Sales tax is a common form of taxation that applies to most purchases of goods and some services in many states, including Tennessee.
Sales tax is collected by sellers from buyers at the point of sale, and then remitted to the state and local governments where the sale took place.
Sales tax is an important source of revenue for state and local governments, as well as a way to fund public services and infrastructure.

However, sales tax can also be a complex and confusing topic for both businesses and consumers, as there are many rules, rates, and exemptions that vary by state and locality. How does this apply in Tennessee? By the end of this article, you should have a better understanding of how sales tax works in Tennessee, and how it affects your business or personal finances.

What is the sales tax system in Tennessee?

Tennessee has a statewide sales tax rate of 7%, which has been in place since 1947. Municipal governments in Tennessee are also allowed to collect a local-option sales tax that ranges from 1.5% to 2.75% across the state, with an average local tax of 2.615% (for a total of 9.615% when combined with the state sales tax).

Sales tax applies to most tangible personal property (such as clothing, furniture, electronics, etc.) and some services (such as hotel accommodations, amusement activities, etc.) that are sold or delivered in Tennessee. However, there are some exemptions and reduced rates for certain items and transactions, such as groceries, prescription drugs, agricultural products, manufacturing equipment, etc.

Sales tax is collected by sellers from buyers at the point of sale, and then remitted to the Tennessee DoR on a monthly, quarterly, or annual basis, depending on the amount of sales tax collected. The DoR then distributes the sales tax revenue to the state general fund and to the local governments where the sales occurred.

Why is it important for businesses and consumers to understand sales tax?

Sales tax is important for businesses and consumers to understand because it affects their financial decisions and obligations. For businesses, sales tax can have a significant impact on their cash flow, profitability, and compliance. For consumers, sales tax can affect their purchasing power, budgeting, and savings.

Some of the benefits of understanding sales tax for businesses and consumers are:

– Avoiding penalties and interest for late or incorrect filing or payment of sales tax
– Claiming exemptions or refunds for eligible purchases or transactions
– Planning ahead for sales tax changes or updates
– Comparing prices and costs across different locations or vendors
– Taking advantage of sales tax holidays or incentives
– Supporting public services and infrastructure in their communities

Sales Tax Basics for Businesses

If you are a business owner or seller in Tennessee, you need to know some basic information about sales tax, such as:

– What is sales tax and what are its types?
– How is sales tax calculated?
– How should you collect sales tax from customers?

We will answer these questions in the following sections.

What is sales tax and what are its types?

Sales tax is a type of consumption tax that is applied to the final retail price of goods and services. Sales tax is usually expressed as a percentage of the price, such as 7% or 9.75%. There are two types of sales tax in Tennessee: state sales tax and local sales tax.

State sales tax

State sales tax is levied by the state government on all taxable transactions within the state. State sales tax rates vary by state, ranging from 0% to 7.25%. Tennessee has one of the highest state sales tax rates at 7%. This rate applies to most transactions, except for food, which is taxed at 5%. The state sales tax revenue is used to fund various state programs and services, such as education, health care, transportation, and public safety. The state sales tax is administered by the Department of Revenue, which provides guidance and assistance to taxpayers on sales tax issues.

Local sales tax

The local sales tax rate in Tennessee varies by county and/or city. Tennessee allows local governments to charge up to 2.75% local sales tax, making the total sales tax rate between 7% and 9.75%. The local sales tax revenue is used to fund local government operations and projects, such as schools, roads, parks, and libraries. The local sales tax is collected and distributed by the Department of Revenue on behalf of the local governments.

The total sales tax rate is the sum of the state and local sales tax rates. For example, if you paid $100 for an item in Nashville, Tennessee, that means that a total of $9.75 was paid in sales tax: $7 for state sales tax (7% of $100) plus $2.75 for local sales tax (2.75% of $100).

How is sales tax calculated?

Sales tax is calculated by multiplying the taxable amount by the applicable sales tax rate. The taxable amount is usually the total price of the goods or services sold, including any shipping or delivery charges. However, some items may be exempt or excluded from sales tax, such as prescription drugs, medical devices, newspapers, magazines, and certain agricultural products.

For example, if you want to buy a book with a listed price of $10 in a county that has a 2.5% local sales tax rate, you will pay $0.70 in state sales tax (7% of $10) and $0.25 in local sales tax (2.5% of $10), for a total of $0.95 in sales tax. The total cost of the book will be $10.95 ($10 + $0.95).

To calculate the sales tax for any transaction, you can use the Sales Tax Calculator provided by SalesTaxHandbook.

How should businesses collect sales tax from customers?

Businesses selling taxable goods or services in Tennessee are obligated to register with the Department of Revenue and obtain a sales tax account number. They are also required to:

Display their certificate of registration at their place of operation
Collect sales tax from their customers at the point of sale and maintain records of all transactions and taxes collected
File periodic sales tax returns (monthly, quarterly, or annually)
Remit the collected taxes to the Department of Revenue by the specified due date.

