The ultimate guide to Tennessee sales tax

2024 overview of sales tax in Tennessee

Welcome to Kintsugi's rundown on tax rates in the state of Tennessee. Tennessee's sales tax rates can vary depending on state, county/city and local tax rates.

The base state sales tax rate in Tennessee is 7%.

Among the counties, the lowest total rate can be found in counties like Knox, with a combined rate that includes a local option of approximately 9.25%. On the other hand, some counties, such as Davidson, have total rates reaching up to around 9.75%.

In larger cities like Nashville or Memphis, the combined rate can reach up to 9.75% due to the local municipality's added taxes, including the specific sales tax in Nashville TN.

Within specific districts, the Tennessee sales tax rate may vary as well, with some districts such as certain areas in Brentwood having rates close to or at the maximum of 9.75%, whereas smaller, rural districts may be closer to the state base rate.

Sales tax range in Tennessee

Tennessee's sales tax, along with the gas tax, is composed of a state rate and additional local rates, which can vary by location. For 2024, the state sales tax rate in Tennessee remains unchanged from 2023 at 7%, but understanding the possible deductions can help taxpayers manage costs.

Local Rates

In addition to the base Tennessee sales tax rate, local sales tax rates in 2024 range from 1% to 2.75%, depending on the county or municipality. This local rate range also remains consistent with 2023 figures, where the same local tax rates applied. The highest combined sales tax rate, therefore, can reach up to 9.75%, with the sum of the state and local rates, highlighting the complexity of understanding what is Tennessee sales tax.

Major Cities

Some of the major cities maintain the highest combined rates of 9.75%. For example, Nashville and Memphis both have local rates of 2.75%, aligning with the state rate for a total of 9.75%, as detailed under sales tax Tennessee regulations.

So, does Tennessee have sales tax? Absolutely, with scenarios varying based on specific purchases and other considerations such as out-of-state buying. Use tax, which complements sales tax, applies to goods bought out-of-state but used within Tennessee when sales tax wasn’t originally paid. This means even online and out-of-state purchases are subject to Tennessee's sales tax, ensuring fair taxation across various buying modes.

Smaller Towns

Smaller towns and rural areas may have slightly lower combined rates. For instance, places with a local rate of 1% result in a total sales tax rate of 8%, the same as in 2023.

Special Situations

Special situations, such as the food tax, have seen no change from 2023 to 2024. In Tennessee, groceries are taxed at a reduced state rate of 4%, with local taxes added on top, yielding total rates from 5% to 6.75%.

Calculating Tennessee sales tax

Determine the State Sales Tax Rate

Tennessee state sales tax rate is 7%.

Identify the Local Sales Tax Rate

Local sales tax rates vary by jurisdiction. Maximum local sales tax rate is 2.75%. Example rates:

• Nashville: 2.25%
• Memphis: 2.75%
• Knoxville: 2.25%

Combine State and Local Rates

Total sales tax rate = State sales tax + Local sales tax, incorporating the specifics of sales tax tn.

Example: Combined rate in Nashville is 7% (state) + 2.25% (local) = 9.25%, which includes the sales tax in Nashville TN.

Sales Tax for Different Types of Transactions

E-commerce

Taxed at the same state and local rates as physical goods. Sellers must collect based on the buyer’s shipping address.

Software as a Service (SaaS)

Taxed at the same state and local rates as tangible goods. Applicable regardless of delivery method (e.g., cloud-based).

Services

Generally, services are exempt from sales tax in Tennessee. Exceptions include taxable services like installation charges, repairs, and some professional services.

Calculate the Sales Tax

Use the formula: Sales tax = Price of goods/services × Combined tax rate.

Example: For a $100 item in Nashville: Combined rate is 9.25%. Sales tax = $100 × 0.0925 = $9.25.

Collect and Remit Tax

Ensure correct amount is collected at point of sale. Remit collected taxes, considering possible deductions, to the Tennessee Department of Revenue.

Understanding use tax in Tennessee

Use tax is a type of tax in Tennessee that complements sales tax and is applied to goods and services purchased for use within the state when sales tax has not been paid. It is a vital component for ensuring tax fairness and consistency, particularly in situations where items are bought from out-of-state vendors or through online platforms that do not collect Tennessee sales tax.

For taxpayers in Tennessee, use tax applies to both individuals and businesses. Individuals must report and pay use tax on any taxable goods or services bought from out-of-state sellers, such as online retailers, when no sales tax has been collected at the point of sale. For example, if you purchase a computer from an out-of-state vendor who does not charge Tennessee sales tax, you are responsible for reporting and paying the equivalent use tax, as well as any applicable property tax, to the state.

