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Tennessee governor proposes cutting sales tax on groceries, raising gas tax

  • Jan 19, 2017 | Gail Cole

 Tennessee governor wants to lower the sales tax on groceries.

Update, 5.3.2017: The governor has signed the IMPROVE Act into law. The sales tax rate for food and food ingredients will drop from 5 percent to 4 percent beginning July 1, 2017.

Governor Bill Haslam of Tennessee wants to cut the sales tax on groceries. Under his IMPROVE Act, unveiled earlier this week, the sales tax on groceries would drop from 5 percent to 4.5 percent. However, the state gas tax would increase by seven cents per gallon.

Lower taxes on food

The Haslam administration has long worked to lower taxes on unprepared food. In 2012, it reduced the rate from 5.5 percent to 5.25 percent; the following year, it dropped the rate to 5 percent. If the latest proposed rate decrease is approved, the total cut to sales tax on food during Haslam’s tenure will be one percent, or $101 million.

Only 13 states tax groceries (either at the general rate or a reduced rate, as in Tennessee): Alabama, Arkansas, Hawaii, Idaho, Illinois, Kansas, Mississippi, Missouri, Oklahoma, South Dakota, Tennessee, Virginia, and Utah. Five states have no general sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. In the remaining states, groceries are exempt from sales tax.

Higher taxes on gas

Gov. Haslam also wants to generate more revenue for transportation projects. The IMPROVE Act would increase the tax on gasoline by seven cents per gallon and the tax on diesel by 12 cents per gallon. Vehicle registration fees would increase, electric vehicles would be subject to an annual road user fee of $100, and the fees for vehicles that use alternative fuels would increase. Altogether, these tax increases would generate approximately $278 million for state transportation projects. In addition, municipalities would be allowed to increase local sales tax to raise revenue for public transit projects (if approved by a vote of the people).

The IMPROVE Act stands for “Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy.” The governor’s press release says it will “position the state to address expected growth, maintain Tennessee’s economic momentum and remain competitive.” To do that, it must first be approved.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.