A major tax change buried in SB0002 removes state sales tax on groceries entirely—and it affects how you do business starting this summer.
Most Tennessee retail owners haven't heard yet: the state is eliminating its 4% sales tax on groceries entirely. It's not a temporary break or a partial cut. Starting July 1, 2025, food and food ingredients will be completely exempt from Tennessee state sales tax. For grocery stores, convenience stores, and any business that sells food, this is a significant operational and financial shift.
SB0002, signed into law, amends Tennessee Code Annotated Section 67-6-228(a) to remove the state sales tax on food and food ingredients. The provision appears in Section 2 of the bill and takes effect July 1, 2025.
In practical terms: you will no longer collect or remit the 4% state sales tax on qualifying food sales. This applies to food and food ingredients—the definition matters for edge cases like prepared foods or non-food items, which may have different rules. The exemption eliminates both the tax itself and the compliance burden of tracking and remitting it on those transactions.
If you operate a grocery store, supermarket, convenience store, or any retail business with a significant food sales component, this directly impacts your operations. You'll see lower prices for customers on covered items, which typically means increased foot traffic and sales volume—but also requires you to update your point-of-sale systems, tax tables, and accounting procedures by the July 1 effective date.
Businesses that sell primarily non-food items or prepared foods should verify which products fall under the exemption, as the definition of "food and food ingredients" has specific boundaries in tax code.
Start planning now, even though July is months away. You'll need to:
Update your POS system and tax tables to reflect the new exemption. Work with your software provider to ensure the change is coded correctly and tested before the effective date.
Review your product categories to confirm which items qualify. If you sell borderline products—hot foods, supplements, or non-food items mixed with groceries—clarify the tax treatment now.
Plan your accounting workflow for the transition. You'll need to track which sales occurred before and after July 1 for tax reporting purposes.
Communicate with your team so staff understand the change and can answer customer questions accurately.
The Department of Revenue will likely issue guidance as the effective date approaches, so monitor official channels for clarification on edge cases and implementation details.
This is a real tax cut that reaches your customers directly and simplifies your compliance on a major category of sales. It's not optional, and it's not reversible on your end—the law takes effect July 1, 2025, regardless. The time to prepare is now.
For detailed guidance specific to your business type, the Tennessee Retail Association and your tax professional can provide implementation checklists tailored to your operations.