Filing of sales tax returns can be done online using the Tennessee Taxpayer Access Point (TNTAP) or by mail using Form SLS450 (Sales and Use Tax Return). Payment of sales tax can also be made online using TNTAP or by electronic funds transfer (EFT), credit card, check, or money order.

Businesses collecting more than $1,200 in state sales tax per month are required to make prepayments of their estimated monthly liability by the 20th day of each month.

Those selling goods or services to customers in other states may need to collect and remit sales tax to those states as well, depending on their nexus (physical or economic presence) in those states. It is advisable for these businesses to consult with the respective state revenue agencies for more information on their sales tax obligations.

Registering for a Sales Tax Permit with the Tennessee DoR

If you are a business owner or seller who makes taxable sales in Tennessee, you need to register for a sales tax permit with the Tennessee Department of Revenue (DoR). A sales tax permit allows you to collect and remit sales tax to the state on the goods and services you sell. It also gives you access to the Tennessee Taxpayer Access Point (TNTAP), where you can file and pay your sales tax returns online.

To register for a sales tax permit, you can use the online registration system on the DoR website, or you can download and mail in Form RV-F1300501, Application for Registration. You will need to provide information such as your business name, address, contact information, type of business, federal employer identification number (FEIN), estimated monthly sales, and bank account information. There is no charge for registering a business for a sales and use tax account in Tennessee. However, there is a separate $15 business license registration fee that must be paid to the county and/or municipal clerk for each new business. This fee is for the business license, not the sales tax permit.

You should receive your sales tax permit and account number within 8-10 days of submitting your application. You must display your sales tax permit at your place of business and keep it updated if you change your business name, address, or ownership.

When and why do businesses need to register for a sales tax permit?

Businesses need to register for a sales tax permit in Tennessee if they meet any of the following criteria:

– They have a physical presence in Tennessee, such as an office, store, warehouse, or employee.
– They make sales of taxable goods or services in Tennessee, either in person, by mail, or online.
– They have an economic nexus in Tennessee, which means they make more than $500,000 in annual sales to Tennessee customers.

Registering for a sales tax permit is required by law and allows businesses to comply with their tax obligations. By collecting and remitting sales tax, businesses help fund public services and infrastructure in Tennessee. Failing to register for a sales tax permit can result in penalties, interest, and audits from the DoR.

How can businesses apply for a sales tax permit in Tennessee?

Businesses can apply for a sales tax permit in Tennessee by using one of the following methods:

– Online: The fastest and easiest way to apply for a sales tax permit is through the online registration system on the DoR website. You will need to create an account on TNTAP and follow the instructions to complete the application. There is no charge for registering a business for a sales and use tax account in Tennessee. However, there is a separate $15 business license registration fee that must be paid to the county and/or municipal clerk for each new business. This fee is for the business license, not the sales tax permit.
– Mail: If you prefer to apply by mail, you can download and print Form RV-F1300501, Application for Registration, from the DoR website. You will need to fill out the form with your business information and mail it along with a $15 check or money order (for the business license) to the address on the form.
– In person: You can also apply for a sales tax permit in person at any of the DoR service centers located throughout the state. You will need to bring your completed Form RV-F1300501 and a $15 payment (for the business license) by cash, check, or money order.

Once you submit your application, you should receive your sales tax permit and account number within 8-10 days. You will also receive information on how to file and pay your sales tax returns online or by mail.

Sales Tax Rates in Tennessee

Sales tax is a tax imposed on the sale of goods and services. In Tennessee, sales tax is composed of two parts: a state portion and a local portion. The state portion is 7%, while the local portion varies by county and/or city. The average combined state and local sales tax rate in Tennessee is 9.55%, but it can range from 7% to 9.75% depending on the location of the sale .

What are the state, county, and city sales tax rates in Tennessee?

The state sales tax rate in Tennessee is 7% for most items, except for food which is taxed at 5%. The local sales tax rate is determined by the county and/or city where the sale takes place. The local rate can be anywhere from 0% to 2.75%, depending on the jurisdiction. You can find the current local sales tax rates for each county and city in Tennessee on the Department of Revenue website, or go here for a table of the combined state and local sales tax in every TN jurisdiction.

How can businesses find the current sales tax rate?

Businesses that sell taxable goods or services in Tennessee need to collect and remit the appropriate sales tax to the state. To do this, they need to know the current sales tax rate for their location and for their customers’ locations. There are several ways to find the current sales tax rate, such as:

– Using the Tennessee Sales Tax Calculator from Tax-Rates.org. This tool allows you to enter a zip code and get the applicable state and local sales tax rates.
– Using a third-party sales tax software or service that calculates and collects the sales tax for you. Some examples are Avalara, TaxJar, and Wise.
– Consulting a professional tax advisor or accountant who can help you with your sales tax compliance.

