What Is Tax 1 and Tax 2 on My Receipt in Tennessee?
Understand the components of sales tax on your Tennessee receipts, clarifying their state and local origins.
Sales tax is a consumption tax applied to the purchase of goods and services, collected by sellers at the point of sale. This revenue is then remitted to government authorities, funding public services and infrastructure at both state and local levels. Understanding how sales tax is applied helps consumers anticipate the final cost of their purchases.
The Two Components of Sales Tax in Tennessee
When reviewing a receipt in Tennessee, a consumer might observe two distinct sales tax entries, often labeled as “Tax 1” and “Tax 2.” “Tax 1” refers to the statewide sales tax rate, applied uniformly across Tennessee. “Tax 2” designates the local option sales tax, a variable rate determined by specific counties and cities. These are not separate taxes, but integral parts of a single sales tax system designed to collect revenue for both state and local government operations.
Tennessee State Sales Tax
Tennessee imposes a statewide sales tax rate of 7% on most taxable purchases. This rate is applied consistently throughout all counties and cities. For instance, this 7% rate applies to general merchandise such as clothing, electronics, or prepared food. This uniform application ensures a baseline revenue stream for the state government, supporting public services. Tennessee does not levy a state income tax on wages, increasing its reliance on sales tax.
Tennessee Local Sales Tax
Local jurisdictions in Tennessee levy their own sales taxes, represented by “Tax 2” on a receipt. These local rates vary significantly by county and city, typically ranging from 1.5% to 2.75% of the purchase price. This local tax is added directly on top of the state’s 7% rate, meaning the total sales tax paid depends on the specific location. Combined state and local rates can reach as high as 9.75% or even 10% in some areas. Local sales tax rates must also be a multiple of 0.25%.
What’s Subject to Sales Tax
Sales tax in Tennessee generally applies to tangible personal property, including items such as clothing, electronics, and most prepared foods. Many services are not subject to sales tax, but exceptions include charges for lodging, parking, certain repairs of tangible personal property, and telecommunication services. Digital goods, such as downloaded content or streaming services, are also taxable.
Some goods receive different tax treatment or are exempt. Prescription drugs and qualifying medical equipment are exempt from sales tax. Groceries, defined as unprepared food items, are taxed at a reduced state sales tax rate of 4%, rather than the full 7% general rate. Items purchased for resale by a business are exempt from sales tax, as the tax is applied at the final consumer sale.