Have you ever wondered what taxes you pay in Tennessee? There are various types of taxes that citizens have to pay, including income tax, sales tax, property tax, and estate tax. However, the good news is that Tennessee has some of the lowest taxes in the country, making it an attractive place to live and do business in.
If you are an individual residing in Tennessee, you are generally only required to pay federal income tax. The state does not impose a personal income tax, so you don’t have to worry about state income tax returns. Instead, Tennessee relies primarily on sales tax and property tax as its main sources of revenue. Sales tax rates vary depending on the county, with most areas having a combined local and state rate of around 9.5%.
If you own property in Tennessee, you are subject to property tax which is calculated based on the value of your property. The property tax rate in Tennessee is relatively low compared to other states, with an average rate of 0.64%. Additionally, Tennessee does not impose an estate tax, which means that the assets you leave behind after you pass away will not be subject to state taxes. All in all, the tax structure in Tennessee favors its residents and makes it an enticing place to call home.
Tennessee Tax Laws
Tennessee is known for its business-friendly environment and low tax rates. It is one of the nine states in the US that does not impose an income tax on its residents. However, there are other taxes that you need to pay in Tennessee.
Taxes You Pay in TN
- Sales Tax – Tennessee has a statewide sales tax rate of 7%, which is one of the highest in the country. Cities and counties can also impose their own sales tax over the state sales tax rate, which can bring the total sales tax rate up to 9.75% in some areas. However, food and prescription drugs are exempt from the state sales tax.
- Property Tax – Property taxes in Tennessee are also relatively high compared to other states. The average effective property tax rate in Tennessee is 0.64%, which is higher than the national average of 0.57%. Property taxes vary depending on the county and city.
- Business Tax – Tennessee imposes a tax on businesses operating in the state. The business tax rate varies depending on the type of business and the amount of taxable income. The minimum business tax is $22 for businesses with gross receipts of $3,000 or less.
Tennessee Tax Laws and Regulations
Tennessee has several tax laws and regulations that businesses and individuals need to be aware of. The Tennessee Department of Revenue (DOR) is responsible for administering Tennessee’s tax laws and regulations. Some of the laws and regulations that you need to be familiar with include:
- Tennessee Sales and Use Tax Act – This law imposes a sales tax on retail sales of tangible personal property in Tennessee. It also imposes a use tax on the storage, use, or consumption of tangible personal property in Tennessee when the sales tax has not been paid.
- Tennessee Franchise and Excise Taxes – Businesses in Tennessee are subject to both a franchise tax and an excise tax. The franchise tax is based on a business’s net worth, while the excise tax is based on a business’s net earnings or the value of the property owned or used in Tennessee.
- Tennessee Property Tax Law – This law governs the assessment and collection of property taxes in Tennessee. It also provides for the assessment and collection of taxes on personal property, such as business equipment, boats, and airplanes.
Tennessee Tax Rates
Below is a table of the tax rates for the major taxes in Tennessee.
| Tax Type | Tax Rate |
|---|---|
| Sales Tax | 7% |
| Property Tax | Average Effective Rate of 0.64% |
| Business Tax | Varies depending on the type of business and taxable income |
It’s important to be aware of the taxes that you need to pay in Tennessee, as well as the state’s tax laws and regulations. This can help you manage your finances better and avoid any penalties for non-payment of taxes.
State Income Tax
In Tennessee, residents do not pay state income tax on their earnings. The state does, however, tax investment income such as interest, dividends, and capital gains. This is governed by the Hall Income Tax law, which has a rate of 1% for those whose investment income is over $1,250 and 2% for those whose investment income exceeds $2,500.
- Residents are allowed to exempt up to $1,250 of investment income from taxation.
- The Hall Income Tax does not apply to Social Security or retirement income.
- The income from investments that are taxed include stocks, bonds, and mutual funds.
It is important to note that Tennessee’s lack of state income tax makes it an attractive destination for retirees or those living on fixed incomes. Workers, on the other hand, may have to rely on other sources of funding such as sales tax or property tax to help support state-funded programs.
The following table shows the tax rates for investment income under the Hall Income Tax law.
| Marital Status | Rate | Income threshold for 1% tax* | Income threshold for 2% tax* |
|---|---|---|---|
| Single | 1% | $1,250 | $2,500 |
| Married filing jointly | 1% | $2,500 | $5,000 |
| Married filing separately | 1% | $1,250 | $2,500 |
Overall, residents of Tennessee do not have to worry about state income tax on their earnings, but should be aware of the Hall Income Tax on investment income. Understanding these tax laws can help residents make informed decisions about their investments and figure out the best way to fund state programs.
Sales Tax
Sales tax is one of the most common taxes that residents of Tennessee pay. It is a tax that is charged on the sale of most goods and services in the state. As of 2021, the sales tax rate in Tennessee is 7%, with an additional local tax rate that can range from 1.5% to 2.75%, depending on where you live.
