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Grocery Tax to Decrease July 1

Press release from the Tennessee Department of Revenue; June 11, 2013:

Nashville, Tenn. – On May 13, 2013, Gov. Bill Haslam signed into law a reduction in the state sales and use tax rate on sales of food and food ingredients. Effective July 1, 2013, the state sales and use tax rate on sales of food and food ingredients will be reduced from 5.25% to 5%.

With the change, food and food ingredients will be subject to a reduced state sales and use tax rate of 5% 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% 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.

Businesses selling food items subject to the reduced rate of sales and use tax are advised to begin making the necessary changes to allow for the new rate beginning July 1, 2013. Changes to cash registers and accounting systems should be completed by the July 1, 2013 effective date. Businesses must continue to collect and remit the existing 5.25% tax on sales of food and food ingredients made through June 30, 2013 to the Department of Revenue.

The Department of Revenue is responsible for the administration of state tax laws and motor vehicle title and registration laws established by the legislature and the collection of taxes and fees associated with those laws. The Department of Revenue collects approximately 87 percent of total state tax revenue. During the 2012 fiscal year, the department collected $11.4 billion in state taxes and fees. In addition to collecting state taxes, the Department of Revenue collects taxes for local, county and municipal governments. During the 2012 fiscal year, local government collections by the Department of Revenue were $2.2 billion. In collecting taxes, the department enforces the revenue laws fairly and impartially in an effort to encourage voluntary taxpayer compliance. The department also apportions revenue collections for distribution to the various state funds and local units of government. To learn more about the department, log on to www.TN.gov/revenue.

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NewsTracker Tax and Budget

Senate Passes Tax Cut on Groceries, Henry Talks Fancy Cheese

A bill aimed at easing the pain at Tennessee’s grocery checkout lanes is headed to the governor’s desk for approval.

Senate Bill 199, sponsored by Majority Leader Mark Norris of Collierville, would reduce retail sales tax on food from 5.25 percent to 5 percent. The measure passed the state Senate almost unanimously Monday.

The sole “no” vote came from elder Nashville Democrat Douglas Henry, who applauded the financial relief the bill would give to low-income Tennesseans but argued the importance of revenue from the tax and lamented that the break would also apply to wealthier residents, himself included, when buying luxury items.

“This is the best tax we got, it pays for everything,” Henry told the chamber. “When you give it back to poor people, that’s good. But you also give back to rich people. I buy imported Swiss cheese because I like to eat it. You’re lowering taxes on my cheese as well as the poor man’s Velveeta”

The legislation has already cleared the House and would go into effect on July 1, pending Gov. Bill Haslam’s signature.

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News NewsTracker Tax and Budget

Haslam Revises Budget Plan

Gov. Bill Haslam’s state government spending plan that he’s offering to the Tennessee Legislature now calls for a slight enhancement to the small food-tax cut he proposed initially, and opts to have taxpayers continue funding certain programs his administration had originally slated for cuts.

The proposal would cut the food tax by an extra nickel per $100 in groceries mainly because it’s easier for retailers to calculate on most cash registers, the governor said Monday.

The state tax on non-restaurant food is now 5.5 percent. The governor originally wanted to drop the tax to 5.3 percent, but now wants it set at 5.25 percent.

“Quite frankly, we just felt like again, if we were going to move it, we might as well do more now rather than later,” Haslam told reporters after talking to 4-H youth participants at the War Memorial Auditorium in Nashville.

The measure would save the average family of four buying $884 worth of groceries each month $26.52 a year. That’s $5.30 more in savings than the governor’s initial proposal.

Haslam’s long-term goal was to drop the tax down to 5 percent over three years, but he says he now wants to accomplish that in two.

The additional cut will slice another $3.3 million from the budget, for a total cost of $20.4 million from the food tax reduction. The tax cut is in addition to the governor’s decision to set a four-year timeline on the elimination of the tax charged when people inherit estates worth more than $1 million a year.

The governor also wants to restore funding to several programs that had been axed because they were paid for with one-time money.

They include these additions:

• $1 million for family support services run by the Department of Intellectual and Developmental Disabilities.

• $4 million from increasing the daily payment to local jails housing state prisoners by $2.

• $3.9 million for Healthy Start and Child Health and Development programs, such as home visiting programs for first-time parents promoting healthy lifestyles and child abuse prevention.

• $1.4 million for peer support centers run by the Department of Mental Health. These facilities act as halfway houses for people transitioning out of hospitals.

• $1 million for land acquisition and maintenance at Radnor Lake state park in Nashville.

The edits come weeks before the state funding board plans to meet to review the latest state revenue and economic trends and predict tax collections for the next year.

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Business and Economy Featured News Tax and Budget

Another Round of ‘Hall Tax’ Reductions Unlikely This Year, says House Speaker Harwell

The Tennessee Legislature won’t pass much in the way of tax cuts beyond what Gov. Bill Haslam is requesting for 2012, says House Speaker Beth Harwell.

That means a reduction in the Hall tax on income from stocks and dividends — a tax Lt. Gov. Ron Ramsey wants to see slashed this session — isn’t likely in the cards, she said.

“I do not think so this year,” Harwell said Thursday when asked if the Hall tax will make it to a floor vote. “We did, of course, take a bite out of that last year. But I think our focus now is going to be on the reduction of the death tax, elimination of the gift tax and a reduction of the food tax.”

