HB 1722 (Senate SB 1695) – Tennessee 114th General Assembly
Title: Taxes, Exemption and Credits
Summary
This bill would create a temporary sales tax holiday on the retail sale of food and food ingredients, exempting such purchases from Tennessee sales and use tax when the sale occurs between 12:01 a.m. and 11:59 p.m. on the fifth day of any month. The exemption would not apply to micro markets, vending machines, or devices.
Key Provisions
- Exemption: Adds a new subsection to Tenn. Code Ann. § 67-6-393 clarifying that retail sales of food and food ingredients (defined in § 67-6-102) are exempt from state sales tax if the sale occurs during the 12:01 a.m. to 11:59 p.m. window on the fifth day of any month.
- Exclusions: Sales to micro markets, vending machines, or devices are not exempt.
- Effective date: July 1, 2026.
Definitions and Scope
- Food and food ingredients: Substances sold for ingestion or chewing by humans for taste or nutrition, in any form (liquid, solid, frozen, etc.), excluding alcoholic beverages, tobacco, candy, dietary supplements, and prepared foods.
- Micro market: An unattended food establishment with automated self-checkout, controlled entry, and prepackaged or ready-to-eat food meeting specific labeling/expiration criteria.
- The exemption applies to general retail food sales, not to micro markets or vending operations.
Fiscal and Local Government Impacts
- State Revenue: Estimated net decrease of $46,805,900 in FY26-27 and subsequent years.
- Local Revenue: Estimated mandatory net decrease of $547,800 in the same period.
- The fiscal note assumes sales would shift to the fifth-day holiday, with an expected 5% sales increase on that day.
- Local governments retain a portion of the state-shared tax; the bill minimizes local revenue reductions by holding locals harmless from the holiday.
- The analysis factors in the current state tax rate (4.0% on food) and local rates (average local option around 2.5%), along with distribution formulas for state-shared allocations.
Economic Assumptions and Impacts
- Total annual taxable food sales are estimated at about $22.14 billion (based on FY26-27 projections and 4.0% state tax rate).
- The fifth-day holiday is projected to generate roughly 12/365 of annual sales, with a further 5% uplift specifically on the holiday day.
- Half of the tax savings (about $24.86 million) is assumed to be spent on non-food, tax-taxable goods and services, with associated effects on state and local revenues (state net decrease about $1.68 million; local net decrease about $684 thousand).
- The remaining half of savings is assumed to be used as tax savings in the economy, with corresponding revenue impacts calculated in the fiscal note.
Procedural and Timeline Aspects
- Status: Introduced in 2026; referred to Finance, Ways, and Means committees.
- Action history shows committee timeframes in early 2026, with final fiscal notes prepared in February 2026.
- Effective date of July 1, 2026, if enacted (public welfare requiring it).
Who is Affected
- Shoppers: Potentially lower out-of-pocket costs for food and food ingredients on the designated fifth day of each month.
- Retailers: Record-keeping and compliance for the designated holiday; exclusion applies to micro markets and vending devices.
- Local governments: Revenue impact due to changes in state-shared sales tax allocations; locals are held harmless under the bill.
Bottom Line
HB 1722 would establish a recurring monthly sales tax holiday for standard food and food ingredient purchases on the fifth day of each month, excluding micro markets and vending sites, beginning July 1, 2026. The policy is projected to reduce state and local tax revenue while potentially stimulating some related non-food spending.
