If you’re looking at a Tennessee receipt and seeing Tax 1 and Tax 2 listed as separate lines, Tax 1 is the state sales tax (7% on most goods, 4% on groceries) and Tax 2 is the local sales tax your county or city adds on top, up to 2.75%. Together they can reach a combined rate of 9.75%, among the highest in the country.
What Tax 1 Covers
Tax 1 is Tennessee’s statewide sales tax. The rate is 7% on most tangible goods and is the same in all 95 counties.1Tennessee Department of Revenue. Sales and Use Tax The money goes to the Tennessee Department of Revenue and funds state-level spending.
Groceries are the main exception. Food and food ingredients are taxed by the state at a reduced rate of 4%, roughly half the standard rate. That lower rate covers the staples you’d find in a grocery aisle: canned goods, produce, frozen meals, dairy. It does not cover prepared food like a deli sandwich or restaurant meal, and it does not cover candy, dietary supplements, or alcohol. Those stay at 7%.2Tennessee Department of Revenue. SUT-53 – Food and Food Ingredients – Definition and Tax Rate
This is why a grocery receipt can show a different Tax 1 percentage than a receipt from a clothing store. The register sorts qualifying food at 4% and taxes everything else at 7%.
What Tax 2 Covers
Tax 2 is the local sales tax your county or city adds on top of the state portion. Tennessee law lets any county or incorporated city impose this additional tax, but the rate cannot exceed 2.75% and must be set in quarter-point increments.3Justia Law. Tennessee Code 67-6-702 Most jurisdictions charge the maximum, though some charge less.
The rate is tied to where the sale physically happens, not where you live. Buy a TV at a store in a county charging 2.75% and your combined rate is 9.75%. Drive to a neighboring county at 2.25% and the same TV is taxed at 9.25%. Rates can also change over time by referendum. Davidson County (Nashville) voters approved a 0.5% transit surcharge in November 2024, pushing the local rate to the full 2.75% starting February 1, 2025.4Tennessee Department of Revenue. Sales and Use Tax Notice 24-11 – Change of Local Tax Rate Davidson County Revenue from Tax 2 stays local and funds things like schools, police, and fire services.
Why the Local Rate Looks Low on Expensive Items
Tennessee caps how much local tax you pay on any single pricey item, and this is where a receipt can look confusing. The local tax (Tax 2) applies only to the first $1,600 of a single item’s price.5Tennessee Department of Revenue. Single Article and Special Tax Rates Spend more on one item and the local tax stops accruing on the excess. The 7% state tax, however, still applies to the full price.
There’s a wrinkle that trips people up. The state imposes its own additional 2.75% tax on the portion of the price between $1,600 and $3,200.6Tennessee Department of Revenue. SUT-6 – Single Article Tax – Overview and Application Above $3,200, only the base 7% state tax applies. That additional state tax partially replaces the local tax you would otherwise owe, so the savings from the cap are smaller than you’d expect.
Here is how it works on a $5,000 ring purchased in a county with a 2.75% local rate:
- State tax at 7% on the full $5,000: $350
- Local tax at 2.75% on the first $1,600 only: $44
- Additional state single article tax at 2.75% on the portion from $1,600 to $3,200: $44
- Total tax: $438, an effective rate of 8.76%
Without the single article cap, a straight 9.75% on $5,000 would be $487.50. The cap saves about $50 here, and the savings grow on pricier items — a $10,000 purchase saves roughly $132 compared to a flat combined rate.
What Doesn’t Get a Tax Line at All
Some items on a Tennessee shopping trip carry no sales tax at all, so you won’t see a Tax 1 or Tax 2 line for them. Gasoline, textbooks, school meals, prescription drugs, and certain healthcare products are exempt from both the state and local sales tax.7Tennessee Department of Revenue. Other Exemptions If one of these shows up on your receipt with no tax attached, that’s why.
Checking Your Receipt
Most Tennessee retailers program their registers to separate state and local tax, but the labels vary. “Tax 1” and “Tax 2” is the most common format. Some receipts say “State Tax” and “Local Tax,” and others collapse both into a single combined line. A single line doesn’t mean the retailer skipped one of the taxes; the two portions have just been merged for display.
To check the math, add the state rate (7% for most goods, 4% for groceries) to your local rate, which you can look up by jurisdiction on the Tennessee Department of Revenue’s website. Multiply the combined rate by the pre-tax price. If the number is off, look for an item that qualified for the grocery rate, an exempt item, or the single article cap kicking in on something expensive. Small discrepancies are usually rounding or a rate-lookup error at the register, and are worth raising with the store if the gap is more than a few cents.