Lawmakers have yet to take up a bundle of bills reducing taxes on Tennesseans as lawmakers push those measures toward the end of the spring legislative session, likely after lawmakers have a clearer picture of the state’s budget.

Although reducing the Hall tax on interest and dividends isn’t in the Haslam-Harwell playbook this year, it’s still a priority to Ramsey, according to the lieutenant governor’s spokesman, Adam Kleinheider.

The tax currently charges 6 percent on income from interest on bonds and notes and dividends from stock, although people over 65 with total income less than $16,200 or a couple with less than $27,000 are exempt. Last year, lawmakers upped the exemption to $26,200 for individuals and $37,000 for couples, which will kick in for the 2012 tax year.

One of Haslam’s prime objectives this year is to reduce the food tax from 5.5 percent to 5.3 percent. The move is part of a larger plan to drop the tax on non-restaurant food to 5 percent over three years.

He also wants to increase the exemption on the inheritances tax, otherwise known as the “death tax.” His plan is to raise the exemption from $1 million to $1.25 million to lower the tax burden on family business owners in hopes of eventually raising the exemption to $5 million.

Lawmakers from both parties have signaled they’d like to go further than Haslam by reducing the food tax and inheritance tax even more or completely eliminating them.

Another tax-cut idea that’s been suggested is to do away with the “Gift Tax,” which charges 5.5 percent to 16 percent tax on transfers of wealth or property amounting to more than $13,000 to family members and $3,000 to non-family. Harwell said the GOP plan is to eliminate that tax.

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Business and Economy News Tax and Budget

GOP Leaders Eating Their Words? Now Say They’ll Support Food-Tax Cut

State lawmakers have yet to pick through Gov. Bill Haslam’s list of priorities going into the legislative session, but so far many favor his plan to ever-so-slightly cut the food tax.

That group of fans includes Republicans who not so long ago scoffed at the idea of taxing groceries at a lower rate.

“I think it’s great. It’s a way for all Tennesseans to be able to participate in a tax cut,” said Rep. Gerald McCormick, the House Republican Leader. Back in August, when Democrats proposed using higher-than-expected sales tax revenues to offset a grocery-tax cut, McCormick labeled the idea “irresponsible.”

But McCormick stood by his earlier assessment Wednesday, telling TNReport he still believes the Democrats’ tax-cut proposal over the summer was a “political ploy.”

“I thought it was irresponsible, considering that we were mired in a recession, in a deep recession. The economy is recovering now, and I think that’s reflected in our sales tax numbers. So it’s become a possibility, whereas six months ago I think it was simply political posturing on the part of the Democrats,” said McCormick.

Lt. Gov. Ron Ramsey belittled talk about reducing the food tax as recently as last month, telling reporters cutting the food tax is “more psychological than it is anything else.”

“We’re never going to do away with (the food tax) completely. So I don’t think that lowering it really does help that much, and I think we can concentrate more on the tax that we can actually eliminate,” Ramsey, R-Blountville, continued. He has since said he’ll back the governor’s tax plan.

House Speaker Beth Harwell, too, showed little interest in touching the food tax three weeks ago, saying, “we don’t have the revenues available to do it.”

The governor’s plan would mean about $18 million less that the government sponges up in revenue from the private sector. Haslam’s plan would reduce the grocery tax by 20 cents for every $100 spent on food. That would save a family of four on a modest grocery budget $21.24 a year.

Despite the scant savings taxpayers would see, Democrats said they’re pleased the governor has made cutting the grocery tax an acceptable topic of conversation among the Tennessee General Assembly’s Republican majority.

“Well, it’s obviously probably not enough,” said House Democratic Caucus Chairman Mike Turner about the tax cut. “Anytime we get the opportunity to lower the sales tax I’m for it, even with the incremental steps it’s not going to be a real noticeable impact. … Hopefully one day we’ll get a full percentage point knocked off.”

Lawmakers reduced the tax back in 2007 by a half cent to 5.5 cents on the dollar. Sales tax on non-food items is 7 percent.

Democrats pushed last summer for legislative leaders to consider cutting the food tax even further, although GOP leaders at the time dismissed the idea, saying the state revenues had to recover first. But Haslam said Tuesday he’s making it a goal to reduce the food tax from 5.5 percent to 5.3 percent this year with plans to reduce it to 5 percent in three years.

Senate Majority Leader Mark Norris, Ramsey’s right-hand man in the upper chamber, says he, too, is content with the governor’s proposed plan to cut the food tax.

“It’s a great start. I mean I think some of us wish we could do more more quickly. And maybe through the budget hearings we’ll find that there is a little bit of flexibility. Perhaps we can do more. But it’s a great place to start.”

The governor’s plan is do-able, says the Republican chairman of the powerful House Finance Committee.

“This year, I think the funds will be available, so I don’t see a problem in this year’s budget. I’m not saying we don’t have to make some other cuts, but funding will be available with the increase in revenue that we have,” said Chairman Charles Sargent, R-Franklin.

The governor’s legislative priorities also include broadening the exemption from the inheritance tax from $1 million to $1.25 million, which would benefit an average of 200 people a year, a plan House Democratic Leader Craig Fitzhugh said he can support if the state can spare the funds.

“It doesn’t have the broad effect that the sales tax on food does, but it would be something that if we can afford it, it would be an appropriate thing to look at,” said Fitzhugh, D-Ripley.