A major tax change buried in SB0002 removes state sales tax on all food sales starting July 1, 2025—and it changes how grocers and convenience stores handle every transaction.
Most Tennessee retail owners haven't heard yet: the state is eliminating sales tax on groceries entirely. Not reducing it. Eliminating it. And that changes how you operate starting July 1, 2025.
Under current law, Tennessee applies a reduced state sales tax rate to food and food ingredients. SB0002 removes that reduced rate and replaces it with a complete exemption from state sales tax. That means groceries—from produce to packaged goods to ingredients—will no longer be taxed at the state level.
The change is codified in Section 2 of SB0002, which amends Tennessee Code Annotated § 67-6-228(a).
If you operate a grocery store, supermarket, convenience store, or any retail business that sells food or food ingredients, this applies to you. It doesn't matter your size. It doesn't matter whether food is your primary business or a secondary line. Any sale of groceries or food ingredients will be exempt from state sales tax.
Compliance: You will no longer collect state sales tax on food transactions. That eliminates a compliance obligation on potentially thousands of transactions per month, depending on your volume.
Cash flow: You won't be remitting state sales tax on food sales to the Department of Revenue. For many retailers, this simplifies accounting and improves cash position—you're not holding tax money between collection and remittance.
Revenue impact: The state loses tax revenue on these sales. That's intentional policy, but it's worth understanding: this is a permanent exemption, not a temporary holiday.
Point-of-sale systems: You'll need to ensure your POS system correctly applies the exemption starting July 1, 2025. If your system currently applies a reduced rate to groceries, it will need to be updated to apply zero state tax instead. This is worth flagging to your software vendor now, not in June.
Local taxes: This exemption applies only to state sales tax. Local sales taxes on groceries remain unchanged and continue to apply as they do now.
The exemption becomes effective July 1, 2025. That gives you roughly six months to prepare your systems, train staff, and coordinate with your POS provider.
Review your current sales tax procedures for groceries. Confirm your POS system's update timeline with your vendor. If you use a tax service or accountant, notify them of the change so they can adjust your filing procedures. The Department of Revenue will likely issue guidance closer to the effective date, so monitor official state tax resources.
For a more detailed breakdown tailored to your specific retail operation, free business-focused resources are available through industry associations and the Tennessee Department of Revenue.