By Marlana Ward
At the May meeting of the Johnson County Commission, a proposal was made to offer county voters the choice to raise the sales tax rate by 0.5 percent. The increase would allow Johnson County to retain one of the two lowest sales tax rates in the state. The change would also bring more funds in for county programs and functions, county officials said.
Since 1969, the local option sales tax rate in Johnson County has stood at 1.5 percent. This number has remained unchanged though inflation and property tax rates have increased steadily throughout the decades. While the 1.5 percent added to the state sales tax of seven percent should mean that customers are always charged a flat 8.5 percent, there are instances in which buyers are already being charged more at the register.
Because today’s sales transactions being calculated electronically, specific sales amounts trigger an automatic rounding effect, which raises the rate at which local consumers are charged sales tax.
Johnson County Director of Budget and Accounts Russell Robinson explained that the simplest way to explain the rounding issue is that the majority of the time the local option rate calculates out at the 1.5 percent rate, but in some cases, a rounding effect happens that generates an additional half-cent.
“That half cent we the consumer pay and the county receives no benefit from the rounding that occurs,” Robinson said. “Odd dollar amounts such as $1, $3, or $7, generate a rounding effect that often time generates an additional half-cent.”
Robinson added that the extra funds generated by the rounding effect are funds, which some county officials see as a missed opportunity to benefit Johnson County and its citizens.
“As an example, if you purchase an item for $1.00 the sales tax on that dollar purchase is eight and a half cents that round to nine cents,” he said. “The State of Tennessee keeps seven cents as the state portion, and the remaining two cents is broken down with one, and half cents returning to the county and the State of Tennessee keeps the remaining half cent.
The Tennessee Department of Revenue is under no obligation to return the remaining half-cent since the official local option tax rate for Johnson County one and a half cents.”
Neighboring counties in Tennessee have sales tax rates well above that of Johnson County. For example, Carter County and Washington County have a sales tax rate of 9.75 percent. The state’s average sales tax rate is 9.49 percent.
If the proposed increase is adopted by voters, Johnson County’s rate would increase to 9.0 percent.
Robinson said that the increase would provide a boost to the county budget.
“To increase the local option rate from 1.5 percent to 2 percent would generate an estimated additional $300,000 to $500,000 a year,” he said. “A majority of the time we as the consumer would see an increase at the register but not in all cases. Often the consumer is already paying the additional half cent.”
The fund received by the county through the collection of local sales tax is used for a variety of purposes.
“The additional revenue generated by the increase would benefit county, schools and city operations,” expressed Robinson.
Previously when the county needed to increase revenue through taxes, the county’s property owners were the ones to feel the pinch as the property tax rates increased. This new proposal would better allow all consumers in Johnson County to shoulder a portion of the tax burden.
“An increase to the local option rate would more equally distribute the tax burden to all citizens,” Robinson explained. “Anyone who happens to spend money in Johnson County or Mountain City that doesn’t live in Johnson County would also be paying the additional increase in the local option rate. An increase in the local option rate means that property tax rates for county residents would not necessarily increase to cover shortfalls in county operating costs.”
The decision whether to increase the local sales tax option will be placed on the November 6, 2018, General Election ballot.