TN Sales Tax

Skill Metadata

Skill Metadata

Field	Value
Jurisdiction	Tennessee, United States
Jurisdiction Code	US-TN
Tax Type	Sales and Use Tax
State Tax Rate	7% (standard); 4% on grocery food
Maximum Combined Rate	9.75% (7% state + 2.75% max local)
Primary Legal Framework	Tennessee Code Annotated (T.C.A.) Title 67, Chapter 6
Governing Body	Tennessee Department of Revenue (TNDOR)
Filing Portal	TNTAP (Tennessee Taxpayer Access Point) -- https://tntap.tn.gov
Economic Nexus Effective Date	October 1, 2019
SST Member	Yes (associate member)
No State Income Tax	Yes -- Tennessee has NO state income tax (Hall Tax on investment income was repealed effective Jan 1, 2021)
Contributor	Open Accounting Skills Registry
Validated By	Pending -- requires US CPA or Enrolled Agent sign-off
Validation Date	Pending
Skill Version	1.0
Confidence Coverage	Tier 1: rate lookups, basic nexus, standard taxability. Tier 2: single article cap, SaaS taxability, food rate distinctions. Tier 3: audit defense, penalty abatement, complex bundled transactions.
Format	Restructured to Q1 execution format, April 2026

Confidence Tier Definitions

Every rule in this skill is tagged with a confidence tier:

• [T1] Tier 1 -- Deterministic. Apply exactly as written. No reviewer judgement required.
• [T2] Tier 2 -- Reviewer Judgement Required. Claude flags the issue and presents options. A licensed CPA, EA, or tax attorney must confirm before filing.
• [T3] Tier 3 -- Out of Scope / Escalate. Do not guess. Escalate to a licensed tax professional.

Step 0: Client Onboarding Questions

Before proceeding with any Tennessee sales tax analysis, collect the following from the client: [T1]

If the client cannot answer questions 1-4, STOP and gather this information before proceeding. [T1]

Client Onboarding Questions

#	Question	Why It Matters
1	Do you have a Tennessee sales tax registration / tax ID?	Determines whether registration is needed before filing.
2	What is your current filing frequency (monthly / quarterly / annually)?	Controls which return periods to prepare.
3	What is your nexus type -- physical presence, economic nexus, or both?	Determines registration obligations and applicable rules.
4	Are you a marketplace seller (selling through Amazon, Etsy, etc.)?	Marketplace facilitator may already be collecting on your behalf.
5	What types of products or services do you sell in Tennessee?	Drives taxability classification under Tennessee law.
6	Do you sell to exempt entities (government, nonprofits, resellers)?	Determines whether exemption certificates must be collected and retained.
7	Do you have locations, employees, or inventory in Tennessee?	Physical presence creates nexus independent of economic thresholds.
8	Do you sell into multiple Tennessee local jurisdictions?	Local tax rates vary; determines compliance complexity.

Step 1: Tax Rate Structure

1.1 State Rate

• State sales tax rate — 7% percent (retail sale of tangible personal property and certain services; one of the highest state-level sales tax rates in the US) (T.C.A. Section 67-6-202)

1.2 Reduced Rate on Grocery Food

• Reduced rate on grocery food effective Jan 1, 2024 — State rate on food and food ingredients reduced to 4% effective January 1, 2024 (down from 5%); local taxes still apply to food (T.C.A. Section 67-6-228)

1.3 Local Rates

Local Rates

Tax Component	Rate Range	Authority
State tax (general)	7.0%	T.C.A. Section 67-6-202
State tax (grocery food)	4.0%	T.C.A. Section 67-6-228
Local option tax (county)	1.5% -- 2.75%	T.C.A. Section 67-6-702
Maximum combined (general)	9.75%
Maximum combined (grocery)	6.75%

Tennessee has among the highest combined sales tax rates in the United States. Some jurisdictions reach the 9.75% maximum. [T1]

1.4 Single Article Cap on Local Tax [T1]

• Single article cap on local tax — Tennessee caps the local sales tax on a single article (single item) at $1,600. Local tax applies only to the first $1,600 of the sales price of a single article. The state 7% tax applies to the full price (no cap). The cap applies per individual item, not per transaction. (T.C.A. Section 67-6-702(a))

Example: A $50,000 boat -- state tax: $50,000 x 7% = $3,500 (no cap). Local tax: $1,600 x 2.75% (max) = $44 (capped at local tax on $1,600 only).

1.5 Sourcing Rules [T1]

• Sourcing rules — Tennessee is generally an origin-based sourcing state for intrastate sales. Intrastate over-the-counter: seller's location. Intrastate shipped: origin-based (seller's location). Interstate (remote sellers): destination-based.