Collecting Sales Tax in Tennessee

If you are a business owner in Tennessee, you need to know how to collect and remit sales tax on the goods or services you sell. Sales tax is a tax imposed by the state and local governments on the sale of tangible personal property and certain services. The sales tax rate in Tennessee is 7%, but local jurisdictions can add up to 2.75% more, making the total sales tax range from 7% to 2.75% in the state . Food items are taxed at a lower rate of 5%, plus any local taxes.

How should businesses add sales tax to the price of goods or services?

In Tennessee, sales tax is generally added to the sales price of taxable items or services. The sales price includes any charges for delivery, installation, or other services that are part of the sale . For example, if you sell a sofa for $500 and charge $50 for delivery, the sales price is $550 and the sales tax is calculated on that amount.

To calculate the sales tax, you need to multiply the sales price by the combined state and local sales tax rate. For example, if you sell a sofa for $550 in Nashville, where the local sales tax rate is 2.25%, you need to multiply $550 by 9.25% (7% + 2.25%) to get $50.88 as the sales tax amount. You can use a sales tax calculator to help you with this process.

You can either include the sales tax in the advertised price of your items or services, or add it separately at the point of sale. However, you must clearly indicate to your customers how much sales tax they are paying and on what basis it is calculated .

What are the special rules for online businesses and out-of-state sales?

If you are an online business or an out-of-state seller who makes sales to customers in Tennessee, you may have to collect and remit Tennessee sales tax if you have a physical presence or a significant economic nexus in the state . A physical presence means having a store, office, warehouse, employee, agent, or other representative in Tennessee. A significant economic nexus means having more than $500,000 in annual gross sales in Tennessee .

If you meet either of these criteria, you must register with the Tennessee Department of Revenue and collect and remit sales tax on your taxable sales to Tennessee customers. You must also file periodic sales tax returns and keep records of your sales and taxes .

If you do not have a physical presence or a significant economic nexus in Tennessee, you are not required to collect and remit Tennessee sales tax on your sales to Tennessee customers. However, your customers may still owe use tax on their purchases, which is their responsibility to report and pay .

Filing Sales Tax Returns with the Tennessee DoR

If you are a business owner or seller in Tennessee, you must register for a sales tax account and file sales tax returns with the Tennessee Department of Revenue (DoR). You can register online through the Tennessee Taxpayer Access Point (TNTAP) or by submitting a paper application (Form RV-F1300501). You will receive a sales tax certificate of registration that allows you to collect sales tax from your customers.

The sales tax rate in Tennessee is 7% at the state level, plus any local taxes imposed by counties and cities. The local tax rates vary from 0% to 2.75%, making the total sales tax range in Tennessee 7% to 9.75%. Food in Tennessee is taxed at 5% (plus any local taxes). You can use the Tennessee Sales Tax Calculator to find out the exact sales tax rate for your location.

You must file your sales tax returns online through TNTAP or by using an approved electronic filing service. You can also file by mail using Form SLS450, but this option is only available for taxpayers who have been granted a hardship waiver by the DoR. The filing frequency depends on your average monthly sales tax liability, as follows:

– Annual: If your average monthly liability is less than $200, you must file once a year by January 20th of the following year.
– Quarterly: If your average monthly liability is between $200 and $1,000, you must file every quarter by the 20th day of the month following the end of the quarter.
– Monthly: If your average monthly liability is more than $1,000, you must file every month by the 20th day of the following month.

You must pay the sales tax due when you file your return. You can pay online through TNTAP or by using an approved electronic payment service. You can also pay by mail using Form SLS451, but this option is only available for taxpayers who have been granted a hardship waiver by the DoR.

When and how should businesses file sales tax returns in Tennessee?

As explained above, businesses in Tennessee must file sales tax returns online or by mail, depending on their filing frequency and method. The filing frequency is determined by the average monthly sales tax liability of the business, which is calculated by dividing the total sales tax collected in a year by 12. The filing deadlines are as follows:

– Annual: January 20th of the following year
– Quarterly: April 20th, July 20th, October 20th, and January 20th
– Monthly: The 20th day of the following month

If the filing deadline falls on a weekend or a holiday, the due date is extended to the next business day. If you file or pay late, you may be subject to penalties and interest.

What are the penalties for late filing or non-compliance?

If you fail to file or pay your sales tax on time, you may face the following consequences:

– A penalty of 5% of the unpaid tax for each month or fraction of a month that the return or payment is late, up to a maximum of 25%.
– A penalty of $15 for each return that is filed late.
– A penalty of $50 for each return that is not filed electronically when required.
– Interest on the unpaid tax at an annual rate of 12%.

