Tennessee Sales Tax Guide: Rates and Compliance

Navigate Tennessee's sales tax landscape with our comprehensive guide, covering compliance, rates, and regulations to keep your business on track.

Starting a business venture in Tennessee or just wondering how much sales tax you’ll pay on your next purchase? This guide breaks down Tennessee’s sales tax rates, filing rules, and key requirements into digestible, easy-to-follow steps so you can stay compliant without the headache.

Key takeaways:

• The Tennessee sales tax rate is 7% plus a mandatory local rate of up to 2.75%.
• All businesses with a physical presence in Tennessee are required to collect and remit sales tax to the Department of Revenue if monthly gross sales exceed $400 or yearly gross sales exceed $4,800.
• All remote (out-of-state) businesses with more than $100,000 in sales revenue from Tennessee customers in the previous tax year are required to collect and remit sales tax.
• The penalty for late filings or payments can reach 25% of the unpaid tax (with a minimum penalty of $15), as well as incur additional interest charges.
• Most goods are subject to Tennessee state tax, but the tax rate varies depending on the type of good and the jurisdiction.

The Tennessee state sales tax rate is 7% plus applicable local rates. This comprises a base rate of 7% plus a mandatory local rate that varies by jurisdiction. Depending on the local jurisdiction, the total sales tax rate can be as high as 9.75%.

Sales tax 101

Let's talk sales tax. It's not the most pleasant of topics, but that's why we're here!

Whether you're purchasing a new automobile or selling custom software to out-of-state clients, staying compliant requires understanding and interpreting complex sales tax laws.

The local companies you purchase from apply a sales tax at the point of sale, so as a consumer, you do not have to submit sales tax to the government. However, if you pay a company online and they do not collect sales tax at the point of sale, you are responsible for paying use tax to the state of Tennessee.

Running a business in Tennessee or selling to Tennessee customers? If you sell taxable goods or services, staying compliant is a bit more challenging. You must collect sales tax from your customers, file returns, and submit the taxes to the Tennessee government. If you are out of state but sell to Tennessee customers, you may also be required to collect and remit sales tax.

Recent tax rate changes in Tennessee

As of February 1, 2025, Davidson County approved a .5% local tax rate hike to support Nashville's transit upgrades. This tax rate increase raises the county's total tax rate to 9.75% (the combined state and local rates).

The tax rate increase applies to all taxable goods and services, with a few exceptions, including video programming services, telecommunication services, certain digital products, and others. See the Tennessee Department of Revenue's website for more information on this update.

Do I need to collect Tennessee sales tax?

Do you sell goods or services in Tennessee? If so, you may have sales tax obligations.

Even if you live out of state, once you ship products to Tennessee customers, you could owe sales tax. Your tax obligation depends on your revenue (from Tennessee customers) and whether you have a physical presence in the state.

Nexus: What it means and how it affects your business

Good to know: Note that the term "economic nexus" is commonly used in sales tax discussions. However, Tennessee uses the term "substantial nexus" in its tax communications when referring to economic thresholds. Tennessee also uses the term "nexus" to refer to both economic thresholds and the establishment of physical presence in the state.

Physical nexus

Do you have nexus in Tennessee? If so, the state of Tennessee requires you to collect state and local taxes from your customers, file a return, and remit those taxes to the state on a specific schedule.

How do you know if you have nexus in Tennessee?

Any of the following activities establishes physical nexus in the state:

• You reside in the state of Tennessee
• You hire people to work for you who live in Tennessee
• You maintain inventory in Tennessee
• You maintain a store, office, or warehouse (any business) in the state
• You lease or rent tangible personal property in the state
• You provide a taxable service in Tennessee

Note that even if you live out of state, if any of the above nexus criteria apply, you have nexus in Tennessee. Refer to Tennessee's Sales and Use Tax Guide for additional scenarios that establish nexus in TN.

Economic nexus (substantial nexus)

Do you live outside of Tennessee but sell goods or services to customers in Tennessee? If you earned more than $100,000 in sales revenue from Tennessee customers in the previous tax year, you are required to collect and remit sales tax.

Once you hit the economic nexus threshold, the next step is to register for a sales tax account so you can collect and remit sales tax. Once registered, out-of-state sellers must collect sales tax in Tennessee at the full combined state and local rate applicable to the customer's shipping location.