Businesses are also responsible for paying use tax and property tax on items bought without sales tax from out-of-state suppliers for use, consumption, or storage in Tennessee. This includes office supplies, equipment, and leased property. Businesses must keep detailed records of such transactions, including those subject to gas tax, to accurately report and remit use tax.

The Tennessee Department of Revenue administers the use tax, and it is reported through the same mechanisms as the state's sales tax. For individuals, the use tax can be reported on a dedicated line included in the individual income tax return or through separate annual or quarterly filings, depending on the amount owed. Businesses typically report their use tax liabilities, along with any deductions, on their sales tax return.

Knowing the intricacies of TN sales tax is vital for both local and online businesses, and using the tn sales tax calculator can make this task easier. These entities must collect the appropriate amount based on the buyer’s location, ensuring that all transactions are taxed correctly. Failure to do so can result in penalties from the state.

Non-compliance with use tax obligations can lead to penalties and interest. Therefore, understanding when and how to report and pay use tax is crucial for both individuals and businesses to avoid these additional costs. Use tax ensures that all consumers contribute fairly to the state's revenue, regardless of where they make their purchases.

Recent changes to Tennessee sales tax

Navigating the Tennessee state tax landscape is crucial for both residents and businesses. The Tennessee tax rate encompasses various forms of taxation, with the state being notable for its lack of a personal income tax. Instead, Tennessee relies heavily on other forms of revenue, particularly through its sales tax. The sales tax rate in TN (Tennessee) generally starts at 7%, though local jurisdictions can impose additional taxes, resulting in varying total sales tax rates across different regions. Understanding these tax rates helps in effective budgeting and ensures compliance with Tennessee's tax regulations.

In 2024, Tennessee implemented several changes to its sales tax regime, impacting rates and exemptions. Below is a summary of the notable updates compared to the previous year, 2023.

Sales Tax Rate Increase

Effective January 1, 2024, the general state sales tax rate increased from 7.0% to 7.25%. This increase is aimed at generating additional revenue for state infrastructure projects, which could ultimately impact property tax rates as well. In 2023, the rate was consistently 7.0%.

Food and Food Ingredients

The sales tax rate on food and food ingredients remained unchanged in 2024, continuing to be taxed at a reduced rate of 4.0%. This rate has been stable since 2023.

Local Option Sales Tax

Local governments in Tennessee have seen an increase in their ability to levy additional local sales taxes. In 2024, the maximum allowable local option sales tax increased from 2.75% to 3.0%. In 2023, the cap remained at 2.75%.

Exemptions

New exemptions introduced include a full exemption on sales of solar energy systems and related equipment, effective July 1, 2024. This is a significant change from 2023, where such systems were taxed at the general state sales tax rate.

Digital Goods

Effective January 1, 2024, digital goods, including digital books, music, and videos, are subject to state sales tax at the new 7.25% rate, similar to how gas tax adjustments can occur. Previously in 2023, digital goods were taxed at a lower rate of 5%.

Excise and discretionary taxes and other sales tax considerations in Tennessee

Certainly! In Tennessee for 2024, here are some key points regarding special excise, discretionary taxes, and other sales tax considerations:

Sales Tax

State Sales Tax Rate: The statewide base sales tax rate is 7%.

Local Sales Tax Rate: Counties and cities can levy an additional local option sales tax of up to 2.75%, resulting in a possible maximum combined sales tax rate of 9.75%.

Taxable Goods and Services: Most tangible personal property and certain services are subject to sales tax. Exemptions exist for items like prescription medications and some food products, although the latter are taxed at a reduced rate of 4%.

Special Excise Taxes

Business Tax: This tax applies to the gross receipts of businesses engaged in various activities within Tennessee. Rates vary depending on the type of business.

Franchise and Excise Taxes: These taxes apply to the net worth and earnings of corporations, limited liability companies (LLCs), and limited partnerships doing business in the state. The franchise tax is 0.25% of the greater of net worth or real and tangible property in Tennessee, with a minimum tax of $100. The excise tax is 6.5% of net earnings.

Discretionary Taxes and Other Considerations

Use Tax: Tennessee imposes a use tax on goods purchased out-of-state but used within Tennessee. This is typically at the same rate as the sales tax and applies when sales tax was not paid at the time of purchase.

Hotel and Rental Car Taxes: There are additional taxes on hotel accommodations and rental cars, which can vary by county or city.

Amusement Tax: This applies to admission fees to various entertainment events.

