TN Leg 2025: HB 0002 vs. HB 0021 #EndTheGroceryTax 🛒

Tennessee is one of only 13 states that still taxes food and groceries. Why?

Rep. Aftyn Behn and Sen. Charlane Oliver have renewed their proposal to abolish Tennessee’s sales tax on groceries (HB 2/SB 2) for the upcoming 2025 legislative session. But Rep. Elaine Davis has also introduced a competing—and at the moment, identical—proposal in the House, co-sponsored by Speaker William Lamberth (HB 21).¹ In the end it will likely come down to how the lost tax revenue is replaced: by closing corporate tax loopholes, or at the expense of families, schools, and essential services. Tipping his hand as to who would be “punished”:

“Cutting the grocery tax is an idea that we have supported for years, but paying for it by punishing the business owners who create our jobs and their employees is socialism at its worst,” Lamberth said in a statement. “Representative Behn’s bill will increase business taxes by $800 million. That might work in liberal California, but not in Tennessee.”

A 2022 report by the Economic Policy Institute found that over 60% of corporations in Tennessee are not paying any income tax (i.e. the applicable franchise and excise taxes) including more than 25% of large corporations that reported over $1 billion in revenue. Despite this, earlier this year the Republican supermajority enacted “a second billion-dollar tax break for businesses in as many years,” eliminating at least $7.4 billion in future tax revenue. A bill sponsored by Democrat lawmakers that would have required the secretary of state to make corporate tax disclosure statements public and to create a searchable database was killed by Republicans in the committee hearing process.

In the meantime, until the two grocery tax bills are hashed out when the legislature resumes, below is a brief overview of how Tennessee became one of only 13 states that tax groceries.

Background

Tennessee is one of nine states with no personal state income tax. I’ll leave the story as to why that is for another day, but sufficed to say, it was dropped from further consideration in 2001 when protestors led by then state-Senator Marsha Blackburn “banged on the doors of the Senate chamber, broke office windows and accosted lawmakers as they made their way through hallways with police escorts.” Shocker: Blackburn was not expelled, and public access to the Capitol was not restricted. That wouldn’t come until 2023 when over “1,000 peaceful protestors rallied around Tennessee’s state Capitol on March 30 calling for more restrictive gun laws” after the mass shooting at Covenant School (“No demonstrators broke into the Capitol, no one was arrested or injured, and no property was damaged.”) But I digress.

In 2001, Marsha Blackburn said, “I think it is great that people show up and make their opinions known […] Unfortunately, it got out of hand.” Oopsie!

Sales tax on goods and services is not unusual in the U.S., however states that do not tax personal income but do tax groceries, well, that’s only Tennessee. For FY2023, two thirds of Tennessee’s $22 billion in state revenue was generated from sales tax ($13.7 billion). Comparatively, tax paid by corporations and businesses (franchise and excise) only generated about one fifth of the state’s revenue ($4.8 billion). The sales tax is typically 7%, but some products or services have different rates, including food which is taxed at 4%.² The sales tax revenue generated from groceries is a much smaller piece of the overall pie, approximately $700 million per year.

Tennessee’s sales tax was enacted in 1947, two decades after Mississippi became the first state in the U.S. to enact one. For its part, Mississippi (during Jim Crow) was explicitly seeking to shift the tax burden away from (mostly white) property owners onto consumers that had little to no property (particularly Black folks). Governor Mike Conner told the all-white legislature at the time: “There are today in Mississippi thousands of people who pay no taxes, but who enjoy all the rights and privileges of citizenship […] These people will be glad of an opportunity to share in the responsibility of maintaining the government of the state in which they live.”

Tennessee’s entirely white House of Representatives during the 75th General Assembly, 1947-48.

