HB 2 – SB 2
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 2 – SB 2
SUMMARY OF BILL: Enacts the End the Grocery Tax by Closing Corporate Loopholes Act.
Eliminates the state and local sales tax on food and food ingredients and holds local governments
harmless for lost state-shared allocations.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
FY25-26 & Subsequent Years NET ($823,846,800)
EXPENDITURES General Fund
FY25-26 $500,000
LOCAL GOVERNMENT
REVENUE Permissive
FY25-26 & Subsequent Years NET ($525,269,200)
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.
• The current state sales tax rate on the retail sales 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 of 2023.
• Accounting for sales tax that would have been collected in the absence of the three-month
2023 exemption, total collections from food sales tax would have been $805,449,216 in
FY23-24.
• Fiscal Review Committee staff’s current 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.
HB 2 – SB 2 2
• Total taxable food sales are estimated to be $21,790,688,525 ($871,627,541 / 4.0%).
• The proposed legislation would eliminate the sales tax on the retail sale of food and food
ingredients.
• The proposed legislation requires the state-shared allocation to be distributed to local
governments in an amount equal to what would have been collected; local governments will
not be reimbursed for decreases in local option sales tax revenue.
• Therefore, the state will realize 100 percent of the decrease in sales tax collections.
• The recurring decrease in state revenue is estimated to be $871,627,541 ($21,790,688,525 x
4.0%).
• The recurring decrease in local revenue is estimated to be $544,767,213 ($21,790,688,525 x
2.5%).
• Fifty percent of tax savings, or $708,197,377 [($871,627,541 + $544,767,213) x 50%], will be
spent in the economy on non-food, sales-taxable goods and services.
• The current 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 total 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 $47,780,731 [($708,197,377 x 7.0%) – ($708,197,377 x 7.0% x 3.617%)].
• The total recurring increase in local 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 $19,498,019 [($708,197,377 x 2.5%) + ($708,197,377 x 7.0% x 3.617%)].
• The net recurring decrease in state revenue as a result of the elimination of the sales tax on
the retail sale of food and food ingredients is estimated to be $823,846,810 ($871,627,541 -
$47,780,731) in FY25-26 and subsequent years.
• The net recurring decrease in local revenue as a result of the elimination of the sales on the
retail sale of food and food ingredients is estimated to be $525,269,194 ($544,767,213 -
$19,498,019) in FY25-26 and subsequent years.
• The Department of Revenue (DOR) cannot meet the provisions of this Act within existing
resources. It is assumed that approximately $500,000 will be required to make changes to
the reporting structure in order to hold local governments harmless for the state shared
allocation; 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