UPDATE: This article has been updated with additiolnal information and comments from former Mayor Victor Ashe.

Knoxville Mayor Indya Kincannon has proposed asking voters to approve a .5 percent increase in the local-option sales tax rate to fund projects to address long-term infrastructure and housing needs.

The money would be earmarked for affordable housing, parks, paving, sidewalks, facilities and maintenance, and greenways.

At a news conference on Thursday, she outlined the proposal, which would need approval by City Council before going to the voters on the November general election ballot.

Kincannon said she is making the proposal to sustain a high quality of life for Knoxville residents into the future. The increase would provide an additional $47 million annually to the city’s revenues.

“I invited you all here today to let you know that I will be asking City Council to fund neighborhood improvements across the city via a half-percent local-option sales tax increase,” she said. “If Council approves, these neighborhood investments will be on the November ballot for the people of our city to decide.”

Kincannon said the revenues would go toward projects in five broad categories: greenways and paving ($12 million), affordable housing ($10 million), parks ($20 million), sidewalks and traffic calming ($10 million), and facilities and maintenance ($5 million).

“We have an extraordinary opportunity to tackle more needs in our city and complete projects that would normally take 20 years in about five years,” she said, emphasizing the city has roughly $70 million of infrastructure needs that lack funding. 

“As your mayor, I'm committed to being a good steward of taxpayer dollars. That includes fixing things before they become unfixable, and paving a path for the future,” Kincannon said.

The proposal does not identify specific projects that will be funded, but Kincannon said a list would be developed in the months before the November election. The administration will use existing plans and plans under development — the park system master plan is currently being drafted, for example — to guide many of the improvements.

“We're going to take the plans that we already have developed with years of input from the community, we're going to have discussions with Council, and then have more specifics by the time people are voting on it, so they'll know exactly what it'll mean for their neighborhood,” Kincannon said.

Groceries would be exempt from the increase. 

“I thought long and hard about the impact this would have on families,” Kincannon said. “That is why I made the decision that groceries, which are often a family's biggest expense, will be excluded from this additional tax.”

Other household expenses that wouldn’t be affected include baby formula, diapers, rent, gas and utilities.

The mayor also gave examples of how much the increase would add to selected products — five cents on a 12-pack of toilet paper, seven cents on over-the-counter cold medication, and 13 cents on a T-shirt.

Kincannon said relying on the sales tax for additional revenue instead of increasing the property tax rate makes sense for city residents because visitors pay sales taxes and turning to property taxes for the same revenue would force a 60-cent hike in the property tax rate.

Knoxville Chief Financial Officer Boyce Evans said the revenues wouldn’t be needed for the fiscal year 2025-26 budget, which City Council will be considering on second reading on Tuesday. The city’s finances remain healthy, he said. He and the mayor said the sales tax increase could mitigate uncertainties surrounding the Trump administration’s tariffs.

“The fact is, we don't have any control over that,” Kincannon said. “I feel like voters will hopefully be open to this idea (that) if you want these things in our city for the quality of life that we enjoy — and better — it's local control, local dollars, local projects. We can't control tariffs, but we can't control the amount that we choose to tax ourselves for amenities in our city.”

The Kincannon administration has created a website with more information, including FAQs and links.

Sales Tax Nuts and Bolts

The sales tax in Tennessee is divided into two parts — the state sales tax rate of 7 percent (4 percent on groceries) and local-option rates, which top out at 2.75 percent for a statewide maximum of 9.75 percent.

Knoxville and Knox County have both set their local-option sales tax rates at 2.25 percent. If city voters approve the increase, Knoxville’s rate would move to 2.75 percent, the highest allowed by state law. 

The majority of Tennessee counties are already at the state maximum, among them Knox County neighbors Anderson, Blount, Sevier, Jefferson and Grainger counties.

A city sales tax increase wouldn’t change the tax rate in Knox County, though it could open the door to a similar effort.

Currently, 72 percent of the city’s sales tax revenues go to Knox County Schools (the state minimum is 50 percent). But because the city is acting on its own, it would keep 100 percent of the revenues from the .5 percent increase. 

The schools would only get a cut of the new revenue if the county also raises its tax rate. The county could piggy-back on the city’s proposal, but only within a 40-day window following City Council approval. If that happens the referendum question would be on the ballot for voters in both Knoxville and Knox County. (The county’s involvement this year would essentially be a special election.)

Caldwell, the county CFO, said the county is not considering a sales tax increase, however. Knox County Mayor Glenn Jacobs is philosophically opposed to raising taxes, and the Republican-dominated Knox County Commission is unlikely to strike out on its own.