Similarly, when the all-white Tennessee legislature opted to pay for schools and public education by enacting a sales tax, it was at a time when the state was still committed to ‘separate but equal’ racial segregation in schools and other public places.³ For additional context: the number of Black Tennesseans who voted in urban areas like Nashville, Memphis, Chattanooga, and Knoxville decreased dramatically when Reconstruction failed, the state’s poll tax was reconstituted in 1890 and in effect until the state constitution was amended in 1953, and the General Assembly did not seat any Black legislators from 1887 until 1965, the year the federal Voting Rights Act was signed into law. (As an aside, Tennessee continues to disproportionately disenfranchise Black people by making it one of the most difficult states to vote if you have a felony conviction; 1 in 5 Black Tennesseans cannot vote).

Given the political and cultural realities, the Center on Budget and Policy Priorities observed in its report “Advancing Racial Equity With State Tax Policy”:

it’s not surprising that state and local tax policies of the past often reflected and advanced the interests of white residents, especially those with the power and resources to influence state lawmakers, at the expense of people of color. During the brief period of Reconstruction after the Civil War, Southern state legislatures provided, for the first time, for schools and other services for African Americans, raising property taxes sharply to do so (as well as to make a range of other needed public investments in the war-torn states). Many white people resisted these measures, often violently. Some of them, the so-called Redeemers, ultimately took power across the South and sharply reduced funding for public services and sought to disenfranchise and otherwise disempower African Americans.

Today, Widener law professor Andre L. Smith writes that taxes have become “post-intentionally racist.” There is no longer “any expressed or stated desire from any official to subordinate black people or to purposefully take advantage of their relative lack of capital. Yet, here we are.”⁴ Georgetown law professor Dorothy Brown’s study of the U.S. tax system’s drastically different impacts on white and Black families begins with the observation: “In general, our tax policies ignore the day-to-day reality of most black Americans, who are still playing catch-up in a system that deliberately excluded them for many years.”⁵

Earlier this year, Think Tennessee concluded in its analysis that “while Tennessee has one of the lowest overall tax burdens in the nation, its low-income families face a higher effective tax rate than both wealthier families and businesses.” Within this regressive tax structure, the grocery tax disproportionately affects low- and middle-income households because these families spend a higher percentage of their income on necessities like food.

An analysis of taxes paid by Tennesseans by Think Tennessee showed that the state’s low-income families paid a combined state and local tax rate three times higher than the rate paid by the top 1 percent of wage earners in the state.

I’ll finish with a related, time-sensitive action item. Governor Bill Lee and the state Commissioner of Health Services Clarence Carter have indicated they will not renew Tennessee’s participation in the “summer EBT” program for 2025, citing “the administrative cost burden to the states.” The program, which began during the pandemic and became permanent in 2023, helps feed children during summer months when school meals are unavailable, by providing parents with a modest, one-time payment of $120. Tennessee first participated in 2024 and it benefitted 650,000 children.

With Tennessee’s numerous rural, mountainous regions, families are often far from food banks or other meal distribution sites. Making matters worse: Some communities in the eastern part of the state that already faced high rates of hunger and poverty were devastated when Hurricane Helene hit in late September, compounding residents’ struggles.

The Tennessee Justice Center is asking people to send a letter to Governor Lee and Commissioner Carter urging them to reconsider. It only takes a few clicks to send an email directly to their inbox!

1. Currently the Davis bill lacks a sponsor in the Senate.

2. The 4% tax rate applicable to “food and food items,” as well as what qualifies as such, is defined in the statute. Tenn. Code. Ann. §§ 67-6-228(a), 67-6-102(42) (specifying that alcoholic beverages, tobacco, candy, dietary supplements, and prepared food do not receive the lower rate).

3. The separate but equal doctrine established by the US Supreme Court in the 1896 case Plessy v. Ferguson was not overruled until Brown v. Board of Education in 1954.

4. Andre L. Smith, “Recent Cases of Regressive and Racially Disparate Taxation,” in Tax, Inequality, and Human Rights 471 (Philip Alston & Nikki Reisch, eds. 2019).

5. Dorothy Brown, The Whiteness of Wealth: How the Tax System Impoverishes Black Americans—And How We Can Fix It (2021).