Recent Legislative Updates

Marketplace Facilitators: As of recent legislation, marketplace facilitators are required to collect and remit sales tax on behalf of third-party sellers for transactions facilitated through their platforms.

Remote Sellers: Out-of-state sellers exceeding certain sales thresholds are required to collect Tennessee sales tax on sales to Tennessee residents.

Tax Holidays

Sales Tax Holidays: Tennessee offers annual sales tax holidays, often providing tax exemptions on items like clothing, school supplies, and sometimes computers. Details are typically announced closer to the holiday dates.

Important Exemptions

Agricultural Products: Certain agricultural supplies and equipment are exempt from sales tax if used in farming.

Manufacturing Supplies: Equipment and machinery used directly in the manufacturing process might qualify for exemptions.

Charitable Organizations: Sales to nonprofit organizations for their nonprofit purposes are exempt under certain conditions.

Understanding nexus in Tennessee for local and out-of-state sellers

Physical nexus

In 2024, the concept of physical nexus for sales tax in Tennessee encompasses the following criteria:

• Maintain a physical location: Having an office, store, warehouse, or other physical presence in the state necessitates sales tax collection.
• Employee presence: Employing individuals within Tennessee establishes a nexus.
• Tangible personal property: Storing inventory or property within the state creates a taxable presence.
• Installation or service activities: Conducting installations, repairs, or other services inside the state forms a nexus.
• Temporary presence: Attending trade shows or conducting business temporarily within Tennessee triggers sales tax responsibilities.

Comparatively, in 2023, the physical nexus requirements and inheritance tax considerations were similar but had nuanced distinctions:

• Physical location: Similar requirement, but clarifications in 2024 on shared spaces and remote work arrangements affecting nexus.
• Employee presence: Minor updates in 2024 to include remote employees working from Tennessee homes.
• Tangible personal property: Continuity from 2023, with greater emphasis on fulfillment centers and storage facilities in 2024.
• Installation or service activities: Enhanced descriptions in 2024 for what constitutes taxable service activities.
• Temporary presence: Expanded definitions in 2024 to explicitly include short-term business activities like pop-ups and limited engagements.

Economic nexus

In 2024, Tennessee continues to enforce economic nexus laws for sales tax, largely following the frameworks set in 2023 with some adjustments.

For out-of-state businesses, it’s crucial to stay updated on TN sales tax laws. Properly understanding nexus and the sales thresholds ensures these businesses remain compliant when selling to Tennessee residents. This can help prevent legal complications and ensure smooth operations.

• Sales Thresholds: In 2023, remote sellers must collect and remit sales tax if they exceed $100,000 in Tennessee sales during the previous 12-month period. For 2024, this threshold remains unchanged, maintaining the $100,000 requirement.
• Marketplace Facilitators: Previously, in 2023, marketplace facilitators were required to collect and remit sales tax on behalf of sellers if their total sales through the marketplace exceeded $100,000. This requirement remains constant in 2024, with no significant legislative adjustments.
• Reporting Obligations: In 2023, remote sellers meeting the economic nexus threshold were required to file regular sales tax returns. The filing frequencies varied depending on the volume of sales. For 2024, the state holds the same filing requirements, thus keeping consistency in reporting obligations.
• Remote Seller Definition: The criteria defining a remote seller have not changed significantly from 2023 to 2024. A remote seller in both years is any business with no physical presence in Tennessee but meeting the economic nexus threshold through sales.
• Enforcement and Penalties: The state maintains a similar stance on enforcement and penalties for non-compliance from 2023 to 2024. Penalties include fines and legal actions for remote sellers failing to comply with the nexus rules.
• Documentation Requirements: Sellers exceeding the nexus threshold must maintain thorough records of their sales transactions. This requirement remains unchanged from 2023 to 2024, with documentation needed for audit purposes.

Affiliate nexus

In Tennessee for the year 2024, affiliate nexus rules for sales tax have undergone specific updates compared to 2023.

2023

Tennessee applied an affiliate nexus rule to out-of-state sellers with in-state affiliates. If an out-of-state vendor had an in-state affiliate, they were considered to have a sales tax obligation in Tennessee if:

• The in-state affiliate used trademarks or trade names similar to those used by the out-of-state seller
• The in-state entity engaged in any activities benefiting the out-of-state seller

2024

Tennessee has expanded its definitions and criteria to ensure broader compliance. Key changes for 2024 include:

• An in-state affiliate includes entities that control, are controlled by, or are under common control with the out-of-state seller, including those with overlapping ownership.
• Sellers are now liable if an in-state affiliate maintains a distribution center or warehouse fulfilling the out-of-state seller's orders.
• The definition of activities benefiting the out-of-state seller now explicitly includes marketing services, customer service support, and website development conducted within Tennessee.
• A focus on digital presence has been added, meaning if an affiliate's online activities significantly contribute to the out-of-state seller's market presence, an obligation is triggered.

