Figured it out. Had to add a onChange Modifier before adding the sheet to the tabItem.

'''

   struct ContentView: View {

@State private var selectedItem = 1
@State private var previousSelectedItem = 1
@State private var addingCost = false
@State private var addMenu = false
@ObservedObject var expenses: Expenses
@ObservedObject var bizExpenses: BusinessExpenses

var body: some View {

    NavigationStack {
        ExpView(expenses: Expenses(), bizExpenses: BusinessExpenses())
        TabView(selection: $selectedItem){
            Text("")  
                .tabItem {
                    VStack {
                        Text("Add More")
                        Image(systemName: "plus.circle")}

                }
                .tag(2)

        }

        .onChange(of: selectedItem) {
            if 2 == selectedItem {
                self.addingCost = true
            } else {
                self.previousSelectedItem = $0
            }
        } .sheet(isPresented: $addingCost, onDismiss: {
            self.selectedItem = self.previousSelectedItem
        }) {
            AddView(expenses: expenses, busExpenses: bizExpenses).presentationDetents([.fraction(0.8),.medium, .large]).presentationDragIndicator(.visible)
        }
        .accentColor(Color.orange)

    } .toolbar {
        Button {
            addMenu.toggle()
        } label: {
            Text("Menu")
            Image(systemName: "list.dash")
        }
    }.sheet(isPresented: $addMenu) {
        testSheet.presentationDetents([.fraction(0.7), .large, .medium])
    }
}
var testSheet: some View {
    VStack {
        Text("Test Sheet")
    }
}

} '''