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Grocery Sales Tax Cut Signed by Haslam

Press release from the Office of Tennessee Gov. Bill Haslam; May 21, 2013:

VONORE – Tennessee Gov. Bill Haslam today traveled to Monroe County to sign legislation to reduce the state portion of the sales tax on groceries from 5.25 percent to 5 percent.

Haslam held a ceremonial bill signing at Sloan’s Grocery in Vonore, Tenn.

In 2012, the General Assembly passed and the governor signed the first step in reducing the state portion of the sales tax on groceries, lowering the rate from 5.5 percent to 5.25 percent.

“We’re lowering taxes and balancing the state budget by managing conservatively, making strategic investments in our priorities and finding new ways to make government more efficient and effective,” Haslam said. “The sales tax on food impacts all Tennesseans, and I applaud the General Assembly for passing this important piece of legislation this year.”

The bill, SB 199/HB 193, was introduced by the governor and was one of two tax cuts passed by the legislature and signed by Haslam this year as the state continues its work toward providing the best customer service at the lowest possible cost to taxpayers.

Senate Majority Leader Mark Norris (R-Collierville), House Majority Leader Gerald McCormick (R-Chattanooga) and state Rep. Ryan Haynes (R-Knoxville) sponsored the bill.

Haslam included $23 million in the FY 2013-2014 state budget to fund the legislation. The legislation goes into effect July 1, 2013.

The reduced tax rate does not apply to prepared foods such as a meal at a restaurant, candy, alcoholic beverages or tobacco.

Tax Cuts on Food, Inheritances Pushed by Haslam

Gov. Bill Haslam Tuesday afternoon introduced his 2012 legislative agenda, announcing that he will push for two tax cuts during this year’s Tennessee General Assembly session, which also began Tuesday.

The tax cuts come by way of the governor’s proposals to raise the state inheritance tax exemption from $1 million to $1.25 million and to lower the state’s portion of the sales tax on food from 5.5 percent to 5.3 percent.

A family of four spending $884 a month on groceries would save about $21 a year under the Haslam tax cut.

The proposals were something of a surprise move from the governor, who has said as recently as last month that such cuts would be unlikely this year due to the state’s tight financial situation.

The proposed tax cuts are just the beginning for the governor, who said the cuts were the first step toward his goals of lowering the food tax to 5 percent and raising the inheritance tax exemption to $5 million, to match the federal exemption mark, by the end of his first term.

Estimates are that the two-tenths of a percent decrease in the food tax will lower the state’s revenues by $18 million. For the change in the estate tax, that number is $14 million.

“I just think it’s important, if we’re to lower taxes for Tennesseans, that’s the only way to really touch every Tennessean in a significant way,” Haslam said of his decision to push for a food tax cut.

Lt. Gov. Ron Ramsey last month told reporters that he “wasn’t a big proponent” of cutting the food tax and that it probably wasn’t wise, anyway, given that sales taxes are the main revenue source for state and local governments. While Speaker Beth Harwell stood by the governor’s side at his press conference Tuesday and voiced her support for Haslam’s agenda, Ramsey did not attend but released a brief statement.

“I am excited to work with Gov. Haslam to move Tennessee forward toward more jobs, less spending and smaller government,” he said. “The governor has chosen his priorities well. This is a solid agenda that our unified Republican majority can proudly stand behind.”

Ramsey conceded that his priorities differ from the governor’s in some areas, but said he’d support Haslam’s agenda.

“I’ve always been in favor of reducing the estate tax, and so that’s one of his priorities too,” the Blountville Republican told TNReport. “So, I think if you look at the package from top to bottom, it’s something I agree with and can’t wait to help him pass it.

“[The food tax cut] has not been a priority of mine, I will agree with that, because that’s something I feel like is a stable base of revenue that we have. But reducing it from 5.5 to 5 over three years – that’s fine. It’s not like we’re trying to do away with the sales tax on food,” he said.

