Businesses and Some Families Are Not Benefiting from Tennessee's Food Tax Holiday

John M. Dabbs

Eating cheaper?

Coming out of a pandemic, local eateries -whether brick and mortar or food trucks- are still facing many challenges to stay in business. The passing of the "food tax holiday" for the month of August has been a winner for many traditional families in the volunteer state. The majority of people still eat at least one meal at home if not more. Sadly, restaurants and others in the food service industry aren't saving money as they already purchase items without food sales tax, and add sales tax when they sell the prepared food to their customers. The tax is still there for customers as prepared food during the month of August, while grocers aren't charging the tax.

Shortages

Restaurants and others in the service and food service industry continue to fall short in finding servers, cooks, and others to run their businesses. Labor shortages across the industry are significantly affecting businesses in the Tri-Cities, and across the U.S. While the number of employees willing to work has dropped, so has the stress they can take. Many employers have been forced to cut open hours to give employees a much-needed break.

Supply chain issues are also a continued problem, though the availability of some items has rebounded in recent weeks. With record inflation, restaurant owners have seen a marked increase in their food and supply costs which cut into their bottom line unless they are willing to move the burden onto their customers.

Friend of a Farmer Restaurant's Taylor Morabity says "While labor shortages have begun to improve, I think the biggest challenge the industry currently faces is the drastic increase in food cost, specifically within the world of poultry, meat & fish. Products that used to cost $11 or $12 a pound have doubled and in some cases, nearly tripled in price. Unfortunately, with the current supply chain issues & rising inflation, I believe that restaurant owners & management will be navigating around this particular challenge for quite some time."

According to the National Restaurant Association, Wholesale food prices increased 13.4% during the last 12 months.

Local Trends

While the wholesale costs have increased for businesses, the majority of people in the tri-cities still eat at least one or more meals at home. This means items purchased in the grocery store to make meals at home are bought cheaper (not having to pay sales tax on those items in August).

Unfortunately, many young professionals and non-traditional families are more on-the-go than ever and have to eat out more often, where they are forced to contend with the higher costs of goods and paying taxes for their food. Retired financial consultant Paul Lewin of Jonesborough says he would "always encourage his clients to think about how they were spending their money. I'd tell them to think about how many dollars they could save by making their morning coffee at home just 2-3 times a week, or by packing their lunch twice a week." Lewin says he used the analogy to show them how they could find the money to put into their investment account for retirement, but the same principle applies to saving money to live on.

Tax man

Tennessee passed a law creating a sales tax-free "holiday" for food and food ingredients during the entire month of August. This exempts the purchase of specific food items from sales tax in the state. The food tax holiday applies to “food and food ingredients." Applicable items are defined as “liquid, concentrated, solid, frozen, dried or dehydrated substances that are sold to be ingested or chewed by humans and are consumed for their taste or nutritional value.” The food tax holiday does not include “alcoholic beverages, tobacco, candy, dietary supplements, and prepared foods.”

According to a notice posted on the Tennessee Department of Revenue’s website, “Food and food ingredients are those items otherwise taxed at the 4% state sales tax rates plus the applicable local rate.”

People buying food at coffee shops, doughnut shops, restaurants, and food trucks are still taxed for their prepared food items. The information page from the department of revenue is quite clear. Food items “purchased from a micro-market or vending machine will remain subject to the sales tax.”

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An outdoor enthusiast with a passion for travel and adventure. John is a professional consultant and photojournalist.

Bristol, TN
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