Single Article Cap Removal Act (SB1417/HB1913)

Sponsored by Senator Henry and Representative Stewart

Tennessee levies a 7% tax on sales of most merchandise and some services. Local governments are allowed to charge additional taxes up to 2.75% on the first $1600 of the purchase price. For items priced between $1600 and $3200, the state levies a 9.75% tax on the amount exceeding $1600, with no local option tax. For items costing more than $3200, the state ”caps” the tax rate at 7% on the amounts exceeding $3200.

The cap is an unjustified tax break for upper income individuals and businesses. If the buyer can afford to buy items that cost more than $3200, he or she can afford to pay tax at the same rate as everyone else. The bill:

• Eliminates the cap by extending the 9.75% rate to the full value of all “big-ticket” items.
• Exempts mobile homes and manufactured housing if used as the primary residence.
• Exempts vehicles on the amount exceeding $3,200 up to $10,000.

Impact: The bill increases revenue and removes one of the two current obstacles to Tennessee’s full compliance with the Streamlined Sales Tax Agreement.