Step 2: Transaction Classification Rules

2.1 General Rule

• General taxability rule — Tennessee sales tax applies to the retail sale of tangible personal property and certain enumerated services. (T.C.A. Section 67-6-201)

2.2 Taxability Matrix

Taxability Matrix

Item Category	Taxable?	Rate	Authority	Tier
General tangible personal property	Yes	7% state + local	T.C.A. Section 67-6-202	[T1]
Grocery food (food for home consumption)	Yes (reduced rate)	4% state + local	T.C.A. Section 67-6-228	[T1]
Prepared food (restaurant meals)	Yes	7% state + local	T.C.A. Section 67-6-102(31)(F)	[T1]
Clothing and footwear	Yes	Full rate	No exemption	[T1]
Prescription drugs	Exempt	0%	T.C.A. Section 67-6-314(a)(1)	[T1]
Over-the-counter drugs	Yes	Full rate	Not exempt	[T1]
Durable medical equipment	Exempt (certain items with prescription)	0%	T.C.A. Section 67-6-314	[T1]
Motor vehicles	Yes	7% state + local (single article cap on local)	T.C.A. Section 67-6-202	[T1]
Gasoline and motor fuel	Exempt from sales tax (motor fuel tax)	N/A	T.C.A. Section 67-6-329	[T1]
Utilities (residential electricity)	Yes	Full rate	T.C.A. Section 67-6-202	[T1]
Utilities (natural gas, residential)	Yes	Full rate	T.C.A. Section 67-6-202	[T1]
Industrial machinery (direct use in manufacturing)	Exempt	0%	T.C.A. Section 67-6-206	[T2]
Agricultural equipment and supplies	Exempt	0%	T.C.A. Section 67-6-207	[T1]
Software -- canned (tangible medium)	Yes	Full rate	T.C.A. Section 67-6-102(44)	[T1]
Software -- canned (electronic delivery)	Yes	Full rate	T.C.A. Section 67-6-231	[T1]
Software -- custom	Yes	Full rate	T.C.A. Section 67-6-231	[T2]
SaaS (Software as a Service)	Taxable	Full rate	T.C.A. Section 67-6-231; TNDOR guidance	[T2]
Digital goods (e-books, music, video)	Yes	Full rate	T.C.A. Section 67-6-231	[T1]
Data processing services	Not taxable	0%	Not enumerated	[T2]
Extended warranties/service contracts	Yes	Full rate	T.C.A. Section 67-6-102(44)	[T1]

2.3 SaaS Taxability -- Tennessee Position [T2]

• SaaS taxability position — Tennessee taxes SaaS and digital products broadly. Tennessee enacted specific legislation (effective July 1, 2015) taxing "specified digital products" and "software access services" (which includes SaaS). Specified digital products include digital audio works, digital audiovisual works, digital books, and any other electronically transferred product. Software access services (SaaS) are defined as the right to access and use software where the end user does not receive a copy. This is explicitly taxable. (T.C.A. Section 67-6-231; T.C.A. Section 67-6-102(89))

2.4 Services Taxability [T2]

Services Taxability

Service	Taxable?	Authority
Repair and installation of TPP (labor + parts)	Yes	T.C.A. Section 67-6-102(44)
Telecommunications	Yes	T.C.A. Section 67-6-102(44)(C)
Cable/satellite TV	Yes	T.C.A. Section 67-6-226
Parking (commercial)	Yes	T.C.A. Section 67-6-212
Amusement and recreation	Yes (admissions)	T.C.A. Section 67-6-212
Hotel/lodging	Yes (plus local hotel/motel tax)	T.C.A. Section 67-6-202
Professional services (legal, accounting)	No	Not enumerated
Personal services (haircuts, spa)	No	Not enumerated
Construction/real property	No (materials taxable at purchase)	DOR guidance
Transportation/freight (separately stated)	Not taxable	T.C.A. Section 67-6-102(44)

Step 3: Return Form Structure

3.1 Registration

• Registration requirement — All sellers with nexus must register through TNTAP for a sales and use tax certificate of registration. No fee for registration. (T.C.A. Section 67-6-601)

3.2 Filing Frequency

Filing Frequency

Monthly Tax Liability	Filing Frequency	Due Date
Over $400 per month	Monthly	20th of the following month
Under $400 per month	Quarterly	20th of month following quarter-end

Note: TNDOR assigns frequency at registration. Annual filing is not generally available for sales tax. [T1]

3.3 Returns and Payment

• Returns and payment requirements — Form SLS 450 (Sales and Use Tax Return) is filed through TNTAP. Electronic filing is required for all registrants. Payment is due on the same date as the return. Both state and local taxes are reported on the same return.

