Understanding the Single Article Cap
Despite the popular perception, the sales tax does not apply equally to all
purchases... even to purchases of the same type of item like cars. That's because
of what is known as the Single Article Cap in Tennessee state law.
The way it works is this. The first $1,600 of most purchases is subject to
both the state sales tax of 7% and any local add-on, usually 2.25%, for a total
of 9.25%. That's where the local option tax is capped. Prior to 2002, the remaining
value of any larger purchase was taxed at just the state rate of 7% (6% prior
to 2002).
Beginning in 2002 though, in an effort to close the budget gap, a second tier
was added from $1,600 to $3,200. So the first $1,600 of any purchase is now
subject to the combined state and local sales tax, usually 9.25%. The next $1,600
of the purchase is subject to the maximum rate of 9.75% with all the tax going
to the state. Whatever value of the purchase exceeds $3,200 is subject to the
state rate of 7%.
Confused yet? Here's two examples to help clear it up:
Example 1: A $3,000 used car is taxed at 9.5%
- The first $1,600 of the purchase is taxed at 9.25% ($148).
- The next $1,400 of the purchase is taxed at 9.75% ($137).
- In the end, the total tax of $285 is an effective tax rate of 9.5%.
Example 2: A $40,000 SUV is taxed at 7.2%
- The first $1,600 of the purchase is taxed at 9.25% ($148).
- The next $1,600 of the purchase is taxed at 9.75% ($156).
- The remaining $36,800 of the purchase is taxed at 7% ($2,576).
- In the end, the total tax of $2,880 is an effective tax rate of 7.2%.
This is just one more way the sales tax in Tennessee is unfair. TFT supports
elimination of the single article cap to ensure everyone pays the same tax for
the same kind of purchases.
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