Good to know: You do not have to register and file a return with the Tennessee Department of Revenue if you earn less than $400 gross sales per month or $4,800 gross sales per year (or less than $100 per month in sales of taxable services). If you do not meet those thresholds, pay sales tax to your suppliers in lieu of registering and paying the state.

Is Tennessee sales tax destination-based or origin-based?

Tennessee functions primarily as an origin-based state. However, if you are a remote seller, and you ship to Tennessee customers, your tax rates reflect the customer's location (destination-based).

What's the difference between destination-based and origin-based sales tax states?

In an origin-based state, you charge the tax rate associated with your business's location. In a destination-based state, your buyer’s address determines the rate.

Since Tennessee is an origin-based state, you charge your Tennessee customers the sales tax rate applicable to your business location, regardless of their residence.

Taxable items in Tennessee

Most sales of tangible personal property are taxable unless state law specifically exempts them.

Examples of taxable items include:

• Clothing and footwear
• Furniture and home furnishings
• Groceries
• Appliances
• Cleaning supplies
• Pet supplies

Are groceries and food taxable in Tennessee?

The state tax rate on groceries is 4% plus local tax rates. However, not every item on a grocery store shelf qualifies for the 4% tax rate.

Are services taxable in Tennessee?

Generally, services are exempt from Tennessee sales tax. However, some services are taxable, including the following:

• Telecommunications services
• Lodging services
• Installation of tangible personal property
• Repair of tangible personal property (including computer software)

Exemptions

The state of Tennessee recognizes the following exemption types:

• Resale: If a retailer purchases goods for resale and presents an updated Tennessee resale certificate, the transaction is exempt from sales tax payment.
• Entity-based: Qualified entities (e.g., farmers) can purchase some items tax-free or at a discounted rate. Government entities and nonprofits are also exempt from paying sales tax on their purchases.
• Product-based: Textbooks, school meals, and some medical equipment are exempt from sales tax.

Excise taxes in Tennessee

Tennessee levies excise taxes on specific goods, including motor fuels, tobacco products, alcoholic beverages, wine, and vapor products.

How to register for a Tennessee sales and use tax account

To register for a sales tax account, visit the Tennessee Taxpayer Access Point (TNTAP) online registration system. You'll need to provide:

• Legal business name, address, and contact information
• Entity type
• Federal EIN (or SSN)
• Owner, partners, officers' information
• Description of business activity (products or services you're selling)

Once registered, you'll receive a Certificate of Registration (and, if applicable, a Certificate of Resale) to collect and file Tennessee sales tax.

Tennessee sales tax return filing schedule and due dates

The Tennessee Department of Revenue requires businesses that meet a threshold of $400 in gross sales per month or $4,800 in gross sales per year to file a sales and use tax return. File TN returns electronically, either through the Tennessee Taxpayer Access Point (TNTAP) filing system or via an approved software vendor.

Tennessee sales tax filing and payment penalties

Penalties for failing to file and pay Tennessee sales tax can include a late fee of 5% of the outstanding tax for every month (or part of a month) you’re delinquent, up to 25% of the taxes owed (with a minimum penalty of $15). Interest accumulates at the state’s current rate.

Audit & appeals process

The Tennessee Department of Revenue routinely reviews businesses to ensure compliance with sales tax laws. During a Tennessee sales tax audit, businesses can expect auditors to thoroughly review financial statements, tax returns, invoices, inventory records, exemption certificates, and other relevant documents. The auditor's goal is to verify that you collected and submitted the correct amount of tax.

Sales tax FAQs

How do you calculate Tennessee sales tax?

To calculate Tennessee sales tax, use the following formula:

Tax = (Purchase Price x (State Rate + Local Rate))

For example, if you make a $100 purchase in a jurisdiction with a 2% local rate, the total sales tax would be $9.

Tax = ($100 x (.07 + .02)) = $9

Is Tennessee a streamlined sales tax state?

Tennessee is an associate member of the Streamlined Sales and Use Tax Agreement (SSUTA). An associate member state has met most of the agreement’s requirements but hasn’t fully implemented every single SSUTA provision.

Should you collect sales tax on shipping charges?

Yes, if the items sold are subject to Tennessee sales tax, the associated shipping charges are also generally taxable. Calculate the sales tax due based on the combined cost of the item and shipping.

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.

Does Tennessee have an annual sales tax holiday?

Yes, Tennessee observes an annual "Back to School" sales tax holiday. The holiday runs from the last Friday in July to the following Sunday. Consumers can purchase clothing, computers, and school supplies tax-free.