How Much Does TN Take Out for Taxes?

Tennessee has a distinctive approach to state taxation, setting it apart from many other states across the United States. The state structures its revenue collection in a way that minimizes certain tax burdens while relying more heavily on others. Understanding this framework is important for residents and those considering moving to the state.

Income Taxation in Tennessee

One of the most notable aspects of Tennessee’s tax system is the absence of a broad personal income tax. Individuals do not pay state income tax on their employment earnings.

Historically, Tennessee did impose a tax on interest and dividend income, known as the Hall Income Tax. This tax was phased out and repealed as of January 1, 2021. Consequently, Tennessee now has no state income tax of any kind on individuals.

Sales Tax in Tennessee

While Tennessee does not tax personal income, it relies significantly on sales tax as a primary source of revenue. The statewide sales tax rate is 7%. This rate applies to the sale of most goods and many services.

In addition to the state rate, local jurisdictions impose their own sales taxes. These local rates can vary, ranging from 1.5% to 2.75%. The combination of state and local sales taxes results in a combined rate of 9.55% to 9.56%, which is among the highest in the nation. Certain items, like groceries, are taxed at a lower state rate of 4%, though local sales tax still applies.

Property Tax in Tennessee

Property taxes in Tennessee are primarily levied at the local level. Local governments assess and collect these taxes to fund local services, including schools and public safety. The amount of property tax an owner pays depends on the property’s appraised value, its classification, and the local tax rate.

Property is classified based on its use, and each classification has a specific assessment ratio applied to its appraised value. For instance, residential and farm properties are assessed at 25% of their appraised value. Commercial and industrial properties are assessed at 40% of their value, while public utility properties are assessed at 55%. The assessed value, derived from multiplying the appraised value by the assessment ratio, is then multiplied by the local tax rate to determine the property tax owed.

Other Key State-Level Taxes

Beyond income, sales, and property taxes, individuals in Tennessee may encounter several other state-level taxes and fees. Vehicle registration fees are one such example. The standard state registration fee for a passenger vehicle is $29, though additional county-level fees and wheel taxes can increase the total cost, varying significantly by location.

Fuel taxes also contribute to the state’s revenue. The gasoline tax rate in Tennessee is 27.4 cents per gallon. Additionally, Tennessee levies excise taxes on specific goods, such as cigarettes ($0.62 per 20 cigarettes) and alcoholic beverages.