HB 21 – SB 1367
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
March 13, 2025
Fiscal Analyst: Elizabeth Bransford | Email: elizabeth.bransford@capitol.tn.gov | Phone: 615-741-2564
HB 21 – SB 1367 1
SUMMARY OF BILL: Eliminates the state sales tax on food and food ingredients.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
FY25-26 & Subsequent Years NET ($808,302,600)
EXPENDITURES General Fund
FY25-26 $500,000
LOCAL GOVERNMENT
REVENUE Mandatory
FY25-26 & Subsequent Years $11,515,500
Assumptions:
• Pursuant to Tenn. Code Ann. § 67-6-702(a), local governments are authorized to levy a tax
on the same privilege subject to the state sales tax rate. Pursuant to the proposed legislation,
the local option sales tax rate will continue to be collected by locals.
• Elimination of the state sales and use tax on the retail sale of food and food ingredients will
also eliminate the state-shared allocation of state sales tax collections to local government
on those items. However, the proposed legislation holds locals harmless to such loss.
Therefore, the state will realize 100 percent of the decrease in state sales tax collections.
• The current state sales tax rate on the retail sale of food and food ingredients is 4.0 percent;
the effective rate of apportionment to local government pursuant to the state-shared
allocation is estimated to be 4.0276 percent.
• Public Chapter 377 of 2023 exempted food and food ingredients from the sales tax for the
months of August, September, and October 2023.
• Accounting for sales tax that would have been collected in the absence of the three-month
2023 exemption, total collections from the food sales tax would have been $805,449,216 in
FY23-24.
HB 21 – SB 1367 2
• Fiscal Review Committee staff estimates for total sales tax collection growth rates are 4.81
percent in FY24-25 and 3.25 percent in FY25-26.
• Assuming identical growth rates in sales tax collections from retail sales of food and food
ingredients, total such collections under current law are estimated to be $871,627,541 in
FY25-26 ($805,449,216 x 1.0481 x 1.0325). For the purposes of this fiscal analysis, this
number is assumed to remain constant into perpetuity.
• Total taxable food sales are estimated to be $21,790,688,525 ($871,627,541 / 4%).
• The recurring decrease in state revenue is estimated to be $836,521,870 [($21,790,688,525 x
4.0%) – ($21,790,688,525 x 4% x 4.0276%)].
• Fifty percent of tax savings, or $418,260,935 ($836,521,870 x 50%), will be spent in the
economy on other non-food sales-taxable goods and services.
• The current state sales tax rate is 7.0 percent; the average local option sales tax rate is
estimated to be 2.5 percent; the effective rate of apportionment to local government
pursuant to the state-shared allocation is estimated to 3.617 percent.
• The net recurring increase in state sales tax revenue as a result of 50 percent of tax savings
being spent in the economy on non-food, sales-taxable goods and services is estimated to
be $28,219,271 [($418,260,935 x 7%) – ($418,260,935 x 7% x 3.617%)].
• The total net recurring decrease in state revenue is estimated to be $808,302,599
($836,521,870 - $28,219,271) in FY25-26 and subsequent years.
• The total recurring increase in local sales tax revenue as a result of 50 percent of tax savings
being spent on non-food, sales-taxable goods and services is estimated to be $11,515,518
[($418,260,935 x 2.5%) + ($418,260,935 x 7% x 3.617%)] in FY25-26 and subsequent years
• The Department of Revenue (DOR) cannot meet the provisions of the proposed legislation
within existing resources. It is assumed that approximately $500,000 will be required to
make changes to the reporting structure; therefore, the one-time increase in state
expenditures is estimated to be $500,000 in FY25-26.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director