House Bill 1540 amends Tennessee Code Annotated, Title 67, Chapter 6, to establish a sales and use tax exemption for certain items purchased by teachers employed by local education agencies (LEAs) or public charter schools. The bill specifies that school supplies, art supplies, and instructional materials with a sales price of $100 or less per item are exempt from sales tax. However, this exemption does not apply to clothing, computers, computer software, video game consoles, or items intended for personal use outside the classroom or for business purposes. Retailers making exempt sales are required to report these transactions to the commissioner of revenue.

To qualify for the exemption, teachers must submit an application to the commissioner of revenue, providing proof of their employment. If approved, they will receive a sales and use tax exemption certificate, which they must present to retailers to document their eligibility for the exemption. The bill also defines a "teacher" as an individual licensed to teach who spends at least 50% of their time instructing students, excluding those in administrative or support roles who do not meet this criterion. The act is set to take effect on July 1, 2026.