Tennessee’s Month-Long Grocery Tax Holiday Begins — What's Exempt?

In June, inflation reached 9.1 percent, which is the highest it has been in 41 years, and U.S. households are struggling to make ends meet. As inflation rips through the U.S., apart from the federal government, state governments are trying to help their residents. While many state governments have been directly giving inflation relief checks, others are giving tax rebates or have opted for sales tax holidays. Tennessee is going for tax-free food. When does it begin and who benefits?

The Tennessee General Assembly (TGA) passed Governor Bill Lee’s $52 billion budget, which called for a 30-day suspension of the tax on groceries. The state will have three sales tax holidays for 2022, and a tax-free month on groceries is one of them. Tennessee’s traditional sales tax holiday on clothing, school supplies, and computers started on July 29 and ended on July 31. A sales tax holiday has also been approved on gun sales and safety devices beginning on July 1, 2022, and ending on June 30, 2023.

The in Tennessee starts on August 1, 2022, and ends on August 31, 2022. Tennesseans will be able to purchase food and food ingredients tax-free. However, the tax-free food month doesn't include:

• Alcoholic beverages
• Tobacco
• Candy
• Dietary supplements
• Prepared food
• Micro Market food items or vending machine food items

Governor Bill Lee is touting this tax break as a way to put money back into the pockets of Tennesseans. The state has collected $4.3 billion more than budgeted through the first 11 months of the fiscal year. It has had budget surpluses for 10 of the last 12 years. Tax holidays have often been criticized as a gimmick that doesn't provide any long-term value to taxpayers.

Tori Venable, the Tennessee State Director of Americans for Prosperity, suggested, “With the billions that have been over-collected to balloon our state surplus lawmakers should be looking to cut taxes on Tennesseans permanently.” One of the other downsides to these holidays is that they simply shift the spending to different times rather than actually generating new economic activity or helping consumer savings in any significant way.

In Tennessee, groceries are taxed at a reduced 4 percent state tax rate plus the applicable local rate. The tax break for August will cost the state $82 million with an estimated $49 million in grocery taxes that won't be collected and the $31 million the state will send to local governments to cover their portion of taxes that won't be collected. Prepared meals are taxable in the state at 7 percent plus local tax.

While many states exempt groceries from sales tax, Tennessee is one of the handful of states with no income tax. There aren't estate or inheritance taxes in the state either.