UT Study Shows Uneven Effects of Sales Tax Change

A University of Tennessee study of a new state sales tax law shows that most Tennessee counties will get more revenue, but a few cities and counties will lose revenue.

The streamlined sales tax law was passed by the Tennessee General Assembly in the last legislative session, and will go into effect July 1, 2005.

Dr. Bill Fox of the UT Center for Business and Economic Research, which conducted the study, said they looked at the law’s impact around the state.

“We found that, on average, Tennessee governments will get more revenue with the new law, more than $30 million in extra tax payments,” Fox said.

“But we also found that the law’s effects differ widely among the governments. There are about a dozen counties that will lose money.”

Out of Tennessee’s 95 counties, the study showed, 83 would gain revenue and 12 would lose revenue.

Fox said a provision of the law, called “destination taxation,” changes the sales tax revenue collection and distribution process.

“If I go somewhere and purchase an item, the sales tax revenues stay there,” Fox said. “But under destination taxation, if I purchase something and have it delivered to my home, the sales tax revenues go to my local government, and not to where I bought the item.”

Fox said this will cut into the tax revenues of cities and counties in Tennessee that ship goods to other locations in the state, but the overall effect will be a net increase in sales tax revenues for city and county governments around the state.

The study was commissioned by the Tennessee Municipal League and the Nashville city government. The full results of the study are available at http://www.tml1.org.