Tennessee’s sales and use tax is a 7% state tax on most retail sales, with local governments adding up to 2.75% more, for a combined rate that reaches 9.75% in many areas. The use tax is the mirror image: you owe it at the same combined rate when you buy something from an out-of-state seller who doesn’t collect Tennessee tax. Because the state has no tax on wages or salary, this is the main revenue source funding schools, roads, and public safety.
How Much Is the Tax
The statewide base is 7% on most tangible personal property and taxable services.1Justia. Tennessee Code 67-6-202 – Property Sold at Retail Counties and cities each may add a local option tax, but the combined local rate in any single jurisdiction is capped at 2.75%.2Justia. Tennessee Code 67-6-702 – Tax Authorized – Rates – Termination of Services Tax If the county is already at 2.75%, no city within it can stack more on top. Most urban areas sit at or near the maximum, so shoppers typically see a combined rate between 9.25% and 9.75%.
The Single Article Cap on Expensive Items
Local tax doesn’t apply to the full price of a single high-ticket item. Local tax applies only to the first $1,600. Between $1,600.01 and $3,200, there’s no local tax, but the state charges an extra 2.75% surcharge on that slice. Anything above $3,200 is free of both.3Tennessee Department of Revenue. Single Article and Special Tax Rates On a $5,000 piece of equipment, you pay 7% state tax on the full $5,000, local tax only on the first $1,600, and the state surcharge only on the $1,600-to-$3,200 band. The cap matters most for vehicles and heavy equipment.
What Tennessee Taxes
The default rule is simple. If you sell tangible personal property at retail in Tennessee, it’s taxable unless a specific exemption says otherwise. Clothing, furniture, electronics, motor vehicles — all taxable. Digital goods fall under the same umbrella, including downloaded music, movies, e-books, and electronically delivered software. Cloud-based software subscriptions are taxable even though no physical media changes hands.
Services are different. Tennessee taxes a defined list, not services generally. The main taxable categories:
- Short-term lodging of under 90 consecutive days at hotels, motels, and vacation rentals.
- Telecommunications, including mobile phone plans, landlines, voicemail, and caller ID.
- Repair work on tangible personal property or software, whether or not new parts are involved.
- Commercial laundry and dry cleaning, though coin-operated laundromats are excluded.
- Installing tangible personal property that remains tangible after installation, or installing software.
- Parking or storing vehicles in a garage or lot.
- Video programming, including cable and satellite television.
Services not on the statutory list can still be taxable when they’re part of the sale of a taxable good. Delivery charges, labor, and anything necessary to complete a sale get rolled into the taxable price.4Tennessee Department of Revenue. SUT-115 – Services Subject to Sales and Use Tax Standalone personal services like haircuts, legal advice, and accounting are not taxed.
Common Exemptions and Reduced Rates
Groceries
Grocery food is taxed at a reduced state rate of 4% instead of 7%, plus applicable local tax.5Tennessee Department of Revenue. Due Dates and Tax Rates This covers food and food ingredients sold for home consumption. Prepared food, candy, and dietary supplements stay at the full 7% rate.
Prescription Drugs
Any drug dispensed under a prescription for human use is fully exempt, including over-the-counter drugs when purchased with a prescription. Insulin and medical oxygen prescribed for human use are exempt however you obtain them.6Justia. Tennessee Code 67-6-320 – Prescription Drugs Grooming and hygiene products don’t qualify even when bought at a pharmacy.
Resale Purchases
Businesses buying inventory for resale don’t pay sales tax on those purchases, but they have to give their supplier a valid Tennessee resale certificate. Getting one means registering for a sales and use tax account through the Tennessee Taxpayer Access Point (TNTAP) and printing the certificate from the portal.7Tennessee Department of Revenue. Resale Certificate The certificate is only for items you genuinely intend to resell. Using it to buy supplies or personal items tax-free exposes you to back taxes and penalties.
Agriculture and Manufacturing
Qualified farmers and nursery operators can buy equipment, seeds, fertilizer, pesticides, livestock feed, and farm fuel tax-free, but they need an Agricultural Sales and Use Tax Certificate of Exemption from the Department of Revenue before making purchases. Manufacturers can buy industrial machinery tax-free when it’s primarily used to fabricate or process a product for resale that’s consumed off the premises, provided they first obtain an Industrial Machinery Exemption certificate.8Tennessee Department of Revenue. SUT-80 – Industrial Machinery Exemption for Manufacturers Qualified manufacturers may also get reduced rates or full exemption on energy, fuel, and water used in the facility.
Sales Tax Holiday
Tennessee holds a sales tax holiday on the last full weekend of July each year. For 2026 the dates are July 24 through 26. During the holiday, clothing priced at $100 or less, school and art supplies priced at $100 or less, and computers or tablets priced at $1,500 or less are exempt from both state and local tax. Items bought for business use or items that are rented don’t qualify.
