Tennessee’s Tax Structure Could (and Should) Be Simpler for Businesses


February 22, 2023 10:44AM

Everyone knows we pay a sales tax when we purchase everything at the store, but most Tennesseans don’t know that the things we buy have had a sales tax levied on them multiple times!

How is this possible? Tennessee is one of only seven states that has gross receipts tax, a tax on a business’s gross sales. Our gross receipts tax, called the Business Tax, is something nearly every business with over $10,000 in sales must pay.

We’re all used to sales taxes when something is finally sold to consumers, but the Business Tax is on all transactions including business-to-business sales. So, when a product goes from a manufacturer to a jobber, wholesaler, and retailer, it is taxed at every level. This means the Business Tax creates a “pyramid effect” due to the multiple layers of taxation, driving up the costs for businesses and ultimately prices for consumers.

Even worse, the Business Tax unfairly punishes our smallest and newest businesses. Because the tax is on gross sales rather than profits, the tax punishes startups and small businesses, which typically take several years to reach profitability. But unlike income taxes, if you aren’t profitable, you still must pay.

We don’t even make it easy for our businesses to comply with the Business Tax. Because different types of businesses have different tax rates (wholesaler versus retailer for example) business owners must figure out what rate they must pay and then determine if they pay the tax again at the city level.

We put our businesses through all this headache for a tax that collects just shy of $300 million. While that’s huge for businesses, it is less than 2% of the state’s revenue. Despite it being such a small portion of the state’s budget, one study found eliminating the Business Tax would be a 10% tax cut for the average business because of how punishing it is.

We’ve eliminated the Hall Tax here and if Tennessee is going to remain the best state to do business in, it’s time for the next big tax cut. With high inflation due to Washington spending, here is one thing we can do at the state level to reduce costs for businesses, both large and small, and prices for all Tennessee consumers. Let’s dismantle the “tax pyramid” and repeal the Business Tax in Tennessee.