Tennessee has the highest sales tax in the country.
The sales tax is widely regarded as regressive, because it hits poor people disproportionately.
Yet Memphis and its suburbs are all seriously considering increasing the local-option part of the sales tax from 2.25 percent to 2.75 percent, bringing the total tax to 9.75 percent.
It is a measure of either hard times or hard hearts that a subject once considered taboo is now in fashion.
What gives?
For starters, some of the stigma has been removed, because everyone’s doing it or at least talking about it. The state legislature provided the half-cent cushion, and so many cities in Tennessee have already maxed out their local-option sales tax on top of the 7 percent state sales tax that the statewide average combined tax is 9.43 percent.
In Memphis, with an average household income of $36,437 compared to the Tennessee average of $43,314, the sales tax increase is supported by Councilman Shea Flinn and Mayor A C Wharton. The proposal came up Tuesday in the council’s executive session.
“We have three options,” Flinn said. “Increase the sales tax, increase the property tax, or cut services.”
Six suburbs in Shelby County are considering a sales tax increase of one-half percent to fund municipal school systems if voters approve them. Southern Education Strategies, the consulting firm advising the suburbs, says “a one-half cent local-option sales tax rate increase could reduce or eliminate the need” for any increase in property taxes.
In Memphis, a half-cent increase would raise an estimated $47 million and go a long way toward closing the city’s budget deficit. Some council members want to offset it with a property tax cut. If the sales tax increase gets out of city council, it would have to be approved by a simple majority of voters in a referendum in November.
“This has nothing to do with this year’s budget,” Flinn said. “This is about planning for the future.”
Wharton said the sales tax increase is a reasonable alternative to a property tax increase. “I support it wholeheartedly,” he said.
One council member who supports the increase admitted to me that it is “chicken,” because it puts the responsibility on the voters to make the call. Flinn and Wharton said a referendum is the only option that gives the public a direct voice.
There are several reasons why a sales tax increase in Memphis would have a chance, especially with Wharton supporting it.
The other options are just as unattractive. Memphis has the highest property taxes in Tennessee, with a rate of $3.19, which is more than twice as high as Bartlett, Collierville, or Germantown.
Higher “sin taxes” on cigarettes and alcohol don’t raise as much revenue, and states set them, not local governments. The hotel-motel tax increase is opposed by the Memphis Convention & Visitors Bureau. A “soda tax” on sugary drinks is surefire debate fodder, but no one in local government has proposed it.
Tennessee does not tax wages and is one of only a handful of states that can say that. But a Memphis payroll tax is not going to happen, in the opinion of Flinn and other council members.
The sales tax is sometimes called the most transparent tax, although untaxed online purchases have clouded the picture. It is paid a little bit at a time. Consumers have some control over how much sales tax they pay.
One half of one cent doesn’t seem like much. On a $1,000 purchase, the difference between 9.25 percent and 9.75 percent is $5. On a $100 grocery bill, the difference is 50 cents. On a $10 meal, it’s a nickel.
The argument will be made that “everyone” pays the sales tax, including visitors. If the suburbs take the plunge, Memphis would just be leveling the playing field. Yes, Mississippi and DeSoto County could brag about lower sales taxes, but Mississippi has a state income tax.
People in the South take the sales tax for granted. To find a state without any sales tax, you have to travel to Alaska, Montana, Oregon, New Hampshire, or Delaware.
For all of these reasons, the admittedly regressive sales tax hike has a real chance this year.
