Sales tax is a consumption-based tax imposed on the sale of goods and certain services, playing a vital role in generating revenue for state and local governments. In Tennessee, sales tax is a major source of funding for public services, infrastructure, and community programs.
Tennessee’s sales tax system is unique because it combines a statewide base rate with local add-on rates, resulting in some of the highest combined rates in the country. This article explains the structure, rates, exemptions, collection requirements, and recent updates to the Tennessee sales tax system—valuable information for both consumers and businesses.
Overview of Tennessee Sales Tax
The sales tax in Tennessee consists of two components:
- State Sales Tax – a fixed rate applied statewide.
- Local Sales Tax – a variable rate determined by counties and municipalities.
This combined approach means that total sales tax rates vary by location. Tennessee first adopted a sales tax in 1947 to diversify revenue sources and reduce reliance on property taxes. Over time, the rate has increased, and local governments have been granted the authority to impose their own add-on rates.
Tennessee State Sales Tax Rate
The current state sales tax rate is 7%, which applies to most retail sales of tangible personal property and certain taxable services.
Taxable Goods and Services
- Furniture, electronics, clothing, and household goods
- Certain digital products and downloads
- Specified services, such as some telecommunications
Special Rates
- Food & Food Ingredients: Taxed at a reduced rate of 4%.
- Prepared Food: Still taxed at the standard 7%.
Use Tax
Tennessee also imposes a use tax on taxable items purchased from out-of-state sellers when sales tax has not been collected. The use tax rate matches the sales tax rate and ensures fair competition between in-state and out-of-state businesses.
Local Sales Tax in Tennessee
Local sales tax rates vary by jurisdiction, ranging from 0% to 3%, but are capped at 2.75% per county or municipality for most purchases. The local tax is added to the state’s 7% base rate to create the total combined sales tax rate.
Examples of Local Rates
- Nashville (Davidson County): 2.75% local rate, for a total of 9.75%
- Memphis (Shelby County): 2.25% local rate, for a total of 9.25%
Special Local Sales Taxes
Some areas impose additional surcharges. For example, Nashville is set to implement a mass transit surcharge in 2025, impacting certain taxable transactions.
Taxable and Exempt Items Under Tennessee Sales Tax
General Rule
Most tangible personal property is taxable unless specifically exempt.
Common Exemptions
- Prescription drugs and certain medical devices
- Agricultural products and farm equipment
- Sales for resale (with a valid resale certificate)
- Textbooks for students in certain educational settings
Reduced Rates
- Groceries are taxed at 4% state rate + applicable local rate.
- Some digital goods may qualify for reduced or no taxation under specific conditions.
Nonprofit and Government Exemptions
Qualifying nonprofit organizations and government entities can make exempt purchases using approved exemption certificates.
Sales Tax Nexus and Collection Requirements in Tennessee
Physical Nexus
A business has a physical nexus in Tennessee if it has:
- A physical location or office
- Employees or sales representatives in the state
- Inventory stored in Tennessee
Economic Nexus
Since October 1, 2019, Tennessee applies economic nexus rules:
- Businesses must collect Tennessee sales tax if they exceed $100,000 in retail sales to Tennessee customers within the previous 12 months, even without physical presence.
Marketplace Facilitator Laws
Online marketplaces (e.g., Amazon, eBay, Etsy) are required to collect and remit sales tax on behalf of their third-party sellers.
Registration Requirements
All sellers meeting nexus thresholds must obtain a Tennessee sales tax permit and comply with collection, filing, and remittance requirements.
How to Register, File, and Pay Tennessee Sales Tax
Registration
Businesses register for a sales tax permit via the Tennessee Taxpayer Access Point (TNTAP) at tntap.tn.gov.
Steps:
- Create a TNTAP account.
- Submit a Sales and Use Tax Registration Application.
- Receive your sales tax account number and permit.
Filing Frequency
Filing frequency depends on taxable sales volume:
- Monthly for higher-volume sellers
- Quarterly or annually for smaller sellers
Filing Process
- Calculate total taxable sales.
- Apply the appropriate state and local rates.
- File returns electronically via TNTAP.
- Remit collected tax by the due date.
Sales Tax in Major Tennessee Cities and Counties
Examples of 2025 Combined Rates
- Nashville (Davidson County): 9.75%
- Memphis (Shelby County): 9.25%
- Knoxville (Knox County): 9.25%
- Chattanooga (Hamilton County): 9.25%
These rates are calculated by adding the 7% state rate to the local rate determined by the county or city.
Practical Considerations for Businesses and Consumers
For Businesses
- Pricing Strategy: Sales tax should be factored into displayed prices where applicable.
- Exempt Sales: Maintain accurate exemption certificates for tax-free transactions.
- Record-Keeping: Keep detailed records for at least three years in case of audits.
- Multi-Jurisdiction Compliance: Use sales tax software to handle varying local rates.
For Consumers
- Be aware of combined rates when making large purchases.
- Out-of-state purchases may require paying Tennessee use tax.
Recent and Upcoming Changes in Tennessee Sales Tax
Nashville’s 2025 Transit Surcharge
Starting in 2025, certain taxable transactions in Nashville will be subject to an additional surcharge to fund mass transit projects.
Legislative Updates
The Tennessee legislature reviews sales tax exemptions and rates annually. Future adjustments could target emerging industries, such as digital goods or renewable energy equipment.
Conclusion
The sales tax in Tennessee combines a statewide 7% rate with local add-on rates that can bring the total up to 10% in some jurisdictions. Understanding how state and local components work together is essential for compliance, accurate pricing, and informed purchasing.
Businesses operating in Tennessee should carefully monitor nexus thresholds, maintain proper documentation for exempt sales, and stay up to date with legislative changes. Consumers should be aware of how location impacts the total rate they pay.
For detailed guidance tailored to your situation, consider consulting a qualified tax professional or visiting the Tennessee Department of Revenue website.