Use Tax on Out-of-State Purchases
When you buy something from an out-of-state seller who doesn’t collect Tennessee tax, you owe use tax at the same combined rate you would have paid locally. This happens most often with online orders from smaller retailers, catalog purchases, or things bought while traveling. If the seller collected sales tax for another state, Tennessee credits what you already paid and you owe only the difference.
Individual consumers who aren’t registered for sales tax can report and pay use tax through TNTAP.9Tennessee Department of Revenue. Sales and Use Tax Registered businesses report use tax on the same return they use for sales tax. The Department of Revenue can assess unpaid use tax during an audit, with penalties and interest on top.
Who Has to Register and Collect
Any business making retail sales in Tennessee has to register for a sales and use tax account before collecting a dollar of tax. Registration is free through TNTAP. You’ll need your Federal Employer Identification Number (or Social Security Number for sole proprietors) and basic details about your business structure, address, and responsible parties.
Two things trigger the obligation to register. The first is physical nexus: a store, warehouse, office, employees in the state, or inventory stored at a Tennessee fulfillment center. Any of those means you register and collect regardless of sales volume. The second is economic nexus. Businesses with no physical presence must register and collect if they make $100,000 or more in sales to Tennessee customers during the previous 12 months.10Tennessee Department of Revenue. SUT-4 – Nexus Overview Tennessee uses only the dollar threshold; there’s no transaction count. Crossing the line without registering exposes you to back taxes, interest, and penalties.
If You Sell Through Amazon, Etsy, or eBay
Marketplace facilitators are responsible for collecting and remitting Tennessee tax on the sales they facilitate.11Justia. Tennessee Code 67-6-102 – Chapter Definitions They collect based on the buyer’s shipping address and report marketplace sales separately from their own direct sales.12FindLaw. Tennessee Code 67-6-515 This only covers sales made through the marketplace. If you also sell through your own website or a brick-and-mortar store, you remain responsible for tax on those channels. A seller whose only Tennessee sales flow through a qualifying marketplace generally doesn’t need a separate Tennessee permit.
Filing Returns, Deadlines, and Penalties
All returns go through TNTAP. The return asks you to report gross sales, subtract exempt transactions, and calculate tax at both the state and applicable local rates. Local tax has to be broken out by jurisdiction so revenue reaches the correct counties and cities.
Monthly filers owe returns and payment by the 20th of the month following the reporting period.13Justia. Tennessee Code 67-6-504 – Returns and Payment Quarterly filers file by January 20, April 20, July 20, and October 20. Annual filers file by January 20.5Tennessee Department of Revenue. Due Dates and Tax Rates Monthly is the default. The Department assigns quarterly or annual frequency to lower-volume sellers based on their liability history. Even if you had no taxable sales during a period, you still have to file a zero return as long as your account is active.
Tennessee gives a small discount, called vendor compensation, for filing and paying on time: 2% of the state tax due, capped at $25 per return.14Tennessee Department of Revenue. Instructions: Tennessee Sales and Use Tax Return It applies only to the state portion. Being even a day late forfeits the entire credit for that period.
Late returns and payments draw a penalty of 5% of the unpaid tax for each month or partial month the balance stays outstanding, up to 25%. Interest runs on top of that. The interest rate through June 30, 2026, is 11.50%, and 13.25% applies if you enter an installment agreement.15Tennessee Department of Revenue. GEN-16 – Penalties and Interest A few months of lateness can easily add 30% to 40% on top of the original tax.
If You’re Buying a Business
Buying an existing Tennessee business or its inventory carries a trap worth knowing. Any unpaid sales tax from the prior owner can follow the business to you. The law requires you to hold back enough of the purchase price to cover the seller’s outstanding sales tax, interest, and penalties. If you pay the full price without doing this, you become personally liable for those back taxes.16FindLaw. Tennessee Code 67-6-513
You have two ways to protect yourself. The cleanest is to get a receipt or certificate from the Department of Revenue confirming the seller has paid all taxes due. The alternative is to get a sworn affidavit from the seller stating the exact tax owed, withhold that amount, and send a copy of the affidavit to the Department’s Collection Services division. If the Department doesn’t notify you of a different liability within 15 days of receiving the affidavit, your exposure is capped at the amount stated.16FindLaw. Tennessee Code 67-6-513
If You Should Have Been Collecting But Weren’t
Businesses that should have registered and never did can use the Department’s voluntary disclosure program. It generally waives penalties and limits the lookback period to three years of unfiled returns. Interest can’t be waived and runs at 11.50% annually through June 30, 2026.
Two conditions matter. You must not have already been contacted by the Department about your tax status; once an auditor has reached out, the window is closed. And you can’t already be registered for the tax type in question for the period you want covered. Requests go to voluntary.disclosure@tn.gov. Businesses that collected sales tax from customers but never remitted it face a longer lookback starting from the date collection began and may also face criminal liability, so getting into compliance fast matters.