Bill
SB 2511
Eliminate the grocery tax on food and ingredients while preserving local funding through substantially equal state-shared allocations to counties and municipalities.
Jurisdiction: Tennessee
Session: 114 (Introduced 2026)
Purpose
- Enacts the “End the Grocery Tax Act” to eliminate the state and local sales tax on the retail sale of food and food ingredients for human consumption.
- Aims to relieve households from the tax on groceries while preserving local government funding by allocating a comparable level of revenue to counties and municipalities through the state-shared funds with a hold-harmless approach.
Key Provisions
Effect: The state sales tax and the local sales taxes on groceries would be eliminated.
Revenue Allocation and Local Government Hold-Harmless
Section 3 removes the provision that revenue from 0.5% of the grocery tax would be earmarked for K-12 education if the grocery tax rate changes.
Section 4 requires that, despite the grocery tax exemption, allocations to counties and municipalities be "substantially equal" to what would have been allocated under current law. The distribution must be based on exempt sales data and any other relevant data determined by the Commissioner.
The bill preserves the local government revenue stream by ensuring the state-shared allocation continues to flow to locals, even though grocery sales are no longer taxed.
Tax Base Clarifications
Section 5 adds “Food and food ingredients” to Tenn. Code Ann. § 67-6-329(a) for the sales tax exemption.
Section 6 removes language tying certain license or qualification requirements to food tax applicability.
Section 7 removes references to food and food ingredients in other sections to align with the exemption.
Insurance, Licensing, and Administrative Adjustments
Sections 8, 9: Technical edits to organizational provisions and subsidiary requirements to reflect the grocery tax repeal.
Section 10 & 11 adjust related references in relationship to the grocery tax base and licensee sales requirements, removing the dependence on the grocery tax portion of the rate.
Effective Date
Section 12: The act takes effect July 1, 2026, subject to public welfare.
Fiscal and Economic Impact (as analyzed in the Fiscal Note)
- State Revenue: Net decrease of approximately $801 million in FY26-27 and beyond, due to the elimination of the grocery tax and related state-shared allocations.
- State Expenditures: Temporary increase in General Fund expenditures (~$36.2 million in FY26-27) to modify reporting structures and systems; ongoing annual increases of around $35.7 million starting FY27-28.
- Local Government Revenue: Mandatory net decrease of about $533.7 million in FY26-27 and beyond, due to the loss of local grocery tax revenue and related state-shared allocations.
- Local Government Expenditures: Localities are held harmless in terms of the state-shared allocation, but overall local revenue declines by roughly $553.5 million annually.
- Economic Implications: Approximately half of grocery tax savings (roughly 50%) are projected to be spent on non-food, sales-taxable goods and services, partially offsetting revenue losses with some increased state and local sales tax revenue from broadened economic activity.
- Overall Net Impact: Substantial ongoing reductions in state and local tax revenue tied to groceries, with a corresponding redistribution mechanism to protect local funding.
Who Is Affected
- Households and individuals: Direct benefit from no grocery sales tax on food and food ingredients.
- Retail food sellers: Tax base removed for groceries; administrative changes needed to reflect exemption.
- State government: Revenue reduction; increased administrative costs for implementing and maintaining reporting structures; adjustments to the state-shared allocation.
- Local governments: Revenue loss from grocery tax but protected through a hold-harmless distribution of the state-shared allocation to mitigate fiscal impact.
Implementation Considerations
- Administrative readiness: Department of Revenue will require system updates; estimated first-year implementation cost around $500,000.
- Local fiscal health: Localities would experience revenue declines but would receive allocations intended to offset some losses; ongoing monitoring of local budgets will be essential.
- Economic behavior: The fiscal note anticipates meaningful shifts in consumer spending that could influence tax collections on non-food items.
Note: This summary is based on the introduced text and accompanying fiscal analysis. If amended, provisions or fiscal effects could change.
Compiled from official sources — confirm details with the bill’s official record.
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