Due to a provision in the Tennessee Works Tax Act, families were able to purchase tax-free groceries from Aug. 1 to Oct. 31. But the three-month grocery tax holiday has ended. And Tennessee shoppers will once again pay the state's 4% grocery tax when they visit the grocery store. That means a family who spends $1,000 per month on groceries could now spend $1,040 for the same amount of food. And families living in areas with high local sales taxes could see an even higher increase in their grocery bills.
Food tax in Tennessee: End of tax-free groceries
Tennessee is one of only 13 states that still tax groceries. While the reduced grocery tax rate is 4% (as opposed to the regular 7% sales tax rate), families are still subject to local grocery taxes, which can reach as high as 2.75%, according to the Tax Foundation.
Despite the tax on groceries, Tennessee ranks as a low tax state for ‘middle-class’ families, largely due to low property tax bills and no state income tax. However, grocery taxes can cause an additional financial burden for Tennessee families, especially when grocery prices are high, and the grocery tax holiday only provided temporary relief.
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Families were expected to save an average of $100 during the grocery tax holiday, according to information provided on the Tennessee Department of Revenue (DOR) website.
But how much families saved depended on the type of groceries they purchased. After all, not all food was tax-free during the grocery tax holiday, and there were some exceptions to the rules.
Tennessee tax-free groceries
The grocery tax holiday made certain “food and food ingredients” exempt from Tennessee’s state and local sales taxes. The Tennessee DOR defines food and food ingredients as “liquid, concentrated, solid, frozen, dried, or dehydrated substances that are sold to be ingested or chewed by humans and are consumed for their taste or nutritional value.”
So, what does this mean? Groceries that would normally be subject to the reduced 4% Tennessee grocery tax rate qualified as completely tax-exempt during the tax holiday. But the rules for which food items were tax-exempt can be confusing.
For example, frosting was tax-free, but candy was not. And while meal substitutes were tax-exempt, dietary supplements were taxable. Here are some grocery items that were tax-exempt during the tax holiday.
- Soft drinks
- Coffee (unless prepared by the seller)
- Ice cream and sherbet
- Bottled water
- Chocolate (only if it’s unsweetened)
- Fruit and poultry
- Dairy products and eggs
- Bread and peanut butter
- Flour and baking powder
- Meat tenderizers and spices
What was not included Tennessee’s grocery tax holiday
Some food items were still subject to sales tax during the grocery tax holiday, and these items were taxed at the full 7% rate (plus applicable local taxes). Pet foods, alcoholic beverages, candy, prepared food and dietary supplements were not tax-free. Below are some additional food items that were (and still are) taxed.
- Any food sold with eating utensils (unless they were included by the manufacturer)
- Party trays that contain multiple food items (for example, meats, cheeses and vegetables)
- Any food that is sold warm
- Herbal supplements
- Cake decorations (excluding frosting)
- Dried fruit (only if its sweetened)
- Honey-roasted nuts
- Yogurt-covered raisins
- Candy bars (unless they include flour)
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