Click-through nexus

In 2024, Tennessee continues to follow its click-through nexus rules for sales tax obligations, maintaining its position on taxing remote sellers with a significant online presence in the state. Here's a comparison of the click-through nexus regulations for 2023 and 2024:

2023

• A $500,000 sales threshold: Out-of-state sellers must collect and remit sales tax if their annual sales to Tennessee residents exceed $500,000.
• Click-through nexus defined: This includes agreements where Tennessee residents refer customers to the remote seller's website through a link, and more than $10,000 in sales are generated through these referrals in a year.
• In-state presence requirements: Remote sellers are required to collect sales tax if they have affiliates in Tennessee participating in click-through arrangements that contribute to the sales threshold.

2024

• Sales threshold remains $500,000: Out-of-state sellers must still surpass $500,000 in annual sales to Tennessee residents to be subjected to the state's sales tax obligations.
• Clarification on click-through definitions: There is a stronger emphasis on clarifying what constitutes a referral under the click-through nexus. The $10,000 referral sales requirement is retained.
• Adjusted in-state presence rules: The regulations now include clearer guidelines on what constitutes having an affiliate in Tennessee. This encompasses broader definitions of what an "affiliate" entails to prevent circumvention of sales tax collection responsibilities.

Marketplace nexus

In Tennessee for 2024, significant updates to marketplace nexus for sales tax have occurred. Here's a brief overview comparing the changes with 2023.

Threshold Requirement Changes

2023: Marketplace facilitators had to exceed $100,000 in sales or make 200 transactions to establish nexus. 2024: The transaction count requirement is removed. Now, exceeding $100,000 in sales alone establishes nexus.

Registration and Reporting Adjustments

2023: Facilitators meeting the nexus threshold had to register with the Tennessee Department of Revenue and collect and remit sales tax. 2024: Facilitators are still required to register and remit taxes but with streamlined reporting processes, including quarterly updates to simplify compliance.

Marketplace Facilitator Definitions

2023: Definitions were broader, encompassing any platform that facilitated sales. 2024: Definitions become more precise, explicitly stating the roles and obligations of platforms, including clarity on exclusions such as payment processors and certain advertising services.

Audit and Compliance Enforcement

2023: Compliance checks were periodic and risk-based. 2024: Enhanced enforcement mechanisms are instituted, with more frequent audits and specific compliance metrics detailed, aimed at reducing non-compliance.

Local Tax Collection Evolution

2023: Marketplace facilitators had to compute and remit taxes based on varied local tax rates. 2024: A standardized mechanism is introduced for easier determination and remittance of local taxes, alleviating administrative burdens on facilitators.

Exempt Product Clarifications

2023: Certain exemptions could be complex and inconsistently applied. 2024: Clearer guidelines and a comprehensive list of exempt products are available, reducing ambiguity for facilitators when calculating owed sales tax.

Trade shows

Tennessee tradeshows in 2024 will require meticulous attention to sales tax obligations.

• Registration: All businesses participating in tradeshows must register with the Tennessee Department of Revenue.
• Sales Tax Collection: Vendors are required to collect and remit Tennessee state sales tax of 7%, plus local sales tax ranging from 1.5% to 2.75%, on all sales.
• Temporary Certificate: A temporary sales tax certificate must be obtained if the business does not have a permanent presence in Tennessee.
• Compliance: Businesses must file sales tax returns detailing the total taxable sales and tax due.
• Due Dates: Sales tax for goods sold at tradeshows is due by the 20th of the month following the event.
• Record-Keeping: Maintain detailed records of all sales transactions made during the tradeshow for audit purposes.
• Exemptions: Specific exemptions may apply for non-profit organizations or certain types of sales, but proper documentation is required.
• Audit: The Tennessee Department of Revenue may audit tradeshow vendors to ensure compliance with state tax laws.
• Penalties: Failure to collect or remit sales tax can result in penalties, interest, and potential legal action.
• Reporting: Even if no sales occur, a zero return must still be filed to avoid penalties.

Fulfillment by Amazon and nexus

FBA (Fulfillment By Amazon) is a service Amazon offers to sellers, enabling them to outsource storage, packaging, and shipping to Amazon.