There is precedent for the county to follow the city’s lead on a sales tax increase, albeit during another era of local politics. 

The last time the city raised the sales tax rate, in 1988, then-County Executive (as the mayor’s office was then called) refused to join Knoxville’s campaign for an increase. A year later, however, after seeing the city’s revenue growth, he relented and voters passed the tax increase countywide.

The Workhorse

Don Bruce, director of the Boyd Center for Business and Economic Research at the University of Tennessee, said the sales tax is the workhorse for government revenues in Tennessee. He noted that the sales tax burden, unlike the property tax, is shared between residents and non-residents.

“Yes, this will increase prices modestly, but the one thing that we think about with the sales tax is it's paid by lots of people who don't even live here,” he said. “You're going to get sales tax on everything people buy when they come into town for a vacation or for a business meeting, or just passing through on a road trip. And so it's one of those things where we can distribute the burden a little bit more broadly.”

City officials estimate about half the sales tax collections come from out-of-towners. Knoxville doesn’t rely solely on out-of-county or out-of-state visitors for that broad base, either. People living in Halls, Powell, Karns, Corryton and Farragut shop in city stores.

Finger annexation along corridors radiating from the center of Knoxville years ago placed some far-flung commercial nodes within the city limits — Strawberry Plains around Interstate 40, the Emory Road exit off Interstate 75 between Halls and Powell, Northshore Town Center and Turkey Creek in West Knoxville are prominent examples.

Knoxville makes up 39.6 percent of the county’s population, but brings in 68 percent of the county’s total sales tax collections, according to Knox County Chief Financial Officer Chris Caldwell. 

Another important consideration, Bruce said, is that Tennessee places a cap on sales taxes levied on single items.

“If you're buying a car, this additional rate would only apply to the first $1,600 of it, or any big ticket item like that,” he said. 

Bruce also said the increase is far below the additional costs to consumers caused by inflation and the tariffs imposed by the Trump administration.

“To put it in perspective, we've seen inflation in the last few years on the order of 8 and 9 percent, 16 to 20 times more than this sales tax rate increase that's being proposed,” he said. “So it's a substantial change relative to 2.25 percent, but it's relatively small compared to the price changes that we've already experienced here in the last few years.”

After an initial review of the proposal, Bruce said the plan appears to be well thought-out and addresses clear needs for the city.

“Knoxville is absolutely cooking right now. If you've been here for longer than a few years, you've seen the trajectory,” he said. “I think it's been a really good time to be in Knoxville, and could even be better.”

Bruce said the city administration has focused on important areas such as affordable housing and amenities like parks and greenways that people use and care about.  

“Those are the things that I think are very clearly defined strategic investments that this mayor and city government have decided are worth pursuing,” he said. “It is inevitably up to the people to decide.” 

History

Victor Ashe was Knoxville’s mayor 37 years ago when the city last raised the sales tax rate. Six previous attempts had failed, but he decided to make a try because the city’s revenues had shriveled to the point where basic services were compromised. Knoxville hadn’t hired a firefighter in 11 years, and hadn’t sworn in a new police officer in 7 years. Road crews were only repaving five of the city’s 1,500 miles of streets per year. 

“At that rate, Halley’s Comet would come back before the paving was finished.

Ashe and his administration developed a detailed strategy — one that he contrasted with Kincannon’s.

“There are huge differences between what Indya’s doing and what I did,” he said.

First, the referendum was held during a stand-alone special election, not during a regular municipal election. That ensured that voters would not be distracted by races for Council, mayor or municipal judge.

Second, he published a detailed list of projects the new revenues would fund. The Police and Fire departments would hold academies once a year; the paving program would grow to 42 miles a year, with specific streets in each Council district identified beforehand; locations for new greenways and parks were identified.

Third, he persuaded City Council to pass two budgets — one that contained the revenues a higher sales tax rate would generate, and one that did not — so voters could see the difference that passage could make.

Finally, he enlisted the help of neighborhood organizations to drum up support in their areas of town. “We waged a doo -to-door campaign,” Ashe said,

The preparation and canvassing paid off — voters approved the tax increase, 63-37 percent.

Ashe said Kincannon’s proposal is too vague and would benefit from the vote being held in a special election, “I think it’s a big mistake,” he said.

Next Steps

Before the people can decide, City Council must determine whether the proposal will go before them at the polls. Vice Mayor Tommy Smith said he’s scheduling a workshop for next Thursday, May 29, to discuss the matter. Council will vote on whether to approve a referendum in the coming weeks.

“It’s a question of urgency,” he said. “How urgent the housing and neighborhood investments are to the people of the city?”