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Navigate Tennessee's sales tax landscape with our comprehensive guide, covering compliance, rates, and regulations to keep your business on track.
Tennessee sales tax at a glance
Tennessee sales tax rates & calculations in 2023
The Tennessee sales tax rate in 2023 is 7% state rate plus applicable local rates. This comprises a base rate of 7% plus a mandatory local rate that varies by jurisdiction. Depending on the local sales tax jurisdiction, the total tax rate can be as high as 9.75%.
List of local sales tax rates in Tennessee
You can look up the full table of sales tax rates in each city and county in Tennessee here. Local rates range from 1.5% to 2.75%.
Recent tax rate changes in Tennessee
Effective October 1, 2022, the sales tax on groceries was reduced temporarily. The state tax rate on groceries was reduced from 4% to 3%, and local tax rates on groceries may not exceed 1%. This grocery tax holiday is effective from October 1, 2022 through June 30, 2023.
FAQs
How do you calculate Tennessee sales tax?
To calculate Tennessee sales tax, you can use the following formula:
Tax = (Purchase Price x (State Rate + Local Rate))
For example, if making a $100 purchase in a jurisdiction with a 2% local rate, the sales tax would be $9:
Tax = ($100 x (0.07 + 0.02)) = $9
What are the penalties for not paying Tennessee sales tax?
Penalties for failing to pay Tennessee sales tax can include fines of up to 25% of the taxes owed as well as additional penalties and interest charges. Criminal charges may also apply in cases of tax evasion.
What’s the difference between destination-based and origin-based sales tax states?
Destination-based sales tax states collect tax based on where the purchase is delivered. Origin-based sales tax states collect tax based on where the sale originated from the seller.
Is Tennessee a streamlined sales tax state?
Yes, Tennessee is a streamlined sales tax state and is an associate member of the Streamlined Sales and Use Tax Agreement (SSUTA).
Sales tax nexus table in Tennessee
FAQs
Do I need a Tennessee seller's permit if I’m only a wholesaler?
Yes, you still need a Tennessee seller's permit even if you only make wholesale sales. The sales tax exemption for sales for resale relies on the buyer providing a valid resale certificate.
Do I need a Tennessee seller's permit if I only sell temporarily in the state?
Yes, if you are making sales within Tennessee, even temporarily, you need a Tennessee seller's permit. There is no exception for temporary sellers.
Exemptions from sales tax in Tennessee
Some common exemptions include:
- Food and food ingredients
- Textbooks
- Medical equipment and devices
- Water for residential use
FAQs
Are groceries taxable in Tennessee?
The state tax rate on groceries is reduced from 5% to 4%, and local tax rates on groceries may not exceed 1%.
Is clothing taxable in Tennessee?
Yes, clothing is generally taxable in Tennessee unless specifically exempted by law. For instance, during the annual sales tax holiday weekend in July or August, clothing under $100 per item and school supplies may be exempt.
Are digital products taxable in Tennessee?
Yes, specified digital products like digital audio works, digital audio-visual works, and digital books are taxable in Tennessee. Other digital goods may also be taxable.
Is software-as-a-service (SaaS) taxable in Tennessee?
Yes, SaaS is considered taxable remotely accessed software in Tennessee. Accessing software from Tennessee is subject to Tennessee sales tax.
Are services taxable in Tennessee?
Generally no, but some specific services like telecommunications services, video programming services, lodging services, and certain installation/repair services are taxable.
Excise taxes in Tennessee
Tennessee levies excise taxes on specific goods like motor fuels, tobacco products, alcoholic beverages, wine, and vapor products. Some key excise taxes include:
- Gasoline - 27.4 cents per gallon
- Diesel - 27.4 cents per gallon
- Cigarettes - Fixed at $2.87 per pack of 20 cigarettes
- Other Tobacco Products (OTP) - 56.32% of the wholesale cost
- Beer - $4.29 per 31 gallon barrel
- Wine (over 5% alcohol) - $1.21 per gallon
- Liquor (distilled spirits) - 15% of the wholesale price
Some counties and cities in Tennessee also levy special taxes on beer in addition to the state beer barrelage tax:
- Metro Nashville/Davidson County - 17% of the wholesale price
- Lynchburg/Moore County - $0.17 per 12 oz. container
So in addition to the regular state and local sales tax due on purchases of these items, the applicable Tennessee excise taxes also apply and are collected at the point of sale. The revenues from these sin taxes go towards various state funds and public programs.
Remote sellers in Tennessee
Remote sellers with over $100,000 in Tennessee sales must register and collect Tennessee sales tax. Marketplace facilitators with over $100,000 in Tennessee sales facilitated on behalf of marketplace sellers must also collect tax.
Prepaid sales tax rates for fuel products in Tennessee
The Tennessee gasoline tax rate is 27.4 cents per gallon. The Tennessee diesel tax rate is 27.4 cents per gallon. These rates are charged on top of the standard sales tax on fuel products.
Discretionary taxes in Tennessee
All Tennessee jurisdictions levy a local option sales tax at the county and/or city level. Local sales tax rates range from 1.5% to 2.75% of the purchase price.
