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Tennessee law will allow cities to cut $10.5M in local grocery tax

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(The Center Square) – A bill that would allow local municipalities to cut their grocery tax in Tennessee will go into effect Oct. 1.

House Bill 2641 depends on those entities taking action to make a difference. The bill unanimously passed the Senate and passed the House 89-4.

The bill would allow municipalities to cut a maximum of $10.5 million in taxes if every municipality in the state elected to cut the allowed amount.

House Majority Leader William Lamberth pitched the bill as the next step in grocery tax cuts after Tennessee had a one-month holiday on grocery food purchases in 2022 and a three-month holiday in fall 2023.

“It is completely their call, but if they decide they can live without that tax on food in their city, if their budget can handle that, it allows them to do so,” Lamberth said.

The state will not have a holiday in 2024.

A fiscal note on the bill before it was amended in the Senate said that it could save up to a combined $499 million in grocery tax next fiscal year at rates up to 2.75% with the average local sales tax rate at 2.5% while the state grocery sales tax is 4%.

But the bill was amended in the Senate to define the local tax rate to be the city portion of the combination of county and municipality taxes.

The $499 million estimate came after the Fiscal Review Board took all of the state’s estimated $20 billion in taxable food purchases in the fiscal year at a 2.5% local rate.

The updated figures said that, if the allowable city tax rates up to 0.75% were cut across the state at the maximum allowed rate, it would actually cut $10.5 million worth of food taxes.

“The ultimate goal should be to eliminate the food tax,” said Rep. G.A. Hardaway, D-Memphis. “That just doesn’t seem civilized to me to tax people on what they need to survive. It makes no sense.”

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