HB 633 - SB 1164
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
March 6, 2025
Fiscal Analyst: Elizabeth Bransford | Email: elizabeth.bransford@capitol.tn.gov | Phone: 615-741-2564
HB 633 - SB 1164
SUMMARY OF BILL: Exempts fresh, frozen, and canned fruits and vegetables that are for
human consumption from the 4.0 percent sales and use tax on the retail sale of food and food
ingredients.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
FY25-26 & Subsequent Years NET ($122,097,100)
LOCAL GOVERNMENT
REVENUE Mandatory
FY25-26 & Subsequent Years NET ($86,746,000)
Assumptions:
• Pursuant to Tenn. Code Ann. § 67-6-702(a), local governments are authorized to levy a tax
on the same privileges subject to the state sales tax rate. Elimination of the sales and use tax
on the retail sale of food and food ingredients will also eliminate the local option sales tax.
• Elimination of the state sales and use tax on the retail sale of certain food and food
ingredients will also eliminate the state-shared allocation of state sales tax collections to
local government on those items.
• The current state sales tax rate on the retail sale of food and food ingredients is 4.0 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
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.
• Fiscal Review Committee staff’s 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
HB 633 - SB 1164 2
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.
• According to the United States Bureau of Labor Statistics, fresh, frozen, and canned fruits
and vegetables comprise 15.48 percent of the mean family’s “Food at Home” expenditures.
• Total taxable food sales are estimated to be $21,790,688,525 ($871,627,541 / 4.0%).
• Taxable expenditures on fresh, frozen, and canned fruits and vegetables are, therefore,
estimated to be $3,373,198,584 ($21,790,688,525 x 15.48%).
• The net recurring decrease in state revenue is estimated to be $129,493,586 [($3,373,198,584
x 4.0%) – ($3,373,198,584 x 4.0% x 4.0276%)].
• The recurring decrease in local revenue is estimated to be $89,764,322 [($3,373,198,584 x
2.5%) + ($3,373,198,584 x 4.0% x 4.0276%)].
• Fifty percent of tax savings, or $109,628,954 [($129,493,586 + $89,764,322) x 50%], will be
spent in the economy on 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 be 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 $7,396,457 [($109,628,954 x 7.0%) – ($109,628,954 x 7.0% x 3.617%)].
• The net 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 $3,018,293
[($109,628,954 x 2.5%) + ($109,628,954 x 7.0% x 3.617%)].
• The total net decrease in state revenue is estimated to be $122,097,129 ($129,493,586 -
$7,396,457) in FY25-26 and subsequent years.
• The total net decrease in local revenue is estimated to be $86,746,029 ($89,764,322 -
$3,018,293) in FY25-26 and subsequent years.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director