Nashville is not completely tax free, but Tennessee’s lack of a state income tax gets it closer than almost any other major U.S. city. You keep your full paycheck with no state withholding, and your investment and retirement income are untouched at the state level. What Tennessee does instead is tax what you spend and what you own: a 9.75% combined sales tax in Davidson County, local property taxes on your home, and several targeted levies on things like hotel stays and drinks at a bar.
No State Income Tax on Wages, Investments, or Retirement
Tennessee does not tax earned income, and that protection is unusually durable. A 2014 constitutional amendment permanently banned the state legislature from imposing any tax on wages or salaries, so it cannot be undone by ordinary legislation.1Tennessee General Assembly. Senate Joint Resolution 1
Investment income is also exempt. Tennessee once taxed interest and dividends through the Hall Income Tax, but the state phased that out and fully repealed it on January 1, 2021.2Tennessee Department of Revenue. Hall Income Tax Stocks, bonds, savings interest, and dividends generate no state tax liability for Nashville residents.
Retirement income works the same way. Because there is no state income tax at all, Social Security benefits, pensions, and withdrawals from 401(k) and IRA accounts are untaxed at the state level. For retirees comparing Nashville to cities in states that tax any of those streams, the difference can be significant.
Sales Tax: 9.75% in Davidson County
The flip side of no income tax is a sales tax that ranks among the highest in the country. Tennessee’s state rate is 7%.3Tennessee Department of Revenue. Sales and Use Tax Davidson County voters approved a 0.5% transit surcharge in November 2024 that pushed the local option rate to 2.75% effective February 1, 2025.4Tennessee Department of Revenue. Important Notice: Change of Local Tax Rate: Davidson County The combined rate on most purchases is now 9.75%.
That rate applies to clothing, electronics, furniture, prepared meals, and most tangible goods. Groceries and unprepared food get a partial break: the state portion drops to 4%, but the 2.75% local rate still applies, so the total on groceries is 6.75%.5Tennessee Department of Revenue. Due Dates and Tax Rates Visitors and tourists pay the same rates residents do, which helps spread the cost of public services beyond the local tax base.
Property Taxes
Tennessee has no state property tax, but Nashville’s local property taxes are real. The Metropolitan Government of Nashville-Davidson County divides the county into two taxing zones. The Urban Services District, covering most of the city core, charges $2.814 per $100 of assessed value. The General Services District, covering the broader county, charges $2.782 per $100.6Nashville.gov. Calculate Property Taxes The Urban Services rate is slightly higher because it funds extras like curbside trash pickup and enhanced street lighting.
Assessed value is not market value. Tennessee’s constitution sets the residential assessment ratio at 25% of appraised value.7Tennessee Comptroller of the Treasury. How to Calculate Your Tax Bill So a home appraised at $400,000 in the Urban Services District is assessed at $100,000, producing an annual bill of roughly $2,814. Note that any residential property with two or more rental units is classified as commercial and assessed at 40% instead of 25%, which catches some small landlords off guard.
Property Tax Freeze for Seniors
Homeowners who are 65 or older by the end of the tax year, and whose household income falls below an annually set threshold, can lock their property tax bill at its current amount. The freeze shields qualifying seniors from future increases driven by reappraisals or rate changes.8Tennessee Comptroller of the Treasury. Property Tax Freeze The income limit adjusts each year with the Social Security cost-of-living adjustment. For anyone on a fixed income, applying before the next reappraisal cycle is worth doing early.
Consumption Taxes New Residents Overlook
Beyond general sales tax, Nashville layers on several targeted taxes that hit specific categories harder than others.
Alcoholic beverages served at bars and restaurants carry a 15% liquor-by-the-drink tax on top of the regular sales tax.9Tennessee Department of Revenue. Liquor-by-the-Drink Tax A night out downtown adds up quickly as a result. Hotel stays face a local occupancy tax of 7% plus a $2.50 nightly fee, layered on top of standard sales tax.10Nashville.gov. Increase of Hotel Occupancy Tax: Metropolitan Nashville-Davidson County Gasoline is taxed at $0.26 per gallon and diesel at $0.27, plus small per-gallon environmental fees.11Tennessee Department of Revenue. Due Dates and Tax Rates
Davidson County also charges an annual $55 wheel tax on passenger vehicles, added to your state registration fee. It is a small line item, but one new residents often miss when calculating their full cost of living.
The overall pattern is consistent: Tennessee funds itself by taxing consumption rather than earnings. Residents who spend modestly benefit the most. Higher earners who keep spending in check can come out well ahead of what they would pay in a state with a 5% or 6% income tax, while residents with lower incomes spend a larger share of their earnings on taxable goods, which makes the overall structure more regressive than it looks at first.
No State Estate or Inheritance Tax
Tennessee repealed its state inheritance tax effective January 1, 2016, and imposes no state-level estate or gift tax.12Tennessee Department of Revenue. Inheritance Tax Nashville residents face only the federal estate tax, which for 2026 applies to estates exceeding $15 million per individual after a basic exclusion increase in federal legislation signed in July 2025. The federal annual gift tax exclusion for 2026 is $19,000 per recipient.13Internal Revenue Service. What’s New – Estate and Gift Tax For most Nashville residents, state-level estate planning is a non-issue, which is a real advantage over the states that still maintain their own estate or inheritance taxes.
Businesses Are Not Tax Free
Nashville’s lack of a personal income tax does not extend to companies operating in the city. The Tennessee Business Tax, applied to most companies selling goods or services in the state, consists of a state portion and a city portion, both based on gross receipts, and businesses grossing $100,000 or more per year generally need to register and file both separately.14Tennessee Department of Revenue. Business Tax Corporations and most LLCs also owe Tennessee’s franchise and excise taxes. A short list of licensed professionals, currently attorneys, securities agents, broker-dealers, investment advisers, and lobbyists, owe an annual $400 professional privilege tax to the state.15Tennessee Department of Revenue. Professional Privilege Tax If you are moving to Nashville with a business, budget for these before you assume the no-income-tax reputation covers your company too.