Collecting sales tax in Tennessee if you are not based in Tennessee (Out-of-State)
Even if you do not have a physical presence in Tennessee, you must register with the Tennessee Department of Revenue if you meet the economic nexus threshold. Out-of-state sellers with over $100,000 in Tennessee sales in the prior 12-month period have economic nexus.
Once registered, out-of-state sellers have two options for charging Tennessee sales tax:
- Collect tax at the full combined state and local rate based on the ship-to address of Tennessee customers. This means charging different rates depending on which city/county your customer is in.
- Collect tax at the state rate of 7% plus an additional 2.25% to account for local rates, for a total of 9.25% charged on all Tennessee sales.
When registering for a Tennessee sales tax permit, out-of-state sellers will need to provide information such as:
- Business information and ownership details
- Projected annual Tennessee taxable sales
- Description of products sold into Tennessee
- Date you exceeded the $100,000 economic nexus threshold
Register online through the Tennessee Taxpayer Access Point (TNTAP). There are no fees charged by the Tennessee Department of Revenue for obtaining a sales tax permit.
Should you collect sales tax on shipping charges in Tennessee?
Yes, if the items sold are subject to Tennessee sales tax then the associated shipping charges are also generally taxable. The sales tax due would be calculated based on the combined item cost plus shipping.
There is an exception if multiple items are shipped together - some taxable and some not taxable. In that case, sellers can allocate the shipping charges based on the cost or weight of the taxable portion compared to the full shipment.
Filing and paying sales taxes in Tennessee
The Tennessee Department of Revenue requires all sales and use tax returns to be filed and paid electronically, either through the Tennessee Taxpayer Access Point (TNTAP) online filing system or via an approved software vendor.
Sales tax return filing schedule and due dates in Tennessee
The filing frequency assigned to businesses by Tennessee depends on expected taxable sales:
Monthly:
Quarterly:
Annual:
If any due date falls on a weekend or holiday, the filing deadline moves to the next business day.
Filing penalties in Tennessee
Tennessee charges a 5% per month penalty with a maximum of 25% on late filed returns or late payments. An additional penalty of 5% is charged for returns filed more than 30 days late.
FAQs
What are the Tennessee sales tax due dates?
Tennessee sales tax due dates are the 20th day of the month following the end of the reporting period. Due dates vary based on assigned monthly, quarterly, or annual filing status.
I didn’t collect any Tennessee sales tax during this period. Do I still need to file a return?
Yes, you must still file a $0 sales tax return even if you did not have any sales or collect any sales tax for the period.
Can I amend a Tennessee sales tax return?
Yes, you can file an amended sales tax return in Tennessee to correct underpayments or overpayments from a previously filed return. You may owe additional tax, interest, or limited penalties when amending a return.
What is the penalty for filing and/or paying Tennessee sales tax late?
Tennessee charges a penalty of 5% per month up to a maximum of 25% on late filed returns or payments. An additional 5% penalty applies to returns filed >30 days late. Interest also accrues on unpaid tax.
Tennessee sales tax audit process
The Tennessee sales tax audit process typically involves:
- Notification of audit
- Information/documentation requests
- Audit fieldwork
- Audit adjustments/assessment
- Audit protest process
What to expect during the audit?
During a Tennessee sales tax audit, businesses can expect auditors to thoroughly review financial statements, tax returns, invoices, inventory records, exemption certificates, and more. Auditors aim to verify proper tax was collected and remitted. Key focus areas often include taxability determinations, sourcing rules, exemption certificate validity, and proper tax calculations.
It's advisable for businesses to have an experienced representative available to manage requests, ensure auditor adherence to department rules, and push back when needed. Unjustified proposed assessments are common without adequate representation.
After the audit – Appealing the results
Businesses have 30 days after receiving a Proposed Assessment to file an appeal with the Department of Revenue. Contesting audit findings early helps identify and resolve erroneous interpretations of tax laws before assessments become overly inflated or finalized. Filing appeals promptly is critical for preserving businesses' rights.
How to register for sales tax in Tennessee
To register for a Tennessee sales tax permit, visit the Tennessee Taxpayer Access Point (TNTAP) online registration system. You'll need to provide:
- Business information like ownership structure and NAICS codes
- Description of business activities and taxable products
- Projected annual taxable sales
- Date sales tax collection obligations began
There is no fee charged by Tennessee to obtain a sales tax permit. Once registered, you must collect and remit sales tax on taxable Tennessee sales.
Registration requirements for online sellers in Tennessee
Online sellers with over $100,000 in Tennessee sales or 200 or more separate sales transactions in the prior 12-month period have economic nexus and must register to collect Tennessee sales tax.
Additionally, online sellers on marketplaces have nexus in Tennessee if the marketplace itself has nexus. Most large online marketplaces have nexus in every state.
Cost of registration for a Tennessee sales tax license
Tennessee does not charge any fees for obtaining a standard sales tax permit. The registration process is free through the TNTAP online system.
Agencies to register within Tennessee
- Tennessee Department of Revenue
- Phone: (615) 253-0600
- Website: https://www.tn.gov/revenue/
There you have it—a comprehensive guide on Tennessee's sales tax laws. Need help filing taxes for your ecommerce store? Get a demo with Numeral now.
