Nashville has no income tax at either the state or local level — your wages, salary, freelance pay, and professional fees are not taxed by Tennessee or by Metro Nashville. The Tennessee Constitution forbids it, and the last narrow state tax on investment income was fully repealed in 2021. You still owe federal income tax, and Nashville leans harder than most cities on sales and property taxes to make up the difference.
Why Tennessee Doesn’t Tax Your Paycheck
Tennessee is one of a handful of states that constitutionally prohibits taxing personal income. Article II, Section 28 of the state constitution bars the legislature from imposing any state or local tax on payroll or earned personal income, and it also covers any tax “measured by” payroll or earned income, which closes the door on workarounds.1FindLaw. Tennessee Constitution Art. II, Sect. 28 – Taxing Power Voters locked that language in through Amendment 3 in 2014, approving it by roughly a two-to-one margin.
The ban runs all the way down to the city and county level. Tennessee has never granted municipalities or counties the authority to levy their own income taxes, and the 2014 amendment removed any lingering doubt.2Ballotpedia. Tennessee Income Tax Prohibition, Amendment 3 (2014) Nashville operates under a consolidated metropolitan government that merges city and county functions for Davidson County, and nothing in that structure gives Metro Council the power to add a local income tax. Any attempt would be struck down.
What About Investment Income?
Tennessee used to tax one narrow slice of income called the Hall Income Tax, which applied to interest and dividends — not wages — at a flat rate. That tax is gone. The legislature passed a phased repeal in 2016, dropping the rate one percentage point each year until it hit zero for tax years beginning January 1, 2021.3Justia. Tennessee Code 67-2-102 – Imposition, Rate and Collection The Tennessee Department of Revenue considers it fully repealed as of that date.4Tennessee Department of Revenue. HIT-4 – Hall Income Tax Rate There’s no state return to file for dividends or interest, and no state tax owed on them.
What Nashville Residents Actually Pay
Without an income tax, Nashville funds its government through property and sales taxes, and both run higher than you might expect. These are where most of your state and local tax burden lands.
Property Tax
Tennessee taxes residential property at 25 percent of its appraised value, a ratio set by state law.5Justia. Tennessee Code 67-5-801 – Classification and Rate of Assessment A home appraised at $400,000 has an assessed value of $100,000 for tax purposes. The Metro Trustee then applies the local tax rate to that assessed value. Nashville’s Urban Services District rate, which covers most of the city proper, was $2.814 per $100 of assessed value as of the most recent published rate. On that $400,000 home, the math works out to $100,000 ÷ 100 × $2.814 = $2,814 per year.
Nashville reappraises property on a regular cycle, and values have climbed sharply in recent years. A higher appraisal pushes your assessed value up even when the tax rate holds steady, so bills in neighborhoods that have appreciated quickly — East Nashville, Germantown, The Nations — can jump between reappraisal years. The headline rate looks modest; the bills often don’t.
Sales Tax
Tennessee’s state sales tax rate is 7 percent, one of the highest in the country. Davidson County adds 2.25 percent on top, bringing the combined rate in Nashville to 9.25 percent on most purchases.6Tennessee Department of Revenue. Due Dates and Tax Rates Groceries get a partial break: the state rate on food and food ingredients is 4 percent rather than 7 percent, though the 2.25 percent local portion still applies.
That high sales tax is the tradeoff for having no income tax. For high earners who save and invest a large share of what they make, Nashville’s overall tax burden tends to come out lower than it would in a state with an income tax. For lower-income households that spend most of what they earn on taxable goods, the picture is less favorable.
If You Work Remotely for an Out-of-State Employer
A common Nashville situation: you live in Tennessee but work for a company based somewhere with an income tax. In most cases, you don’t owe that state’s tax. Income is generally sourced to the state where the work is physically performed, and Tennessee does not apply a “convenience of the employer” rule that would hook you into another state’s tax system based on where your employer sits.7National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements
The practical issue is payroll. Some out-of-state employers don’t update their systems when an employee relocates to Tennessee and keep withholding state income tax for the company’s home state. If that happens, tell your payroll department right away. You shouldn’t have taxes withheld for a state where you don’t live and aren’t working. Recovering money already withheld means filing a nonresident return in that state. A handful of states do apply some version of the convenience rule — New York, Delaware, Connecticut, Nebraska, Oregon, and Pennsylvania — so if your employer is headquartered in one of those, the analysis gets more complicated and is worth running past a tax professional.
Business Taxes Are a Separate Story
Tennessee doesn’t tax individual income, but it does tax businesses through several channels. If you own a Nashville business or are thinking about forming one, these are the main obligations.
Franchise and Excise Tax
Most entities doing business in Tennessee owe both an excise tax of 6.5 percent on Tennessee taxable income and a franchise tax of 0.25 percent on Tennessee net worth.8Tennessee Department of Revenue. Due Dates and Tax Rates For tax years ending on or after January 1, 2024, the franchise tax applies solely to net worth, after the state repealed the alternative property measure. Sole proprietorships and certain general partnerships are typically exempt. LLCs, corporations, and S-corps are not.
Business Tax
Businesses grossing $100,000 or more per year in Tennessee must register for and remit the state business tax, which is based on gross receipts rather than net income.9Tennessee Department of Revenue. Business Tax The rate varies by classification, and the tax applies at both the state and local level, so a Nashville business may owe separate amounts to the state and to Metro.
Professional Privilege Tax
Tennessee charges a $400 annual tax on individuals licensed in a short list of professions: attorneys, securities agents, broker-dealers, investment advisers, and lobbyists.10Tennessee Department of Revenue. Professional Privilege Tax It’s due each June 1. If you hold licenses in more than one of those categories, you pay once.
Federal Tax Still Applies
Nothing about living in Nashville changes your federal tax bill. The 16th Amendment gives Congress the power to tax income from all sources,11Congress.gov. U.S. Constitution – Sixteenth Amendment and you file Form 1040 like everyone else. For 2026, federal marginal rates range from 10 percent to 37 percent, with the top rate kicking in at $640,600 for single filers and $768,700 for married couples filing jointly.12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 These brackets, originally set by the Tax Cuts and Jobs Act in 2017, have been made permanent.
Employers still withhold federal income tax and FICA — Social Security at 6.2 percent and Medicare at 1.45 percent — from every paycheck.13Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Self-employed Nashville residents owe the full 15.3 percent self-employment tax, since there’s no employer splitting FICA with them.
Missing a federal deadline is where real pain starts. Filing late triggers a penalty of 5 percent of unpaid taxes for each month you’re late, up to 25 percent.14Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax Tax evasion is a felony carrying up to five years in prison and fines up to $100,000 for individuals.15Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax The absence of a state income tax sometimes gives people the sense their overall tax picture is lighter than it actually is. Federally, you’re treated identically whether you live in Nashville or New York City.