Tennessee Authorizes Local Option Transit Surcharge

Effective April 26, 2017, Tennessee has enacted legislation authorizing local governments to levy a local option transit surcharge on the following local privilege taxes, provided the underlying local privilege tax is being collected at the time a transit improvement program is adopted:

• local option sales tax;
• business tax;
• motor vehicle tax;
• local rental car tax;
• tourist accommodation/hotel occupancy tax; and
• residential development tax.

A “transit improvement program” is a program that consists of specified public transit system projects and services. A “public transit system” is any mass transit system intended for shared passenger transport services to the general public and includes related property and equipment as well as infrastructure for the system to operate such as roads, highways, alleys and sidewalks.

Any surcharge so imposed will be a separate charge in addition to local privilege taxes. A “local government,” is defined as any county in Tennessee, including a county with a metropolitan or consolidated form of government with a population in excess of 112,000 and any city in Tennessee with a population in excess of 165,000. This includes Chattanooga, Knoxville, Nashville and Memphis as well as a number of counties. If approved by a majority of the number of registered voters of the local government voting in an election on the question, the surcharge will remain in effect until a specific date or condition of termination specified in the ordinance or resolution adopting the surcharge, or until the surcharge is repealed in the same manner in which it was adopted.

In general, the transit surcharge is administered in the same manner as the underlying local tax and subject to the same conditions, limitation, exemption, credits and returns. However, the following items are exempt from the local option transit surcharge in regardto the local option sales and use tax:

• water sold to or used by manufacturers that is taxed at the state rate of 1%;
• sales of tangible personal property to a common carrier for use outside the state;
• video programming services;
• telecommunication services;
• specified digital products; and
• sales of tangible personal property when obtained from any vending machine or device and taxed at the local rate of 2.25%.

Any surcharge on the local option sales and use tax will apply only to the first $1,600 on the sale or use of any single article of personal property.No local government can impose a surcharge that exceeds the maximum rate for the underlying local option sales and use tax. The surcharge on the local option sales and use tax will not apply to sales made by dealers with no location in Tennessee who choose to pay local tax.The earliest a transit surcharge can be effective is October 1, 2017. (H.B. 534, Laws 2017)