In addition to these penalties and interest, you may also lose your sales tax certificate of registration and be subject to other enforcement actions by the DoR, such as audits, liens, seizures, and criminal prosecution. Therefore, it is important to comply with the sales tax laws and regulations in Tennessee and avoid any unnecessary costs and risks.

Sales Tax Information for Consumers

Sales tax is a tax that consumers pay when they buy goods or services in Tennessee. The sales tax rate varies depending on the state, county and city where the purchase is made. The sales tax is collected by the seller and remitted to the Tennessee Department of Revenue, which distributes the revenue to the state and local governments.

How does sales tax affect the price of goods and services?

Sales tax increases the final price of goods and services that consumers pay. For example, if a consumer buys a $100 item in a city with a 9.75% sales tax rate, the total cost will be $109.75 ($100 + $9.75). The sales tax amount depends on the tax rate and the taxable amount of the purchase. Some items, such as food, have a lower tax rate than others. Some items, such as prescription drugs, are exempt from sales tax altogether.

What are the sales tax exemptions and holidays in Tennessee?

Sales tax exemptions are situations where sales tax is not charged or collected on certain transactions. Some common sales tax exemptions in Tennessee are:

Sales to nonprofit organizations that have obtained a certificate of exemption from the Department of Revenue
Sales to federal, state and local governments and their agencies
Sales of prescription drugs, prosthetic devices, durable medical equipment and mobility enhancing equipment
Sales of newspapers, magazines, textbooks and religious publications
Sales of farm machinery, feed, seed, fertilizer and livestock
Sales of electricity, natural gas, water, fuel oil and propane used for residential purposes

Sales tax holidays are periods where sales tax is not charged on certain items. Tennessee has two annual sales tax holidays:

The first weekend of August: Sales tax is not charged on clothing, school supplies and computers that cost $200 or less per item
The last weekend of July: Sales tax is not charged on food and food ingredients that are subject to the state sales tax rate of 5%

Utilizing the Tennessee Department of Revenue’s Resources

The DOR is the state agency responsible for administering and enforcing sales tax laws in Tennessee. The DOR provides various resources to help businesses and consumers understand and comply with sales tax requirements. Let’s explore some of these resources and how they can benefit you.

What services does the Tennessee Department of Revenue provide?

The DOR offers a range of services to assist businesses and consumers with sales tax matters. Some of these services include:

Online registration: Businesses can register for a sales tax account online through the DOR’s website. This is required for any business that makes taxable sales in Tennessee or has a physical presence in the state, such as an office, warehouse, or employee.
Online filing and payment: Businesses can file their sales tax returns and make payments online through the DOR’s website. This is convenient, secure, and fast. Businesses can also view their filing history, account balance, and payment status online.
Online sales tax calculator: Consumers can use the DOR’s online sales tax calculator to estimate the amount of sales tax they will pay on a purchase. The calculator allows users to enter the purchase amount and the location of the sale, and it will display the applicable state and local sales tax rates and amounts.
Online publications and forms: The DOR provides various publications and forms related to sales tax on its website. These include guides, bulletins, notices, rules, regulations, and FAQs. These resources can help businesses and consumers learn more about sales tax topics, such as exemptions, nexus, sourcing, audits, appeals, and refunds.
Online customer service: The DOR offers online customer service through its website. Users can submit questions, comments, or feedback to the DOR via email or web chat. Users can also request a callback from a DOR representative.

How can businesses and consumers benefit from these resources?

By utilizing the DOR’s resources, businesses and consumers can gain several benefits, such as:

Saving time and money: By registering, filing, and paying online, businesses can avoid paper forms, postage costs, and late penalties. By using the online calculator, consumers can avoid overpaying or underpaying sales tax on their purchases.
Reducing errors and risks: By accessing the online publications and forms, businesses and consumers can ensure they are following the latest sales tax laws and rules. By contacting the online customer service, they can get answers to their specific questions and resolve any issues they may have.
Improving compliance and confidence: By using the DOR’s resources, businesses and consumers can improve their compliance with sales tax obligations and avoid potential audits, assessments, or penalties. They can also increase their confidence in their sales tax transactions and records.

The DOR’s resources are designed to make sales tax easier for businesses and consumers in Tennessee. By taking advantage of these resources, you can save time, money, and hassle while complying with sales tax laws.

Conclusion

The Tennessee sales tax is a complex and dynamic topic that affects both businesses and consumers in the state. It involves various rates, rules, and exemptions that vary by location, item, and service. To navigate this tax landscape successfully, one needs to understand the registration process, the filing requirements, the sales tax holiday, and the other types of taxes that apply in Tennessee. By staying informed and updated on the latest developments and changes in the law, especially regarding e-commerce and interstate commerce, one can avoid penalties and save money. The Tennessee Department of Revenue provides comprehensive resources and guidance to help taxpayers comply with their obligations and benefit from their rights.