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SB 1702

Taxes, Sales - As introduced, authorizes a county with a metropolitan government to levy a tax on the retail sale of food and food ingredients for human consumption within the county at a rate less than the local option sales tax rate. - Amends TCA Title 7 and Title 67.

114th Regular Session (2025-2026) Introduced by Jeff Yarbro

Metropolitan governments with a local option sales tax can reduce or exempt the city tax on food sales, effective Oct 1, 2026, upon certification.

Placed on Senate Finance, Ways, and Means Committee calendar for 4/20/2026
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Bill Summary · SB 1702

Summary of Bill: SB 1702 / HB 1893 (Session 114, Tennessee)

Purpose and Intent

  • Authorizes metropolitan governments in Tennessee that have adopted a city tax rate to levy a tax on the retail sale of food and food ingredients for human consumption at a rate lower than the rate applied to other privileges, goods, and services, or to exempt those food sales from the local city tax rate.
  • Applies specifically to metropolitan governments and to tax periods beginning on or after October 1, 2026.
  • Extends the existing authority that counties and municipalities have to vary the city tax rate (including exemptions or reduced rates for food) to metropolitan governments that have a local option sales tax.

Key Provisions and Changes

  • Definition of “city tax rate” for metropolitan governments: the rate established for other privileges, goods, and services, but can be set below that rate for food and food ingredients, or food may be exempted from the city tax rate.
  • Reduced rate or exemption:
    • A metropolitan government may levy a reduced tax rate on the retail sale of food and food ingredients within its jurisdiction, or exempt food sales from the city tax rate.
    • This does not affect the separate surcharge on food and food ingredients authorized under § 67-4-3202 (i.e., the surcharge remains in place).
  • Administrative process:
    • The metropolitan government must provide a certified copy of the adopted resolution to the Tennessee Department of Revenue.
    • The reduced rate or exemption becomes effective on the first day of the month that occurs at least 60 days after the department receives the certified copy.
    • For incorporated cities or towns, the reduced rate/exemption applies to tax periods beginning on or after October 1, 2024; for metropolitan governments, it applies to tax periods beginning on or after October 1, 2026.
  • Interplay with local option sales tax:
    • The change is contingent on the metropolitan government having adopted a local option sales tax.
    • Any reduction or exemption on food sales does not alter the metropolitan government’s authority to collect the existing sales tax on other goods and services.

Affected Entities and Scope

  • Primary: Metropolitan governments in Tennessee that have adopted a local option sales tax and have established a city tax rate.
  • Secondary: Retailers and businesses engaged in the sale of food and food ingredients for human consumption within those metropolitan jurisdictions.
  • Also affected: Tax administration, via the Tennessee Department of Revenue, which will implement and enforce the new reduced-rate or exempt status once certified copies are received.

Procedural and Timeline Elements

  • Effective date:
    • Food tax rate reductions or exemptions for incorporated cities/towns: effective for tax periods beginning October 1, 2024.
    • Food tax rate reductions or exemptions for metropolitan governments: effective for tax periods beginning October 1, 2026.
  • Certification requirement: Metropolitan government must furnish a certified copy of the adopted resolution to the Department of Revenue.
  • Implementation trigger: Reduction or exemption takes effect 60 days after the Department receives the certified copy.
  • Enabling language: Amends Tennessee Code Annotated Titles 7 and 67, specifically relating to sales and use taxes and city tax rates.

Fiscal Impact (as estimated by Fiscal Note)

  • The exact revenue impact depends on metropolitan government actions; the bill creates potential for local revenue reductions.
  • Maximum estimated permissive decreases:
    • FY 2026-27: up to about $49.93 million
    • FY 2027-28 and beyond: up to about $66.57 million per year
  • Assumptions:
    • Current statewide forms: state sales tax on food is 4.0%; local option sales tax averages around 2.5%.
    • City tax rates currently range from 0.0% to 0.75%.
    • The analysis assumes that all metropolitan governments would implement the food exemption or reduced rate on October 1, 2026, with effect starting then, subject to department certification.
  • Notes: The precise impact depends on how many metropolitan governments choose to reduce or exempt the food tax and the resulting behavioral and revenue responses.

Summary

SB 1702 would empower metropolitan governments in Tennessee that have adopted a local option sales tax to reduce or exempt the local tax on retail food sales and food ingredients, relative to the tax rate applied to other taxable goods and services. The change requires formal adoption by the metropolitan government, certification to the Department of Revenue, and would take effect for tax periods beginning October 1, 2026 (earliest). The intended effect is a possible reduction in local revenue tied to food sales, with potential statewide fiscal implications depending on metropolitan adoption rates.

Compiled from official sources — confirm details with the bill’s official record.

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