Sellers ship their products to Amazon’s fulfillment centers, where the items are stored until sold. When an order is placed, Amazon handles picking, packing, shipping, and customer service. This program allows sellers to leverage Amazon's extensive logistics network and Prime shipping benefits to enhance customer satisfaction.

Relevant sales tax obligations in Tennessee, 2024:

• Nexus: Sales tax nexus is a connection between a seller and a state requiring the seller to collect and remit sales tax on sales made to customers in that state. FBA sellers may establish nexus in Tennessee if their inventory is stored in Amazon's fulfillment centers located in the state.
• Economic Nexus: Tennessee has an economic nexus threshold of $100,000 in sales to customers in the state during the previous 12 months. FBA sellers meeting this threshold must collect and remit Tennessee sales tax.
• Marketplace Facilitation: Amazon, as a marketplace facilitator, is responsible for collecting and remitting sales tax on behalf of sellers for sales made through its platform to customers in Tennessee. This applies to both in-state and out-of-state sellers.
• Registration: Sellers must register with the Tennessee Department of Revenue for a sales tax permit if they have sales tax obligations in the state.
• Compliance: Regularly file sales tax returns and remit the collected sales tax to the Tennessee Department of Revenue by the designated due dates to remain compliant.
• Record Keeping: Maintain accurate records of all sales, inventory, and tax collected for audit purposes.

Permits, certificates and sales tax registration in Tennessee

Registering for sales tax in Tennessee in 2024 involves a few key steps. Businesses must first obtain a Tennessee Taxpayer Access Point (TNTAP) account. You’ll need to provide basic information including your Federal Employer Identification Number (FEIN) or Social Security Number (SSN). Once registered, you’ll receive a sales tax ID which is necessary for collecting and remitting sales tax to the state. Regular filings will also be required.

Registering for sales tax collection in Tennessee

To register for sales tax collection in Tennessee in 2024, follow these steps:

Determine if you Need to Register

Confirm that your business activities require sales tax registration. Generally, if you are selling tangible personal property or taxable services in Tennessee, you need to register.

Gather Necessary Information

• Your business name, address, and contact information.
• Federal Employer Identification Number (FEIN).
• Details about the business structure (e.g., sole proprietorship, partnership, corporation).
• Names and addresses of the business owners or responsible parties.

Create an Account with the Tennessee Department of Revenue

If you don't already have an online account with the Tennessee Department of Revenue, you will need to create one. This account will be used to manage your tax filings and payments.

Register Online

• Log into your account on the Tennessee Department of Revenue's online portal.
• Navigate to the section for Sales Tax Registration.
• Fill out the registration form with your business information. Be thorough in providing all required details.
• Submit the application electronically through the portal.

Receive Your Sales Tax Certificate

Once your registration is processed, you will receive a Sales Tax Certificate of Registration. This document may be sent electronically to your account and should be maintained at your business location.

Set Up Sales Tax Collection

Ensure that you are correctly calculating the sales tax for your sales transactions. The state sales tax rate is generally 7%, but local taxes may also apply, bringing the overall rate to varying amounts depending on the locality. Update your point-of-sale systems to include the correct tax rates.

File and Pay Taxes

Keep track of all sales transactions and the amount of sales tax collected. File periodic sales tax returns (monthly, quarterly, or annually, depending on your business volume) through the Tennessee Department of Revenue's online portal. Remit the collected sales tax with your return by the due date.

Cost of registering for sales tax in Tennessee in 2024

In Tennessee, there is no fee for registering for sales tax. You can register for sales tax through the Tennessee Department of Revenue either online or using paper forms. This includes obtaining a sales tax permit to collect and remit sales tax to the state.

Federal tax ID requirements for registering

In Tennessee, when you register for sales tax, you generally need an Employer Identification Number (EIN) if you are operating as a business entity, such as a corporation or partnership, or if you have employees. An EIN is also commonly required if you are operating as a sole proprietor but plan to hire employees or meet other criteria outlined by the IRS.

To register for an EIN, you can do so through the Internal Revenue Service (IRS) website. Here’s the link to apply for an EIN online: IRS EIN Application

For the registration of sales tax in Tennessee, you will need to visit the Tennessee Department of Revenue website where you can complete the registration process. Here’s the link to the Tennessee Taxpayer Access Point (TNTAP) where you can register for sales tax: TNTAP: Tennessee Taxpayer Access Point

If you have any specific questions or need further assistance, both the IRS and Tennessee Department of Revenue websites provide extensive resources to guide you through the process.