- The state sales tax rate is 7%
- The local sales tax rate can range from 1.5% to 2.75%
- The average total sales tax rate in Tennessee is 9.55%
It’s essential to remember that not all items are taxed at the same rate in Tennessee. For instance, food and prescription drugs are taxed at a lower rate compared to other items, such as electronics and clothing. It’s also important to note that different cities and counties in the state have varying rates of sales tax, which means that the rate of tax you pay for a particular item will depend on where you live.
To give you an idea, here’s a table that shows the sales tax rates in some of the major cities in Tennessee:
| City | State tax rate | Local tax rate | Total tax rate |
|---|---|---|---|
| Memphis | 7% | 2.25% | 9.25% |
| Nashville | 7% | 2.25% | 9.25% |
| Chattanooga | 7% | 2.25% | 9.25% |
It’s essential to be aware of the sales tax rates in your area so you can budget accordingly and avoid any surprises when you make purchases.
Property Tax
One of the taxes that you will have to pay in Tennessee is Property Tax. This tax is based on the value of your property that you own in Tennessee. The property tax is assessed by the county where the property is located. The assessed value is multiplied by the tax rate to determine the tax owed. The tax rate varies from county to county.
- The property tax is used to fund local government services like schools, police, and fire departments.
- The tax rate is set by the local government and can vary depending on the county and municipality that you live in.
- Property taxes in Tennessee are lower than many other states, making it an attractive place to own property.
The following table shows the property tax rates for some of the largest counties in Tennessee:
| County | Assessment Ratio | Tax Rate per $100 |
|---|---|---|
| Davidson | 25% | $4.13 |
| Knox | 25% | $2.71 |
| Shelby | 25% | $4.05 |
| Hamilton | 25% | $2.09 |
It’s important to note that the assessed value of your property can change from year to year based on factors like market value and improvements made to the property. Make sure to stay up-to-date on your property assessments and tax rates to properly plan for your tax payments.
Inheritance and Estate Tax
When someone passes away in Tennessee, their estate may be subject to both inheritance tax and estate tax.
Inheritance tax applies to the inheritors of the deceased person’s estate. Currently, Tennessee does not impose an inheritance tax.
Estate tax, on the other hand, is a tax on the total value of a person’s estate at the time of their death. Tennessee used to collect an estate tax equivalent to the credit allowed by the Internal Revenue Service for state death taxes. However, the estate tax was phased out and completely eliminated on January 1, 2016.
What Taxes Do You Pay in TN – Inheritance and Estate Tax
- Tennessee does not impose an inheritance tax on inheritors of an estate.
- Tennessee used to collect an estate tax equivalent to the credit allowed by IRS for state death taxes, but it was completely eliminated on January 1, 2016.
Tennessee Estate Tax
Before January 1, 2016, Tennessee’s estate tax equivalent to the credit allowed by the IRS for state death taxes. This meant that if the total value of a person’s estate exceeded the applicable federal estate tax exclusion amount, their estate would owe an estate tax to Tennessee. This estate tax was paid by the estate itself and not by the heirs, beneficiaries, or family members of the deceased.
The federal estate tax exclusion amount is the total value of an estate that is exempt from federal estate tax. For individuals who passed away in 2021, the federal estate tax exclusion amount is $11.7 million.
| Year | Tennessee Estate Tax Exemption | Federal Estate Tax Exemption |
|---|---|---|
| 2010 | $1 million | $5 million |
| 2011-2012 | $1 million | $5 million (indexed) |
| 2013 | $1.25 million | $5.25 million (indexed) |
| 2014 | $2 million | $5.34 million (indexed) |
| 2015 | $5 million | $5.43 million (indexed) |
| 2016 and later | N/A | $5.45 million (indexed) |
As of January 1, 2016, Tennessee no longer collects an estate tax. This means that if someone passes away in Tennessee with an estate valued under the federal estate tax exclusion amount, their estate will not owe Tennessee any estate tax.
Business Taxes
When it comes to doing business in Tennessee, there are a few taxes you need to be aware of. Here are six business taxes that may apply to you:
- Franchise and Excise Taxes: These taxes are based on the value of a business’s assets or income, whichever is greater. Corporations, LLCs, and partnerships are subject to these taxes, which are filed annually.
- Sales and Use Taxes: Goods and services sold by a business are subject to these taxes. The sales tax rate in Tennessee is 7%, and local jurisdictions can add an additional tax up to 2.75%. Use tax applies to out-of-state purchases that are used in Tennessee.
- Career Tax: This tax is a combination of several taxes on business gross receipts, including the Hall Income Tax and the Financial Institution Tax. It is paid annually based on the previous year’s receipts.
- Business Tangible Personal Property Tax: This tax applies to the value of a business’s physical property, including equipment, furniture, and inventory. It is paid annually and varies by county.
