Tennessee taxes lean heavily on consumption and property rather than income. The state does not tax wages, salaries, or other earned income, and the Hall Income Tax on certain investment income was fully repealed on January 1, 2021.1Tennessee Department of Revenue. Hall Income Tax In its place, the state funds itself through a 7% sales tax (with local add-ons), locally set property taxes, and a group of business-level taxes. Some of those non-income taxes rank among the highest in the country, so the tradeoff is real.
No State Income Tax
There is no Tennessee return to file on your paycheck, your retirement income, your interest, or your dividends. The Hall tax, which once reached certain interest and dividend income, is gone as of tax year 2021.1Tennessee Department of Revenue. Hall Income Tax Federal income tax still applies as usual.
Sales and Use Tax
The state sales tax rate is 7% under Tenn. Code Ann. ยง 67-6-202.2FindLaw. Tennessee Code Title 67 Taxes and Licenses 67-6-202 Counties and cities can add a local option tax of up to 2.75%, but that local portion applies only to the first $1,600 of any single item’s price.3UT County Technical Assistance Service. Local Option Sales Tax Combined, the average rate across Tennessee runs about 9.61%, one of the highest in the nation.
A separate “single article” state tax of 2.75% applies to the slice of a single item’s price between $1,600 and $3,200. Nothing above $3,200 is subject to that additional state tax.4Tennessee Department of Revenue. Single Article and Special Tax Rates On a $5,000 piece of furniture, you pay the 7% state tax on the full price, the local tax on the first $1,600, and the extra 2.75% only on the $1,600 to $3,200 band.
Food, Medicine, and Other Reduced Rates
Food and food ingredients are taxed at a reduced state rate of 4%, with the local rate still applied on top.5Tennessee Department of Revenue. SUT-53 – Food and Food Ingredients – Definition and Tax Rate Prescription drugs dispensed by a licensed provider are fully exempt, along with medical oxygen and insulin.6Justia Law. Tennessee Code 67-6-320 – Prescription Drugs
Annual Sales Tax Holiday
Each summer, usually a weekend in late July, Tennessee holds a back-to-school sales tax holiday. In 2025 it ran July 25 through July 27: clothing and school supplies priced at $100 or less were tax-free, as were computers priced at $1,500 or less.7Tennessee Department of Revenue. Annual Sales Tax Holiday Happening July 25 – July 27 Both state and local taxes are waived during the holiday. Dates shift slightly each year, so check the Department of Revenue site before the weekend.
Use Tax on Out-of-State Purchases
Use tax is the mirror of sales tax. If you buy something from an out-of-state seller who does not collect Tennessee tax, you owe the same rate directly to the state. Most large online retailers now collect it automatically; smaller sellers sometimes do not, and the obligation then falls on you.
Property Tax
Tennessee has no state-level property tax. Counties and cities set and collect property taxes locally.8Justia Law. Tennessee Code 67-5-102 – Taxation by County Your assessor sets an appraised value, state law fixes the assessment ratio, and the local legislative body sets a rate per $100 of assessed value.
Residential and farm property is assessed at 25% of appraised value; commercial and industrial property is assessed at 40%.9Justia Law. Tennessee Code 67-5-801 – Classification and Rate of Assessment A home appraised at $300,000 has an assessed value of $75,000. Divide that by 100 and multiply by the local rate, and you have the bill.10Tennessee Comptroller of the Treasury. How to Calculate Your Tax Bill Rates vary widely, so two identical homes in different counties can produce very different bills.
Payment Deadline and Late Interest
County property tax bills are typically due by the end of February. If you miss it, interest of 1.5% per month starts accruing on March 1 and again on the first of every month after.11Justia Law. Tennessee Code 67-5-2010 – Interest – Delinquent Taxes On a large bill, that climbs quickly.