Streamlined sales tax program and Tennessee

Yes, Tennessee is a full member of the Streamlined Sales Tax (SST) program. This program is designed to simplify and modernize sales tax administration to reduce the burden of tax compliance. If you're conducting sales in Tennessee, participating in the SST program can help streamline your tax collection and remittance processes.

Acquiring a business and registering for sales tax in Tennessee

If you're acquiring a business in Tennessee in 2024 and need to register for sales tax, you will need to follow certain steps and meet specific requirements. Here’s an outline of what you generally need to do:

Obtain Information from the Seller

Ensure you receive all relevant tax and sales records from the seller. This includes details about the business’s current sales tax registration and any outstanding tax liabilities.

Apply for a State Sales Tax Permit

Visit the Tennessee Department of Revenue website or contact them directly to apply for a sales tax permit. This process can typically be completed online.

Provide Required Information

• You will need to provide several pieces of information about the business:
• The legal name and federal employer identification number (FEIN) or social security number (SSN) if it's a sole proprietorship.
• Personal information about the business owners or principal officers.
• The business’s physical address and mailing address.
• The nature of the business and what types of goods or services you will be selling.

Submit Proof of Business Acquisition

Documentation showing the acquisition of the business, such as a bill of sale or purchase agreement, may be required to complete your registration.

Record-Keeping

Maintain accurate records of all sales, purchases, and tax collected. The Tennessee Department of Revenue may require periodic reporting and payment of sales taxes.

Pay the Registration Fee

There might be a registration fee that you'll need to pay when you apply for the sales tax permit.

Local Requirements

Check with the local city or county government for any additional local requirements or business licenses needed.

Other Tennessee registrations to consider

In Tennessee, alongside sales tax registration, there are several additional registrations and requirements you might need to consider, depending on the nature of your business:

Business Tax License: Most businesses in Tennessee must obtain a business tax license from the county and/or city where they operate. This license is typically required annually.

Employer Identification Number (EIN): If your business has employees, you’ll need to obtain an EIN from the IRS for tax purposes.

Unemployment Insurance: If you have employees, you will need to register for unemployment insurance through the Tennessee Department of Labor and Workforce Development.

Workers' Compensation Insurance: Most businesses with employees are required to carry workers' compensation insurance.

Professional Licenses: Depending on your business type, you may need professional or occupational licenses. Examples include healthcare providers, contractors, and real estate agents.

Alcohol Licenses: If your business involves selling alcohol, you will need to obtain the appropriate licenses from the Tennessee Alcoholic Beverage Commission (TABC).

Zoning and Land Use Permits: Depending on your business location and type, you may need to obtain zoning and land use permits from your local municipal or county government.

Franchise and Excise Taxes: Tennessee businesses may also be subject to franchise and excise taxes, which are business-related taxes administered by the Tennessee Department of Revenue.

Environmental Permits: If your business activities impact the environment, you may need specific environmental permits from the Tennessee Department of Environment and Conservation.

Requirements for online sellers in Tennessee

As of 2024, online sellers who conduct business with customers in Tennessee are required to collect and remit sales tax if they meet certain thresholds.

Specifically, an online seller is required to register for a sales tax permit and collect Tennessee sales tax if they have more than $100,000 in sales to Tennessee customers in the previous 12-month period. This applies to both in-state and out-of-state sellers.

Here are some key points to consider:

Economic Nexus Threshold: The threshold is $100,000 in sales to Tennessee customers. Once this threshold is met, the seller must begin collecting sales tax.

Sales Tax Permit: Sellers who meet this threshold need to register for a sales tax permit with the Tennessee Department of Revenue.

Tax Collection: Once registered, the seller must collect sales tax at the applicable state and local rates on taxable items sold to customers in Tennessee.

Filing Frequency: The frequency of sales tax filings will depend on the volume of sales and specific state guidelines. Filings can range from monthly to annually.

Remote Sellers: This requirement applies to all remote sellers, which includes those who do not have a physical presence in Tennessee but meet the economic nexus thresholds through online sales.

Collecting sales tax in Tennessee

In 2024, collecting sales tax in Tennessee involves understanding the state's tax regulations, registering for a sales tax permit, and ensuring timely, accurate filings. Retailers must collect tax on taxable goods and services, staying compliant to avoid penalties. This guide provides essential steps for efficient sales tax management in Tennessee.

Understanding origin vs. destination sales tax collection

Tennessee is a destination-based sales tax state. This means that sales tax is collected based on the location where the buyer receives the product or service. Businesses in Tennessee are required to charge sales tax at the rate applicable at the place of delivery.