Haslam’s agenda did not include a push for a cut in the Hall income tax on investments, which has been a goal for some Republicans, including Ramsey.

“That fight’s not over yet either, OK,” Ramsey said. “That’s just not one of [Haslam’s] priorities.”

As for raising the state inheritance tax exemption, Haslam said he believes the move will create more revenue for the state in the long term by keeping people in the state.

“There are a whole lot of people who used to live in Tennessee who don’t anymore because it’s cheaper to die in Florida,” he said. “And I can tell you a whole lot of people who spend less than half of their year in Tennessee to avoid that estate tax specifically.”

Speaking to reporters after Haslam’s remarks, Harwell expressed her full support for the governor’s agenda and was particularly pleased with the proposed change to the estate tax. She said she was glad to see the state raising the exemption to a reasonable level and called Tennessee’s current exemption “way out of line.”

Among the other items in the legislative package were proposals to give individual school districts more autonomy with regards to salary schedules and average class size and changes to the state’s hiring and employment practices. The governor also proposed legislation that would restructure 22 state boards and commissions, which he called the “first step in an ongoing comprehensive review process.”

Andrea Zelinski contributed to this report.

GOP Showing Little Taste for Lower Food Tax

Now that Tennessee Republicans are “large and in charge” of state government, as minority Democrats like to snidely put it, they seem to have lost their appetite for cutting the state’s sales tax on food.

Even though Tennessee is looking at $62.3 million in excess revenues over the last 11 months, lowering the tax isn’t likely to happen any time soon, say powerful majority-party politicians.

Nevertheless, Tennessee Democrats are floating a plan to give part of the overage back to taxpayers — by reducing the 5.5 percent tax on food and making additional funds available for “needs-based” college scholarships.

The Volunteer State now charges a 7 percent sales tax on items other than food and is one of seven that offers a reduced rate on groceries, although 31 states exempt most non-restaurant food purchases from sales taxes.

Republicans, who consolidated their political power in the 2010 election promising a more fiscally disciplined, taxpayer-friendly state government, last month scoffed at Democrats for offering up a plan to reduce the tax on food.

“It’s just irresponsible,” House Republican Leader Gerald McCormick told TNReport. His preference is the state keep any extra tax collections safely locked up in the government’s savings account for spending later in leaner times, like when Washington starts ladling out smaller helpings of federal largess.

Lt. Governor Ron Ramsey claims he’d “love to eliminate the food tax.”

Not now, though.

“I hope and pray that Tennessee will soon be in a position to do just that,” the Blountville Republican said in an e-mailed statement shortly after the Democrats served up their tax-cut idea. “But a revenue blip does not a surplus make.

“While the new revenue numbers are encouraging, the last few years have taught us that we cannot afford to be cavalier with the contents of our treasury,” he said.

Ramsey, who recently proclaimed that “a basic philosophical difference between Democrats and Republicans” is that the latter favor taxpayers keeping their own money in times of revenue surplus, accused Democrats of “craven political posturing” for proposing a tax cut on groceries in the current fiscal climate.

Requests through Ramsey’s spokesman for further comment and explanation from the lieutenant governor went unanswered.

Republicans didn’t used to be so hostile to the idea of a tax cut for Tennesseans who purchase food. Indeed, some, like Kingsport Rep. Tony Shipley, once upon a time got elected promising to push for food-tax relief.

In 2007, Sen. Mae Beavers was at the forefront of the legislative effort to reduce the food tax, ultimately by half a cent. At the time, she complained that wasn’t enough. But now she’s just irritated the matter has popped up again.

“I really take offense to (Democrats) making a political issue out of it this time when they had a chance to take it all off a few years ago,” said Beavers.

Gov. Bill Haslam was more conciliatory towards the proposal, saying he “100 percent” agrees with Democrats’ desire to reduce taxes on groceries when the state collects excess money from taxpayers.

In principle, anyway. He questions though whether tens of millions of dollars in over-collections truly represents a “surplus” at this time.

