Tennessee ~ Sales and Use Tax: Local Option Transit Surcharge Authorized and Rate Imposed on Food Reduced

CCH Tax Day Report

Legislation is enacted that authorizes a Tennessee local option transit surcharge and decreases the state sales and use tax rate on food sold at retail.

Local Option Transit Surcharge

Effective April 26, 2017, a local government is authorized to levy a Tennessee local option transit surcharge on the following local privilege taxes, provided the underlying local privilege tax is being collected at the time a transit improvement program is adopted:

– local option sales tax;

– business tax;

– motor vehicle tax;

– local rental car tax;

– tourist accommodation/hotel occupancy tax; and

– residential development tax.

Any surcharge so imposed will be a separate charge in addition to local privilege taxes. A “local government,” for purposes of the surcharge, is any county in Tennessee, including a county with a metropolitan or consolidated form of government, with a population in excess of 112,000 (i.e., Wilson, Washington, Blount, Sullivan, Sumner, Montgomery, Williamson, Rutherford, Hamilton, Knox, Davidson, and Shelby counties), and any city in Tennessee with a population in excess of 165,000 (i.e., Chattanooga, Knoxville, Nashville, and Memphis).

A “transit improvement program” is a program that consists of specified public transit system projects and services. A “public transit system” is any mass transit system intended for shared passenger transport services to the general public, together with any building, structure, appurtenance, utility, transport support facility, transport vehicles, service vehicles, parking facility, or any other facility, structure, vehicle, or property needed to operate the transportation facility or provide connectivity for the transportation facility to any other non-mass transit system transportation infrastructure, including but not limited to interstates, highways, roads, streets, alleys, and sidewalks.

The surcharge may be levied only if: (1) the underlying local privilege tax is being collected at the time a transit improvement program is adopted; and (2) it is approved by a majority of the number of registered voters of the local government voting in an election on the question. If approved, the surcharge will remain in effect until a specific date or condition of termination specified in the ordinance or resolution adopting the surcharge, or until the surcharge is repealed in the same manner in which it was adopted.

The maximum tax rate or amount will be applied to the aggregate of all transit improvement programs adopted by a local government and no surcharge may be levied that will cause the rate or amount of any surcharge to exceed the maximum rate or amount. The surcharge will be subject to the same conditions, limitations, exemptions, credits, returns, and other requirements as are applicable to the underlying local tax. If the surcharge is rejected by voters, a subsequent election regarding a surcharge may not be held for at least 12 months from the date of the election.

The following are exempt from the local option transit surcharge in regard to the local option sales and use tax:

water sold to or used by manufacturers that is taxed at 1% under present law;

sales of tangible personal property to a common carrier for use outside the state;

video programming services;

telecommunication services;

specified digital products; and

sales of tangible personal property when obtained from any vending machine or device and taxed at the local rate of 2.25%.

Also, any surcharge on the local option sales and use tax will apply only to the first $1,600 on the sale or use of any single article of personal property. The surcharge on the local option sales and use tax will not apply to sales made by dealers with no location in Tennessee who choose to pay local tax.

Tax Rate Imposed on Food

Effective July 1, 2017, the state sales and use tax rate imposed on the retail sale of food and food ingredients for human consumption is decreased from 5% to 4%.

H.B. 534, Laws 2017, effective as noted

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