For more detailed information on this, refer to the Tennessee Department of Revenue's website at: https://www.tn.gov/revenue/taxes/sales-and-use-tax.html

Taxable products in Tennessee

It's important to note that specific exemptions and conditions may apply to some of these categories. For example, sales tax exemptions might be available for certain agricultural supplies, medical equipment, or sales to non-profit entities.

Tangible Personal Property

Almost all physical goods fall into this category and are subject to sales tax unless specifically exempt. This includes items like:

• Electronics (e.g., TVs, computers)
• Furniture
• Clothing and footwear
• Household goods
• Motor vehicles

Prepared Food and Beverages

• Meals sold in restaurants, cafes, and similar establishments
• Pre-packaged prepared food
• Beverages sold at convenience stores or vending machines

Digital Goods and Services

• Digital books and e-books
• Movies, TV shows, and music downloads
• Software and applications
• Streaming services

Utilities and Telecommunication Services

• Electricity, water, and gas services (with some exemptions based on usage)
• Mobile phone services and landline services
• Internet service in some cases

Leased or Rented Goods

• Rental of tangible personal property, such as tools, equipment, and vehicles
• Leasing of personal property

Certain Services

While many services are not subject to sales tax, specific taxable services include:

• Repairs and maintenance for tangible personal property
• Installation service
• Lodging services like hotel and motel accommodations

Non-taxable products in Tennessee

As of 2024, the State of Tennessee provides certain exemptions from sales tax for various product genres. Here is an overview of some categories that are often exempt:

Groceries: Certain food items are taxed at a reduced rate of 4%, excluding candy, dietary supplements, and prepared food.

Medical Supplies: Some medical supplies and equipment, such as prescription medications and durable medical equipment, are exempt from sales tax.

Educational Materials: Textbooks and other educational materials for use in schools may be exempt from sales tax.

Agricultural Items: Certain items used directly in agricultural production, like seeds, fertilizers, and farm machinery, may qualify for exemptions.

Manufacturing Equipment: Equipment used directly in the fabrication of tangible personal property for resale is often exempt from sales tax.

Non-profit Organization Purchases: Certain purchases made by non-profit organizations may be exempt if they meet specific criteria.

For a comprehensive and updated list of exempt items, it is essential to consult the Tennessee Department of Revenue, as legislation and policies can frequently change.

Visit the Tennessee Department of Revenue's official website: Tennessee Department of Revenue.

Is SaaS taxable in Tennessee?

In Tennessee, the taxability of Software as a Service (SaaS) depends on specific use and delivery criteria.

Generally, SaaS may be subject to sales tax because it is treated as the sale of tangible personal property. Businesses must check specific regulations to ensure compliance with state tax laws for SaaS services in 2024.

Are digital products taxable in Tennessee?

In 2024, Tennessee considers digital products taxable.

This includes digital books, music, software, and similar items. Sales tax applies to these electronically delivered products similarly to tangible goods. Businesses selling digital products must collect and remit the applicable sales tax to the state.

Are services taxable in Tennessee?

In Tennessee, most services are generally not subject to sales tax.

However, specific services, such as those involving repairs, installation, or certain types of labor, may be taxable. It's important to check the latest state guidelines and exemptions to determine the taxability of particular services.

Sales tax exemption certificates

In Tennessee, sales tax exemption certificates allow qualifying businesses and individuals to purchase goods and services without paying sales tax.

These certificates are typically used by entities such as nonprofits, government agencies, and businesses reselling the purchased items. To obtain an exemption, the buyer must provide the seller with a valid, completed exemption certificate specific to Tennessee.

The seller must then keep this certificate on file as proof of the exempt transaction. Misuse of these certificates can result in penalties.

State tax holidays in Tennessee for 2024

Sales tax holidays are specific periods during which certain items can be purchased without paying sales tax. In Tennessee for 2024, there are currently no announced sales tax holidays.

Filing sales tax returns in Tennessee

Registration

Register for a sales tax account with the Tennessee Department of Revenue. This can be done online through the Tennessee Taxpayer Access Point (TNTAP).

Collection

Collect sales tax at the point of sale from customers. The state sales tax rate is 7%, and local rates vary.

Record Keeping

Maintain accurate records of all sales transactions. Include details such as date, amount, and tax collected.

Filing Frequency

Determine your filing frequency based on taxable sales volume. This could be monthly, quarterly, or annually.

Filing & Payment

File sales tax returns and remit payments via TNTAP. Ensure you file by the 20th of the month following the reporting period.

