When Knoxville voters go to the polls in this year’s general election, beginning with early voting on Wednesday, they will decide whether to increase the city’s local-option sales-tax rate by .5 percent.

If the referendum passes, the city would see an estimated $47 million increase in sales-tax revenues.

Knoxville Mayor Indya Kincannon proposed the referendum on May 22, and City Council subsequently approved placing it on the ballot. If it passes, the city’s local-option sales-tax rate would increase to 2.75 percent, the maximum allowed by state law.

City officials estimate the higher rate would generate an additional $47 million a year in revenue. The Kincannon administration has proposed a non-binding, five-year plan for spending the funds, which includes affordable housing and infrastructure improvements.

Advocates on both sides of the question have engaged in organized campaigns. City Council members and candidates have weighed in on their preferences.

But the only opinions that matter belong to the electorate. There were 98,083 registered city voters eligible to vote in the election as of Oct. 8, according to the Knox County Election Commission. A majority of those who actually go to the polls — typically about one-fifth or fewer — will have the final say.

Sales-tax Basics

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.

The majority of Tennessee counties are already at the state maximum, among them Knox County neighbors Anderson, Blount, Sevier, Jefferson and Grainger counties. The rate in Knoxville and Knox County is 2.25 percent.

A .5 percent rate increase would push the city’s rate to the state maximum, but the county’s rate would not change. The last time city voters raised the sales-tax rate was in 1988.

A rate increase wouldn’t affect most essential purchases. Food and food ingredients for home consumption would be exempt, and sales taxes aren’t levied on rent, gas, utilities and prescriptions.

While city residents will decide whether to increase the rate, they won’t bear the entire burden of paying the tax. City officials estimate about half the sales-tax collections come from out-of-towners, including tourists, business travelers and local shoppers from outside the city. 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. 

One reason the city accounts for such a large percentage of sales-tax collections is the legacy of finger annexation along corridors radiating from the center of Knoxville years ago. Some busy commercial nodes far outside the core of the city are within the city limits — Strawberry Plains around Interstate 40, the Emory Road exit off Interstate 75 between Powell and Halls, Northshore Town Center and Turkey Creek in West Knoxville are prominent examples.

Kincannon has said that Knoxville is on sound financial footing – current revenues are sufficient to make a $25 million lump-sum payment on the Convention Center’s debt, and the current budget did not require a property-tax increase — but the projects to be funded through the tax increase would enable the city to keep pace with growth. Knoxville’s population has increased 5.85 percent since 2020 to more than 202,000 residents. If the city continues at that pace, the population will grow by another 12,000 or so in the next five years to about 215,000.

If approved, the increased sales-tax rate would not take effect until sometime in March 2026 so businesses could make the transition, according to city officials. That means the full force of the funding wouldn’t be felt until the 2026-27 fiscal year, which begins July 1, 2026.

Spending Plan

The Kincannon administration’s five-year spending plan would spread the funding throughout the city, divided into citywide projects ($16.5 million a year for housing, traffic calming and safety, and road paving) and projects specific to each City Council district ($30.5 million annually for parks, greenways, sidewalks and public facilities). The five-year total would come to an estimated $235 million.

The plan would devote $10 million a year for affordable housing. An ordinance under consideration by City Council tonight would require that the entire amount, or 22 percent of the total new revenues, would go into the Affordable Housing Fund. That would triple the amount legally mandated for affordable housing to $15 million a year.

The city’s affordable-housing funding is used to help developers keep down costs so they can offer units that low- to moderate-income households can afford. In recent years, $1 of city funding has leveraged $15 in private investment in affordable housing. Under the plan, the housing could go anywhere in the city that developers determine they can build it.

Another $2.5 million a year would go toward traffic calming, a popular strategy for improving neighborhood safety. In recent years, the city has not earmarked money for traffic calming but has funded projects as funds became available.

The plan would also increase the amount of funding for road paving throughout the city by $4 million annually. That would be enough to pave an additional 15 miles or so per year.

The plan identifies specific projects in Council districts. 

The annual appropriation for sidewalks would be $7.5 million, with the emphasis on installing them in parental-responsibility zones near close to half the schools inside the city limits. Two to six schools in each district — most of them elementary and middle schools — would see improved sidewalks over five years.

Another $10 million a year would go toward infrastructure and renovations to public parks. A partial list of parks slated for improvements over the next five years includes Holston River and Chilhowee parks (District 6); Lonsdale, Inskip and Adair parks (District 5); Edgewood and First Creek parks (District 4); Victor Ashe and Westview parks (District 3); Safety City and West Hills Tennis Center (District 2); and Gary Underwood, Mary Vestal and Scottish Pike parks (District 1).

The plan would provide $8 million a year for greenways — upgrades to Sam Duff, Jean Teague, Third Creek and Northwest greenways, plus new sections would be built between Jean Teague and Middlebrook greenways, and on Pleasant Ridge, First Creek, Adair/Sue Clancy, East Knox and Lower First Creek greenways.

Repairs totaling $5 million a year would be made to Cumberland Estates Community Center, Fire Hall No. 15 in Fountain City, Inskip Pool,

Dr. E.V. Davidson Community Center, Deane Hill Community Center and South Knoxville Community Center.

Unlike the affordable-housing component, the other projects could be changed, rescheduled or dropped by future mayors or City Councils.

For and Against the Increase

A trio of single-issue political committees formed to persuade voters on the referendum — one in favor of passage and two opposed.

A group of citizens supported by Kincannon created Neighbors for Knoxville to advocate for passage of the plan, while the opposition committees were formed by developer R. Bentley Marlow (Knoxville Against Raising Taxes) and the Knox County Republican Party (Keep Knoxville Affordable).

The opposition groups’ arguments against approval include their assertions that the city has a history of wasting money and that the spending plan isn’t binding on future administrations and City Councils. 

Neighbors for Knoxville argues that the improvements to parks, greenways, streets and other initiatives covered under the spending plan are investments worth the additional tax payments.

Opponents also object to the regressive nature of sales taxes, which have a greater effect on lower-income residents.

The Kincannon administration says that the tax increase would add only a nickel to a $10 purchase and that the exemptions would help soften the blow. The city estimates that a household with an income of $15,000 to $29,000 a year would pay an additional $5 a month, while a household with an income of $70,000 to $99,000 would pay an additional $12 a month.

The two sides have mounted campaigns that have included signs, mailers, text messages and other marketing tactics. Kincannon has gone door-to-door to meet with voters. 

Early voting starts Wednesday and runs through Oct. 30. Election Day is Nov. 4.