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On May 13, Governor Bill Haslam signed into law a reduction in the state sales and use tax rate on sales of food and food ingredients. Becoming effective July 1, the state sales and use tax rate on sales of food and food ingredients reduced from 5.25 percent to 5 percent.
With the change, food and food ingredients will now have a reduced state sales and use tax rate of 5 percent plus the applicable local sales and use tax rate. Prepared food, dietary supplements, candy, alcoholic beverages and tobacco continue to be subject to the general state sales and use tax rate of 7 percent plus the applicable local sales and use tax rate. Existing laws defining which items are considered food and food ingredients remain unchanged by the new legislation.
Local governments are not held harmless from the loss of state-shared sales tax revenue under this bill. The recurring decrease in local revenue is estimated to be $807,600 per year. The recurring decrease in local revenue pursuant to the state-shared allocation is estimated to be $1,152,137 ($25,030,128 x 4.603 percent).
Businesses selling food items subject to the reduced rate of sales and use tax are advised to make the necessary changes to allow for the new rate. Changes to cash registers and accounting systems should be complete. Businesses must continue to collect and remit the existing 5.25 percent tax on sales of food and food ingredients made through June 30, 2013 to the Department of Revenue.