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, the 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 are required to report exempt sales to the commissioner of revenue, and specific guidelines are provided for applying discounts and selling items that are typically sold as a single unit.

To qualify for the exemption, teachers must submit an application to the commissioner of revenue, proving their employment status, and if approved, they will receive a sales and use tax exemption certificate. This certificate must be presented to retailers to document the exemption. The bill defines a "teacher" as an individual licensed to teach who spends at least 50% of their time instructing students, excluding those in administrative or supervisory roles who do not meet this threshold. The act is set to take effect on July 1, 2026.