What Are the State Taxes in Tennessee?
Get a clear overview of Tennessee's tax obligations. Learn how the state's tax system functions for residents and businesses in the absence of an income tax.
Tennessee is one of a handful of states that does not levy a general state income tax on an individual’s wages or salaries. This approach means the state must rely on other sources of revenue to fund public services and infrastructure. Consequently, residents and businesses in Tennessee are subject to a mix of taxes centered around consumption and business activities.
Taxes Affecting Individuals
The primary tax individuals encounter in Tennessee is the sales and use tax. The statewide sales tax rate is 7% on the sale of most tangible personal property and certain services, one of the highest base rates in the nation. Many goods are subject to this tax, though some essentials may be taxed at a lower rate or exempted entirely.
Beyond the state-level tax, Tennessee law permits local jurisdictions, including cities and counties, to levy their own additional sales taxes. These local option sales taxes can range from 2.00% to 2.75%, which means the total combined sales tax rate can be as high as 9.75% in some areas. Individuals can find the specific combined rate for any locality by checking the Department of Revenue’s website.
Another tax impacting individuals is the property tax, which is not administered at the state level but is instead assessed and collected by local county and city governments. These taxes are based on the assessed value of real property, such as a home or land. The funds generated are used to support local services like schools, law enforcement, and public works. Homeowners aged 65 and older who meet certain income requirements may be eligible for a property tax freeze program in participating localities.
Taxes Affecting Businesses
A primary tax for businesses operating in Tennessee is the franchise and excise tax. This is a combined tax levied on most business entities, including corporations, limited liability companies (LLCs), and partnerships. The excise tax component is calculated at a rate of 6.5% on the business’s net earnings or income derived from its Tennessee operations.
The franchise tax component is based on a business’s net worth. The tax is calculated at a rate of 0.25% of the net worth, with a minimum tax of $100. This structure ensures that a business pays a minimum amount of tax even if it does not report a profit for a given year.
Separate from the franchise and excise tax is the state’s Business Tax, which is based on a company’s gross receipts. Unlike the franchise and excise tax, which is filed with the state’s Department of Revenue, the Business Tax is filed with and paid to local county and municipal clerks. The rates and classifications for this tax vary depending on the type of business and its location.
How to File and Pay Tennessee Taxes
The primary method for managing state-level business taxes is through the Tennessee Taxpayer Access Point, commonly known as TNTAP. This online portal is the required platform for businesses to register, file returns, and make payments for the sales and use tax as well as the franchise and excise tax.
To use the system, a business owner must first create a TNTAP account and link it to their specific tax accounts. Once logged in, users can navigate to the specific tax they need to file. The portal provides electronic versions of the necessary forms, which are completed by entering relevant financial data like gross sales or net income.
After completing a return within the TNTAP portal, the system automatically calculates the tax due based on the figures provided. Taxpayers can then submit the return electronically and schedule a payment directly from a bank account. This integrated process simplifies compliance by consolidating the filing and payment steps into a single online session.