“If we had a surplus, we should not be keeping the money. I couldn’t agree more,” the governor told TNReport. “It’s just way too early to say that because I have a feeling we’re going to have to make some hard calls.”

The catch, Haslam says, is state government would need to consider cutting millions of dollars in services now covered with $160 million in one-time money, address rising education costs and weather instability from the economy and federal government in order to reduce the tax.

“There’s a whole lot of stuff in there I can guarantee the Democrats and most of the Republicans don’t want to cut,” Haslam said. “My first word would be to the Democrats, how do you feel about that $160 million in services? Are you ready for all of those to go away, because our overage is not enough to do both.”

Rep. Craig Fitzhugh, the leading Democrat in the House, says he sees nothing particularly ludicrous about proposing to cut “one of the highest sales taxes on food in the entire country.”

“If that’s absurd, well, we need more absurdity in government, because I think that’s an excellent option that we may have,” said the Ripley Democrat.

Lawmakers this year considered a plan to raise the tax on soda in exchange for lower food taxes, but that issue went nowhere. Lawmakers did manage to lower taxes on investments for some senior citizens by raising the income benchmark by $10,000 to exempt more individuals and couples from paying the Hall income tax.

While legislators play political ping-pong over the excess taxpayer dollars, state government observers of various ideological stripes agree the partisan bickering ought to be set aside in favor of a serious policy-driven conversation.

“It’s not enough to rely on the whims of either political party to return excess revenue to taxpayers,” said Justin Owen, executive director of the Tennessee Center for Policy Research, a free-market think tank which has advocated a reduction in the grocery tax.

What the state should do is automatically kick any excess revenues back to the public at the end of each fiscal year, he said.

Ben Cunningham of Tennessee Tax Revolt said it seems obvious to him “any surplus ought to be returned to the taxpayer.”

“The time to give tax revenue back to the families to put back in the family budget is in the good years, this way you even out the ups and downs of tax revenues and you better control the size of government,” said Cunningham, a prominent voice in Tennessee’s tea-party movement.

Tennesseans for Fair Taxation, a coalition of liberal activists, unionized workers and progressive advocacy groups, has long pushed for reducing Tennessee’s reliance on a sales tax. TFT argues Tennessee’s tax on food is perniciously high — that it, in essence, constitutes a “tax on life.”

“Groceries represent a much bigger portion of low-income families’ budgets while it only represents a small fraction of most high-income families’ budgets,” argues TFT. “By eliminating the tax on food, the average family would save enough annually to buy a whole month’s worth of groceries.”

TFT’s preference for instituting a state income-tax to offset reduced revenues from a lower or eliminated grocery-tax doesn’t seem likely to gain much traction in the GOP-dominated Legislature, where the wheels are in motion to constitutionally ban an income tax.

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‘Guns-in-Bars’ Law Shot Down – For Now

A judge in Nashville on Friday triggered renewed debate over a controversial issue that fired up a range of competing interests during the 2009 Tennessee legislative session.

Davidson County Trial Court Chancellor Claudia Bonnyman declared on Friday that a recent change in law to allow non-drinking patrons to carry firearms in bars is so “fraught with ambiguity” as to be essentially indecipherable, and therefore unconstitutional.

Her legal finding likely reloads the topic to become a political flashpoint again in 2010.

Opponents of the law hailed Bonnyman’s ruling as “common sense.” Supporters promised to “reword the law” to ensure that it passes future legal muster.

Enacted over the veto of Gov. Phil Bredesen, the law allows permit-holding firearm carriers to posses their weapons in alcohol-serving eating establishments that meet certain caveats. In particular, the law declares that an establishment must derive more than 50 percent of its income from food, rather than the sale of booze, for customers to legally pack heat.

However, to the judge’s way of looking at the suit, which was filed by a group of restaurant and bar owners, calculating an establishment’s food-versus-liquor sales breakdown isn’t something citizens could reasonably be expected to determine for themselves.