Sales tax increase creates confusion for small businesses

By Julie Fann
star staff

Small business owners in Carter County said Wednesday they are tense and confused as they prepare for the sales tax increase which will go into effect July 15. Since the increase affects non-food items, questions concerning what constitutes "non-food" and how to program cash registers to make that discrepancy are paramount for stores which also sell groceries.
   "It's really confusing, and I don't like it. I may just have to charge all items the same since my register isn't programmed to distinguish between the two. It looks to me like they're (the state) trying to put people in small business out of business," said Earnest Elliott, who owns the Bargain Outlet located at 505 Broad St.
   Besides food, Bargain Outlet sells many other items such as clothes, batteries, and tools. The state tax increase raised the sales tax on non-food items from six to seven percent. With the local option sales tax in Carter County added to that amount, the tax goes up to 9.25 percent.
   The Tennessee Department of Revenue's Public Information officer, Sondra Morris, explained the difference between food and non-food according to law is a complicated matter and one that her office is required to enforce.
   "For instance, prepared foods, candy, and dietary supplements are considered non-food items. What constitutes candy and prepared food though? If an item contains flour, it is not considered candy and would be taxed 7 percent. For example, Kit Kat bars, Reese Sticks, and Twix all contain flour," Morris said.
   Morris explained the seller must provide two or more ingredients that are in a product for it to be considered prepared food and receive the additional tax. A frozen pizza is considered food, but a pizza that is prepared, i.e. heated and/or containing two or more ingredients by the seller for the customer, is non-food and taxed the seven percent.
   If customers buy soda in a can or bottle, that's a food item, but if they buy soda from a fountain where they are required to put the drink in themselves and add the ice, then suddenly the soda is a non-food item.
   Items such as popsicles and ice cream bars that require refrigeration are not considered candy and also receive the tax increase. Other foods that would receive the additional tax are party trays and rotisserie chicken.
   "We received approximately 1800 phone calls Monday from small business owners, asking us questions about the sales tax," Morris said. "People are just really confused about how to apply this tax in their stores."
   Ted Barnes, who owns B&B Produce Market in Mountain City, said his wife has called the Sales and Tax Use office 800 number and hasn't been able to reach anyone who can help them. "While she's been doing that, I've been cussing, reading this book, trying to figure out how to program this register," Barnes said.
   Barnes and his wife have owned B&B Produce Market for five years. In addition to assorted fruits and vegetables, the store also sells a variety of other items. "We haven't had anything explained to us. It seems like we would have something in print explaining what's going on. What you hear and what's going to turn out to be are two different things," Barnes said.
   Vernon Whisenhunt, owner of Mountain Harvest Produce in Roan Mountain, said he is also annoyed by the inconvenience and confusion involved with the sales tax. "It's going to be more aggravating. I'll have to get my cash register directions down and read them again. All this is due to that fine governor ain't it," Whisenhunt said.
   Thirty-one of the House's 41 Republicans voted for the tax increase, as did 19 Democrats. A dozen members who risked their political careers in the failed income tax vote made a rather paradoxical vote to raise the sales tax.