Tennessee Sales tax guide
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This is your guide that will help you navigate Tennessee sales and use tax. Here you will find out what is the current sales tax in Tennessee and how to properly account for sales tax in Tennessee (TN). If you have additional questions after reading the information below, please contact our team for an individual consultation.
Tennessee state sales tax in a nutshell
A sales tax is a consumption tax charged on goods or services and paid to the local tax authority.Sales tax Tennessee is supervised by the Tennessee Department of Revenue (TNDOR). Just like the sales tax in other states and the VAT in European countries Tennessee sales tax must be collected from the buyer at the point of sale and generally falls on the final consumer of the product or service.
Nexus, a strong tie with the state, is necessary to become a sales tax payer in the state. As soon as the nexus is established, the company must register through the Tennessee Taxpayer Access point and begin collecting the sales tax. The total sales tax rate Tennessee -based companies must include in their receipts vary based on how much of the additional city and county tax must be added due to the location of the sale. As in other states, clients of Tennessee sales tax (TN) -exempt businesses that sell otherwise taxable items must account the use tax in their tax returns.
When to start collecting sales tax for Tennessee?
The official criteria for starting to charge and collect the required sales tax rate in Tennessee, are these:
- Your business has established a nexus in Tennessee;
- Your business sells taxable services and/or goods to Tennessee residents;
- People or companies buying your products and/or services are required to pay sales tax.
How to know if you have sales tax nexus in Tennessee?
There is a number of sales tax nexus in Tennessee:
- Physical nexus. When a company is located in the state, it establishes a tie and has to begin accounting for sales and use tax Tennessee. This rule is applied when a company averages more than USD 400 (per month) in sales of tangible personal property and/or more than USD 100 a month selling taxable services.
Types of remote selling nexus:
- Economic nexus. Tennessee used to have a fairly high sales volume threshold for remote sellers – the total worth of sales had to add up to USD 500 000 in the previous 12 months. In 2020, Tennessee Department of Revenue issued a notice about the new filing threshold for out of state dealers. Currently, a company that has sold over USD 100 000 worth of goods or services to customers based in Tennessee in the past 12 months has to begin charging an applicable Tennessee sales tax percentage.
- Click-through nexus. If a person or a company in Tennessee refers clients to your businesses using a link or a website, it can also trigger a nexus. However, it only happens when the volume of such referrals exceed USD 10 000 in the last 12 months.
- Inventory in Tennessee. Storing taxable property in the facilities in Tennessee, including Amazon-owned storage, you might trigger a sales tax nexus.
Determining if you sell taxable items
One step before learning what is the sales tax rate in Tennessee that you should charge, it is best to check if the items or services you sell are subject to the sales tax. Like in majority of other states, physical goods should include Tennessee sales tax rates in their final prices. Among sales tax exclusions on goods are exemption for prescription medicine and gasoline.
Services are considered to be non-taxable. However, a detailed list of exemptions to this rule, stored at the TNDOR website, can help you find out if you should include the Tennessee sales tax rate in your service price. Digital services are generally taxable.
Registering for Tennessee sales tax
Businesses can register for Tennessee sales tax online by visiting the Tennessee taxpayer access point. The registration is free of charge and only requires to fill in the business and personal details. Afterwards, a taxpayer certificate is issued and the business becomes eligible to collect the sales tax. By visiting the TNDOR website, companies can also find out how much is the sales tax in Tennessee they should include, what is their filing period, and such.
What’s the sales tax in Tennessee?
To determine how much sales tax in Tennessee you should collect, you must be aware of the exact locations of your sales. If you have a physical selling point, it is simple, but if your business is digital, you must know where your purchasers are located. This is because the total Tennessee state sales tax rate consists of the general and local (city and county) rates.
The general sales tax rate in Tennessee is 7 %. The reduced sales tax rates Tennessee -based food items sellers charge is 4 %. Local Tennessee tax sales rates can go up to 2.75 %. However, the combined local rate cannot exceed the same 2.75 % threshold.
Filing the sales tax with the TNDOR
TNDOR typically assigns three filing frequencies: monthly, quarterly, or annual. Each filing period’s deadline is on the 20th , 21st, or the 22nd (adjusted based on holiday dates) of the month, following the end of the period.
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