Relief for Seniors, Disabled Homeowners, and Veterans
Tennessee reimburses a portion of property taxes for homeowners who are 65 or older or totally and permanently disabled, subject to an annual income ceiling tied to the Social Security cost-of-living adjustment. For the 2026 tax year, relief applies to the first $32,700 of the home’s full market value. Disabled veterans and their surviving spouses qualify for relief on the first $175,000 of market value, with no income limit.12MTAS. Property Tax Relief for the Elderly and Disabled
A separate property tax freeze is available in counties and cities that have adopted it. Qualifying homeowners 65 or older who meet the local income limit can have their bill frozen at a base amount, which keeps future rate changes and reappraisals from pushing it up. Because it is a local-option program, check with your county trustee to see whether your jurisdiction participates.13Tennessee Comptroller of the Treasury. Property Tax Freeze
Franchise and Excise Taxes
Corporations, LLCs, and similar entities owe two state taxes together: the franchise tax and the excise tax.
The excise tax is 6.5% of net earnings from Tennessee operations.14Justia Law. Tennessee Code 67-4-2007 – Tax Imposed Businesses operating in multiple states apportion their income so Tennessee only reaches the share tied to activity here.
The franchise tax is 0.25% of apportioned net worth, with a $100 minimum.15Justia Law. Tennessee Code 67-4-2106 – Rate of Tax You owe it as long as the entity is registered with the Secretary of State, even if it is inactive.16Tennessee Department of Revenue. Franchise and Excise Tax The tax used to be calculated on the greater of net worth or Tennessee tangible property, but legislation effective for tax years ending on or after January 1, 2024, dropped the property measure. The tax is now based solely on net worth.17Tennessee Department of Revenue. Notice 24-05 – Franchise Tax Property Measure Repeal
Businesses whose combined franchise and excise tax is at least $5,000 in both the current and prior year have to make quarterly estimated payments. They are due on the 15th day of the 4th, 6th, and 9th months of the tax year, and the 15th day of the 1st month of the next tax year.18Tennessee Department of Revenue. Due Dates and Tax Rates
Business Tax on Gross Receipts
Most retailers, wholesalers, and service providers also owe a separate Business Tax based on gross receipts. It is a privilege tax for doing business in the state. Businesses are sorted into classifications 1A through 5, each with its own rate.19Tennessee Department of Revenue. Classifications Classification 1A covers food and beer for home consumption, 1B covers building materials and hardware, Classification 2 is a catch-all for general retail of tangible personal property, and Classification 3 covers service businesses. Identifying your classification is the first step when you register.
Professional Privilege Tax (Ending)
Tennessee has long imposed a $400 annual professional privilege tax on attorneys, securities agents, broker-dealers, investment advisers, and lobbyists, due each June 1, with a single $400 covering anyone licensed in more than one of those professions.20Tennessee Department of Revenue. Professional Privilege Tax The General Assembly has eliminated the tax effective June 1, 2026, so nothing is owed for the year ending May 31, 2027, or any year after.21Tennessee General Assembly. HB 189 – SB 397 Fiscal Note If you paid for the year ending May 31, 2026, that was your last payment.
No Estate, Inheritance, or Gift Tax
Tennessee imposes no death-related taxes. The state inheritance tax was phased out and fully repealed for deaths on or after January 1, 2016.22Tennessee Department of Revenue. IT-1 – Inheritance Tax Repealed There is no state estate tax and no state gift tax. Federal estate and gift tax still applies above the federal exemption, but Tennessee adds nothing on top.
Filing Through TNTAP and Late Penalties
Almost everything goes through the Tennessee Taxpayer Access Point, known as TNTAP.23Tennessee Department of Revenue. Tennessee Taxpayer Access Point You can register accounts, file returns, pay by ACH debit or credit card, and read correspondence from the Department of Revenue. Each submission generates a confirmation number that serves as proof of filing. Businesses will need an EIN or SSN, a NAICS code, and detailed sales and exemption records; franchise and excise filers also need net worth and income figures for the FAE170.24Tennessee Department of Revenue. Franchise and Excise Tax Forms
Late payments carry a 5% penalty for each month or partial month of delinquency, up to 25% of the unpaid amount, with interest accruing on top.25Tennessee Department of Revenue. GEN-16 – Penalties and Interest Electronic filing is generally required for business accounts, and the Department of Revenue posts downloadable forms you can review before keying anything into TNTAP.