer State has relied on sales taxes as a crucial source of revenue, particularly due to the absence of an income tax enshrined into its constitution.
Tennessee’s Grocery Tax Holiday
Tennessee’s Grocery Tax Holiday, authorized by the 20-22 Tax Reform Act, is projected to result in a temporary revenue loss of approximately $275 million over the three-month period.
According to a published article, Tennessee families can expect to enjoy savings ranging from $100 to $150 during the grocery tax holiday.
As a reminder, Tennessee’s Grocery Tax Holiday applies to most grocery items but not everything. Items such as candy, alcohol, and prepared food are exempt from the holiday. The tax holiday will conclude on Halloween night, October 31st, at midnight.
As Tennessee remains one of only eight states without an income tax, Tennessee’s Grocery Tax Holiday is expected to remain a significant part of the state’s revenue structure. This unique tax situation has been drawing people to Tennessee, as Senator Watson points out, “People are flocking to Tennessee because we don’t have an income tax.”
Could Tennessee’s Grocery Tax Holiday Be Made Permanent?
Senator Bo Watson from District 11 of Tennessee explains, “Tennessee does not have an income tax, so we have limited ways of giving money back to our citizens. This is one way of giving their tax dollars back to them.”
Addressing concerns about the potential permanence of Tennessee’s Grocery Tax Holiday, Dr. Bento Lobo, a professor and head of the finance department at the University of Tennessee-Chattanooga (UTC), states, “The loss of revenue here should be something that the state should be able to solve pretty easily.”
According to Dr. Lobo, the state has a revenue surplus that is three to four times the amount required to meet short-term obligations.
However, Senator Watson emphasizes that Tennessee’s Grocery Tax Holiday is not a long-term strategy, stating, “The grocery tax is actually the most stable and most reliable tax that the state of Tennessee has. This is an opportunity to give back some of folk’s resources back to them, but it’s not a long-term strategy.”
Considering the implications of eliminating the grocery tax altogether, Dr. Lobo cautions that such a move would likely lead to higher taxes on other items.
In conclusion, while Tennessee’s Grocery Tax Holiday offers a temporary reprieve for Tennessee residents, it is unlikely to become a permanent fixture due to its critical role in the state’s revenue system.