No, Tennessee does not have a state income tax. Wages, salaries, self-employment earnings, retirement distributions, interest, and dividends are all free of state tax, and residents do not file a Tennessee personal income tax return. The state funds itself primarily through sales tax, property tax, and taxes on businesses.
Why Tennessee’s No-Income-Tax Status Is Permanent
Tennessee’s prohibition on taxing personal income is written into the state constitution. Article II, Section 28 bars the legislature from levying any state or local tax on payroll or earned personal income.{1FindLaw. Tennessee Constitution Art. II, Sect. 28} An ordinary bill cannot undo that; it would take a constitutional amendment.
The one narrow tax Tennessee used to impose on individuals, the Hall Income Tax, covered interest from bonds and notes and dividends from stock. It never reached wages, business income, or capital gains.{2TN.gov. Hall Income Tax} The legislature phased it out across several years, dropping the rate from 4% in 2017 to 3% in 2018, 2% in 2019, 1% in 2020, and 0% for any tax year beginning on or after January 1, 2021.{3Justia Law. Tennessee Code 67-2-102 – Imposition, Rate and Collection of Tax} No individual income return has been required since.
What You Pay Instead
The money the state does not collect through income tax, it collects largely through sales tax. The base state sales tax rate is 7% on most tangible goods and taxable services.{4TN.gov. Sales and Use Tax} Every county and city layers its own local sales tax on top. Local rates can reach 2.75% and must be set in 0.25% increments.{5TN.gov. Local Sales Tax} In many places the combined rate at the register is 9.75%.
Groceries Are Taxed at a Lower Rate
Food and food ingredients are taxed by the state at 4% rather than 7%.{6TN.gov. Due Dates and Tax Rates} Local sales tax still applies on top, so the total on groceries varies by county but runs below the rate on other goods.
Local Tax Is Capped on Big-Ticket Items
On expensive single items, Tennessee limits how much local tax piles on. Local sales tax applies only to the first $1,600 of any single item’s price in most jurisdictions.{7TN.gov. Single Article Special Tax Rates} An additional state single-article tax of 2.75% applies to the portion of the price between $1,600 and $3,200, and nothing above $3,200 is subject to that additional tax. This matters most for vehicles, boats, and furniture.
Online and Out-of-State Purchases
If you buy a taxable item from a seller that does not collect Tennessee sales tax, you owe use tax at the same combined rate.{4TN.gov. Sales and Use Tax} Use tax applies to individuals, not just businesses.
Property Tax
Tennessee counties and municipalities levy property tax, and rates vary with local budgets. The state’s average effective property tax rate for owner-occupied housing is roughly 0.49%, which places Tennessee in the lower third of states. For most homeowners, property tax is the largest recurring state or local tax bill, even though the rate itself is modest.
No State Estate or Inheritance Tax
Tennessee’s estate tax was fully repealed in 2016, and there is no state inheritance tax. Federal estate tax still applies to large estates; the federal exemption for 2026 is $15,000,000 per individual.{8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026}
If You’re Moving to Tennessee From an Income-Tax State
Moving to Tennessee mid-year does not erase the tax owed to the state you left. Most income-tax states require a part-year resident return covering the months you lived there, and wages earned before you moved will still be taxed by that state. Income earned after you become a Tennessee resident is not taxed by any state.
Where it gets complicated is proving when you actually moved. Changing your domicile is an intent-based determination, and tax agencies look at what you did, not what you said. To establish Tennessee as your home and reduce the risk of a residency audit from your former state, get a Tennessee driver’s license, register your vehicles here, update your voter registration, move your primary banking, and make Tennessee the state where you actually live day to day. Keeping a home, active professional licenses, or voter registration in your former state gives that state grounds to continue treating you as a resident.
Federal Income Tax Still Applies
Living in Tennessee does not change your federal tax obligation. Wages, self-employment income, investment gains, and retirement distributions are all subject to federal income tax at the rates set by the Internal Revenue Code, and you file a federal return every year like residents of every other state. The benefit of Tennessee is simply that no state tax layers on top.
Taxes That Reach Business Owners and a Few Professionals
If you only draw wages, the sections above cover you. If you own a business or hold certain licenses, Tennessee imposes a few taxes at the entity or professional level that have nothing to do with personal income tax but can surprise newcomers.
Franchise and Excise Taxes
Corporations, LLCs, and other entities doing business in Tennessee pay two state-level taxes together on Form FAE170.{9Tennessee Department of Revenue. 2024 Franchise and Excise Tax Return} The excise tax is 6.5% on net earnings from Tennessee operations.{10Justia Law. Tennessee Code 67-4-2007 – Tax Imposed} The franchise tax is $0.25 per $100 of the entity’s net worth apportioned to Tennessee, with a $100 annual minimum.{11TN.gov. Franchise and Excise Tax} For tax years ending on or after January 1, 2024, the franchise tax is calculated on net worth alone; the older property-based measure has been eliminated.{12TN.gov. Franchise and Excise Tax Manual – June 2025} Nonprofits are exempt from both.
Business Tax on Gross Receipts
Most businesses with a physical presence in Tennessee also owe a separate gross receipts tax, sometimes called a privilege tax. Rates run from 0.02% to 0.1875% of gross receipts depending on how the business is classified, with a minimum of $22 per year per location.
Professional Privilege Tax
Three groups of licensed professionals pay a flat $400 annual tax, due June 1 each year.{13TN.gov. Professional Privilege Tax} As of June 1, 2023, only the following professions are subject to the tax:{14Justia Law. Tennessee Code 67-4-1702 – Occupations Subject to Tax}
- Lobbyists registered under state lobbying requirements
- Securities agents, broker-dealers, and investment advisers registered or licensed under Tennessee’s securities laws
- Attorneys licensed by the Tennessee Supreme Court
Physicians and several other medical professionals were removed from the tax effective June 1, 2023.{15TN.gov. Notice 22-13 – Professions Subject to Professional Privilege Tax} Holding multiple listed licenses still means paying only one $400 fee per year.