TN bills would let local municipalities keep larger share of sales tax

Two bills that would send millions of dollars in new revenue to the City of Chattanooga each year are moving around the state legislature. Though each bill takes a slightly different tack, both would redirect a larger share of collected sales tax from the state to local municipalities, without raising sales tax. 

The Kelly administration estimates that, together, the two proposed pieces of legislation would send approximately $3.8 million more to Chattanooga each year. Last year, the city received $17.3 million of sales tax collected by the state.

“The state is collecting more sales tax now than it ever has,” said Chattanooga Mayor Tim Kelly, who supports both bills. “It’s sitting on huge historic surpluses, and yet cities are struggling to pay first responders, fix infrastructure — all of the things that cities do.”

Mayor Kellys says that both pieces of legislation — known as the “State Shared Sales Tax” and the “Single Article Sales Cap” — are not actually new legislation. Instead, they would undo emergency measures that the state took during an economic downturn over 20 years ago. 

“All this is doing is restoring a relationship that was changed in an emergency measure in 2002 and should have been put back a long time ago, very frankly,” Kelly said.

How do the bills work?

The “State Shared Sales Tax”  (Senate Bill 462 / House Bill 1187) would increase the share of state sales tax revenue distributed to cities. For more than 70 years, 4.6% of that annual revenue has gone back to cities based on their population. Yet when the General Assembly raised the state sales tax from 6% to 7% in 2002, it earmarked all of the additional money for the state general fund — cities didn’t get part of the increase.

The other bill would affect what’s known as the “single article cap,” which limits how much a city’s sales tax applies to large purchases. (This legislation would be included as an amendment to Senate Bill 1356 / House Bill 1424, but is not included in the initial bills.) 

Under Tennessee law, Chattanooga’s 2.25% sales tax only applies to the first $1,600 of any purchase. Meanwhile, the state tacks on its 7% sales tax to the full price and — also since 2002 — includes an additional 2.75% tax for every dollar between $1,600-$3,200. If it passes, the bill that addresses the single article cap would allow local municipalities to collect sales tax on any amount up to $3,200, instead of just $1,600 — and the state would no longer collect the 2.75% tax for every dollar between $1,600-$3,200.

How to get involved

If you want to voice your opinion on either bill, reach out to your state legislators — especially Sen. Bo Watson and Rep. Patsy Hazlewood, who chair the Senate and House committees responsible for the bills.