Capitol Hill Conversation – Luxury Tax Hits Business Investment, Meets Republican Opposition

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This week Governor Phil Bredesen is working out the details on his plan to start charging the full sales tax rate on goods over $3,200. Currently Tennessee consumers get a slight break on high-priced items. Bredesen wants to end that tax break to plug this year’s revenue shortfall that could reach $105 million and beyond. WPLN’s state capitol correspondent Joe White tells Blake Farmer who would be paying more.



The sales tax rate on food is 5.5%, but all other tangible personal property, unless specifically exempted, is taxed by the state at a rate of 7%.

Tennessee cities and counties have the option of imposing an additional local option sales tax. In Nashville, the local option is
2.25%. In a cities such as Murfreesboro, the local option is the maximum allowed by the state – 2.75%. See a complete list by city here. (PDF file)

To deal with a budget crisis in 1999, the Tennessee legislature applied a state tax equal to the maximum local option on single-item purchases up to $3,200. That’s a total of 9.75% state sales tax on any item that costs between $1,600 and $3,200. After that point, goods are currently taxed at the state base of 7%.

Governor Phil Bredesen’s proposal would get rid of the $3,200 cap and tax the entire purchase, though it would still not apply to vehicles, boats and manufactured homes.

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