Why the sales tax doesn't work anymore

Because the sales tax is so easy to avoid, each one percent increase of the sales tax rate costs Tennessee over $800 million in retail sales and 5,000 jobs according to Dr. Bill Fox of the UT Center for Business and Economic Research. If Tennessee continues to rely heavily on the sales tax, vital state services like education will become victims of the eroding state revenues.

Internet sales:

Internet sales is the fastest growing hole in the sales tax base. State and local revenue loss due to internet sales was $192 million in 2001 and is expected to reach $808 million by 2011. More on this

Mail order shopping:

Catalogue shopping is a long-established and continually growing hole in the sales tax base. State revenue lost to mail order sales was $77 million in 1996 and has continued to grow since then.

Cross-border shopping:

In our increasingly mobile society, people driving to neighboring states to avoid Tennessee’s high sales tax represents a growing loss of revenue to the state and jobs for our citizens.

The service-based economy:

The sales tax is a tax on tangible goods, not services. As we become a more service-oriented economy, the sales tax becomes less and less effective as a revenue source.

Tax breaks for the rich:

The sales tax applies to basic necessities like food, clothing, home furnishings, and transportation. It does not apply to things like investments, attorney fees, house clearing services, and college tuition. As a result, high-income families pay only a fraction of the taxes that others do. More on this.

Tennessee's heavy reliance on the outdated and eroding sales tax has severe consequences on state services.

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Healthy Economies

Enabling more people to join the middle class is at the core of creating a healthy and vibrant economy in Tennessee.
Creating space for entrepreneurs and small businesses to grow and flourish in the state is an important part of creating a strong middle class.

Our middle class is stronger when these locally-owned grocery stores, bicycle shops, florists, accounting firms, and other small businesses dot the landscape from Memphis to Mountain City.

Unfortunately, our state is putting these small business people at a disadvantage to large, multi-state corporations by allowing loopholes to persist that enable these big companies to avoid paying their fair share of business taxes. While large businesses can shelter their profits from Tennessee's business taxes through out-of-state subsidiaries in Delaware and Nevada, our small businesses don't have such a luxury and are forced to pay taxes that their well-heeled competitors can largely avoid. That's simply not fair

Positive Change

A new proposal being advocated by TFT, the Food & Business Tax Fairness Act, would enact further reductions in the state’s high food tax, paid for by closing corporate tax loopholes that benefit large multi-state corporations at the expense of our local entrepreneurs and small business people.

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