Tennessee Now Has the Highest Sales Tax in the Country, ....

But, I'm OK with that.  I would much rather have a high sales tax than an income tax. 
However, Tennessee's sales tax structure could stand room for improvement. The non-partisan Tax Foundation says a good sales tax should be broad based, low, and not tax business inputs, but only tax the final product. Our tax is not broad based enough because it taxes not enough services, focusing heavily on products. When the base is broader, the rate can be lower and bring in the same revenue. We impose a tax on too many inputs. When inputs are taxed consumer end up paying a tax on a tax. It distorts economic activity. Also, sales taxes levied on business equipment have a negative effect on small business start-ups. Also, according to the Tax Foundation, companies have been known to avoid locating factories or facilities in certain states because the factory’s machinery would be subject to the state’s sales tax.

Tennessee, along with Alabama, Washington, Louisiana, Arkansas, and California rate as having the worst system of sales tax, imposing high rates and taxing a range of business inputs, such as utilities, services, manufacturing, and leases, and maintaining relatively high excise taxes. Excise taxes are a tax separate from a sales tax, on specific goods. Liquor taxes, beer taxes, cigarette taxes, and gas taxes are examples of an excise tax. Tennessee has the highest combined state and local sales tax rate of 9.469 percent, closely followed by Arkansas at 9.465 percent.

The Tax Foundation’s State Business Tax Climate Index  looks at five components in overall ranking of states as to their business climate: Individual Income Tax , Sales Tax, Corporate Income Tax, Property Tax, and Unemployment Insurance. While we get a boost for not having a state income tax, we do not score well on some other matrices. According to the Tax Foundation, Tennessee is ranked only18th best state business climate. However, they predict our ranking is likely to increase due to the phasing out of the Hall Income Tax. The Hall Income Tax is a tax paid on interest and dividend income. The report says the State's initial reductions are too small to change the State Business Tax Climate rankings yet, but Tennessee’s rank will improve once the tax is fully phased out in 2021. To read the full report follow this link.

Top Stories