- Liquor-by-the-Drink Tax: Restaurants and bars that serve liquor are subject to this tax, which is based on the gross receipts from the sale of liquor. The tax rate varies by county.
- Tobacco Tax: Cigarettes and other tobacco products sold by a business are subject to this tax. The tax rate for cigarettes is 62 cents per pack, and the rate for other tobacco products varies.
In addition to these taxes, businesses in Tennessee may also be subject to various fees and licenses, depending on their type of business and location. It is important to be aware of all of the taxes and fees that apply to your business to ensure compliance and avoid any penalties or fines.
If you have questions or concerns about Tennessee business taxes, it’s always a good idea to consult with a tax professional who can provide guidance and help ensure you are fulfilling all of your tax obligations.
| Tax Type | Who Pays | Due Date |
|---|---|---|
| Franchise and Excise Taxes | Corporations, LLCs, and partnerships | Annually, typically April 15th |
| Sales and Use Taxes | Businesses that sell goods or services | Monthly or Quarterly |
| Career Tax | Businesses with gross receipts over $10,000 | Annually, typically April 15th |
| Business Tangible Personal Property Tax | Businesses with physical property | Annually, varies by county |
| Liquor-by-the-Drink Tax | Restaurants and bars that serve liquor | Monthly or Quarterly |
| Tobacco Tax | Businesses that sell tobacco products | Monthly or Quarterly |
While taxes may not be the most exciting aspect of running a business, they are a necessary part of doing business in Tennessee. Understanding and fulfilling your tax obligations is crucial for the success and longevity of your business.
Tax Credits and Deductions
When it comes to paying taxes in Tennessee, residents have the option to claim various tax credits and deductions to lower their tax bill. Tax credits are a dollar-for-dollar reduction in the amount of tax owed, while tax deductions reduce your taxable income.
Tax Credits
- Earned Income Tax Credit – This credit is available to low-to-moderate-income individuals and families. It can provide a refund of up to $6,660.
- Child Tax Credit – If you have dependent children under the age of 17, you could qualify for this credit, which can be up to $2,000 per child.
- Property Tax Relief Credit – This credit is available to elderly, disabled and/or low-income homeowners to help offset property tax costs. The maximum credit is $300.
Tax Deductions
Tax deductions allow you to reduce your taxable income, which could ultimately lower your overall tax bill. Here are some common tax deductions available to Tennessee residents:
- Charitable contributions – You can deduct donations made to qualified charitable organizations from your taxable income.
- Mortgage interest – If you own a home and have a mortgage, you can deduct the interest paid on your mortgage from your taxable income.
- Medical expenses – If you have high medical expenses, you can deduct them from your taxable income as long as they exceed 10% of your adjusted gross income.
Tennessee-specific Deductions
Tennessee offers some unique tax deductions specifically for its residents. These include:
| Deduction | Amount |
|---|---|
| Food Tax Credit | Up to $60 for individuals or $120 for married couples filing jointly per year |
| Sales Tax on Food | You can deduct the sales tax paid on food up to a certain amount. For 2021, that amount is $1,625 per person. |
| Interest Income from Tennessee Obligations | You can deduct interest income earned from Tennessee obligations, such as bonds or notes issued by the state. |
By taking advantage of these tax credits and deductions, Tennessee residents can save money on their taxes. It’s important to consult a tax advisor or use tax software to ensure you’re claiming all the credits and deductions you’re entitled to.
What Taxes Do You Pay in TN?
Q: What types of taxes do I have to pay in Tennessee?
A: Tennessee has several types of taxes, including sales tax, property tax, franchise and excise tax, and income tax on interest and dividends.
Q: What is the sales tax rate in Tennessee?
A: The sales tax rate in Tennessee is 7%. In addition to the state sales tax, there may be local sales taxes, which can vary by county and city.
Q: How is property tax calculated in Tennessee?
A: Property tax in Tennessee is calculated by multiplying the assessed value of the property by the tax rate. The assessed value is typically based on the market value of the property, and the tax rate varies by county.
Q: Do I have to pay income tax on my wages in Tennessee?
A: Yes, Tennessee does have an income tax on wages. However, the tax rate is relatively low compared to other states, and there are exemptions and deductions available.
Q: What is the franchise and excise tax in Tennessee?
A: The franchise and excise tax is a tax on businesses in Tennessee. The rate varies depending on the type of business and the amount of income earned.
Q: Do I have to pay taxes on food and medicine in Tennessee?
A: In Tennessee, food and medicine are taxed at a reduced rate of 4%. However, prepared food, such as meals at restaurants, is subject to the full 7% sales tax.
Closing Thoughts
Now that you know the different types of taxes you may encounter in Tennessee, be sure to plan accordingly and budget for these expenses. Whether you’re a resident or a visitor to the state, understanding the tax laws can help you make informed financial decisions. Thanks for reading and be sure to visit again for more helpful articles!