Despite reducing the state’s sales tax on food by one-half percent last year, members of the General Assembly can expect to see more bills aimed at slicing the tax on groceries even further this session.
One of those pieces of legislation, the Food & Business Tax Fairness Act, is being heavily promoted by Tennesseans for Fair Taxation — the same group that helped influence legislators to cut the first half percent off the sales tax.
“Basically, there are loopholes in Tennessee’s tax law which allow big businesses to shelter their income in subsidiaries located in tax-haven states,” said Greg Williams, TFT board member. “It’s really inexcusable — the loopholes in the state’s tax structure. They just place small businesses at a disadvantage.”
Williams said the state loses between $115 million and $250 million per year in revenue through these loopholes.
Dottie Seek, TFT representative, gave an example of one loophole most would recognize.
“Geoffrey the giraffe, the Toys ‘R’ Us mascot ... well, for all the profits Toys ‘R’ Us makes in Tennessee, a company in Delaware owns the logo, so Toys ‘R’ Us pays them to use it,” Seek said. “They’re losing money because they’re spending it in order to keep the logo.”
According to Kimberly Douglass, TFT regional director, that’s referred to as a “passive investment company.”
All this with a food tax that is currently the third highest in the nation, according to Williams.
“This tax restricts the ability of hardworking families to put healthy meals on the table,” he said. “Money that would otherwise go for clothing, health care or education.”
The Food & Business Tax Fairness Act would close any loopholes and recover any money funneled through them by requiring full combined reporting, while using the additional revenue to cut the food tax even more this year.
“By requiring businesses to report all subsidiaries, that eliminates all tax avoidance schemes,” said Douglass, noting that 21 other states already require full combined reporting. “Everyone would be required to do the same thing, and that also takes a lot of the legal matter out of it. The idea behind this campaign is to close all loopholes in one fell swoop.”
According to Williams, a very credible study showed that states that have used combined reporting have outgrown others.
“This is going to level the playing field for small business owners and make it easier for them to be successful and more profitable,” said Jaco Vandermerwe, small business representative. In Northeast Tennessee, 84 percent of the work force works in small business — that’s a company with less than 100 employees.”
Wording in the bill calls for a 2 percent drop in the food tax. With up to $250 million to be gained in lost revenue by closing corporate loopholes, representatives are banking on not only covering the $160 million in food tax, they’re also hoping to have $90 million left over. How the $90 million is allocated would be up to the General Assembly though.
“We want the General Assembly to pass the whole bill, not just part of it,” Vandermerwe said. “It’s intended to be revenue-neutral. Otherwise it wouldn’t work.”
“Almost all our local legislators work in the small business community. This is going to give them a chance to stand with their community,” Williams said.
Sen. Tim Burchett, R-Knoxville, is expected to be the bill’s main sponsor.