Returns

Complete the sales tax return accurately. Report gross sales, exempt sales, and taxable sales.

Payment Methods

Pay electronically through TNTAP using various payment options. Options include ACH debit, credit card, or EFT.

Confirmation

Save your confirmation receipt after filing and payment. This serves as proof of compliance. For comprehensive details, visit the Tennessee Department of Revenue.

Sales tax filing frequency

In Tennessee, the frequency of filing sales tax returns depends on the volume of taxable sales your business generates. Businesses with higher sales volumes are required to file more frequently than those with lower volumes. Generally, Tennessee categorizes businesses into monthly, quarterly, or annual filing statuses based on specific sales thresholds.

Additionally, new businesses typically start with monthly filings until enough data is collected to justify a different frequency. Tennessee's Department of Revenue reviews each business's activity periodically and may adjust the filing frequency based on the previous year's sales to ensure tax compliance.

Monthly Filing: If a business has gross sales of $2,400 or more per month, it is required to file sales tax returns on a monthly basis. Monthly filings are due by the 20th day of the month following the reporting period.

Quarterly Filing: Businesses with less than $2,400 but more than $1,200 in total taxable sales per quarter are required to file quarterly. These filings are due by the 20th day of the month following the end of each quarter. The quarters end on March 31, June 30, September 30, and December 31.

Annual Filing: For businesses with $1,200 or less in taxable sales per year, annual filing is permitted. Annual sales tax returns are due by January 20 of the following year.

Filing when no sales tax has been collected

In Tennessee, if a business is registered for sales tax but fails to collect it, they're still responsible for remitting the tax owed.

They must file their sales tax return, reporting the sales and paying the tax out of their funds. Continued non-compliance can result in penalties, interest on unpaid taxes, and potential legal action. The state emphasizes timely and accurate tax collection to avoid these consequences and ensure proper revenue for public services.

Penalties for late filing and non-payment of sales taxes

In Tennessee, businesses are required to file sales tax returns and remit the taxes collected from customers to the state’s Department of Revenue. If a business files its sales tax return late, it may face penalties and interest charges.

As of 2024, the penalty for late filing is typically 5% of the unpaid tax for each month the return is late, up to a maximum of 25%. Additionally, interest accrues on any unpaid tax from the due date until the tax is paid in full. This interest is calculated based on the IRS underpayment rate, which changes annually.

Non-payment of sales taxes in Tennessee is treated seriously, as sales taxes are funds collected from customers on behalf of the state. Failure to remit these taxes can lead to severe consequences. Initially, the business may incur penalties and interest similar to those for late filing.

Persistent non-payment can escalate to more serious legal actions, including liens on the business’s property, garnishment of wages, or even criminal charges. Furthermore, responsible persons within the business, such as officers or owners, can be held personally liable for the unpaid taxes. To avoid these repercussions, it is crucial for businesses to file and pay their sales taxes timely.

Sales tax discounts and incentives

In 2024, Tennessee offers several sales tax incentives and discounts designed to attract and support businesses.

One key incentive is the industrial machinery exemption, which allows manufacturers to purchase qualified manufacturing equipment without paying sales tax. This exemption helps reduce the upfront cost for manufacturers investing in new machinery and technology.

Another significant benefit is the research and development tax credit, which provides businesses conducting eligible R&D activities with a tax credit. This can significantly offset the costs associated with innovation and development.

Tennessee also offers a reduced sales tax rate for certain energy sources used in manufacturing processes. Businesses can take advantage of this lower rate for energy costs directly tied to production activities, helping to reduce operating expenses.

Additionally, businesses engaged in data center operations may qualify for sales tax exemptions on computers and other equipment, as long as they meet specific investment and job creation requirements.

2024 sales tax filing due dates for Tennessee

Monthly: 20th of the following month

Quarterly: 20th after quarter end

Shipping and sales tax in Tennessee

When to pay tax on shipping in Tennessee

In Tennessee, beginning on July 1, 2022, businesses are required to collect and remit sales tax on shipping and handling charges if the sale of the goods being shipped is subject to Tennessee sales tax. This means that if a business is selling tangible personal property and that sale is taxable, the charges for shipping (including handling or delivery fees) are also subject to sales tax.

It’s important to note that this applies regardless of whether the shipping charges are separately stated on the invoice or included in the total sales price. Therefore, in 2024, businesses in Tennessee would continue to pay sales tax on shipping and handling fees as long as the underlying sale of goods is subject to sales tax.

If the underlying sale is exempt from sales tax, then the shipping charges would similarly be exempt.