3.4 Vendor Discount

• Vendor discount for timely filing — 2% of the first $2,500 of tax due per return period. Maximum discount: $50 per return period. Available only for timely filing and payment. (T.C.A. Section 67-6-508)

3.5 Penalties and Interest

Penalties and Interest

Violation	Penalty	Authority
Late filing	5% per month, up to 25%	T.C.A. Section 67-1-804
Late payment	Same as late filing	T.C.A. Section 67-1-804
Failure to file	Estimated assessment + penalties	T.C.A. Section 67-1-1501
Fraud	50% of deficiency	T.C.A. Section 67-1-804
Interest	Statutory rate (currently ~7.25%)	T.C.A. Section 67-1-801

Step 4: Deductibility / Exemptions

5.1 Tennessee Exemption Certificates

Tennessee Exemption Certificates

Certificate	Use Case	Authority
Form ST-14 (Certificate of Resale)	Purchases for resale	TNDOR
Form F-13 (Sales Tax Exemption -- Industrial Machinery)	Manufacturing equipment	T.C.A. Section 67-6-206
Form ST-18 (Agricultural Exemption Certificate)	Farm equipment and supplies	T.C.A. Section 67-6-207
SSTCE (Streamlined certificate)	Multi-state purchases	SST Agreement
Government exemption letter	Government entity purchases	T.C.A. Section 67-6-320

5.2 Requirements [T1]

• Valid exemption certificate requirements — Valid certificates must include purchaser information, Tennessee registration number (for resale), reason for exemption, description of goods, signature, and date.

5.3 Good Faith and Retention [T2]

• Good faith and retention rule — Good faith acceptance protects sellers. Certificates must be retained for 3 years from the date of the last transaction.

6.1 When Use Tax Applies

• When use tax applies — Tennessee use tax applies when sales tax was not collected on items used, stored, or consumed in Tennessee.

6.2 Use Tax Rate

• Use tax rate — The use tax rate equals the sales tax rate: 7% state + applicable local. The single article cap applies to local use tax as well.

6.3 Use Tax Reporting

• Use tax reporting — Businesses: Report on Form SLS 450. Individuals: Report on Tennessee Consumer Use Tax Return (or via optional reporting on any state filing).

Step 5: Key Thresholds

4.1 Physical Nexus

• Physical nexus — Standard physical nexus principles apply.

4.2 Economic Nexus [T1]

Tennessee enacted economic nexus effective October 1, 2019.

Economic Nexus Thresholds (T.C.A. Section 67-6-524)

Threshold	Value	Measurement Period
Revenue	$100,000 in sales into Tennessee	Previous 12 months
Transactions	N/A (revenue only)
Test	Revenue only

4.3 Marketplace Facilitator Rules [T1]

• Marketplace facilitator rules effective October 1, 2020 — Marketplace facilitators meeting the nexus threshold must collect and remit. Marketplace sellers relieved for facilitated sales. (T.C.A. Section 67-6-102(24)(C))

Step 6: Filing Deadlines and Penalties

Refer to Step 3 for filing frequencies and due dates. [T1]

PROHIBITIONS

1. NEVER advise that grocery food is exempt in Tennessee (it is taxable at a reduced 4% state rate + local). [T1]
2. NEVER advise that SaaS or digital goods are not taxable in Tennessee (both are explicitly taxable). [T1]
3. NEVER ignore the single article cap on local tax when calculating tax on items over $1,600. [T1]
4. NEVER use a transaction-count threshold for Tennessee economic nexus (revenue only, $100K). [T1]
5. NEVER state that Tennessee has a state income tax (it does not, since Jan 1, 2021). [T1]
6. NEVER apply the reduced food rate to prepared food or restaurant meals (those are taxed at the full 7% rate). [T1]
7. NEVER forget to apply local taxes in Tennessee -- local rates can add up to 2.75% to the state rate. [T1]
8. NEVER assume origin-based sourcing applies to remote/interstate sales (destination-based applies for remote sellers). [T1]
9. NEVER cap the state tax at $1,600 -- only the LOCAL tax has the single article cap. [T1]
10. NEVER advise that Tennessee offers a generous vendor discount -- the maximum is $50 per period. [T1]

Edge Case Registry

7.1 Single Article Cap Application [T1]

• Single article cap application scenarios — The single article cap on local tax ($1,600) creates interesting scenarios: High-value items: A $100,000 piece of equipment pays 7% state tax ($7,000) on the full price, but local tax only on $1,600 (e.g., at 2.75% = $44 local). Total: $7,044. Multiple items: Each item in a transaction is evaluated separately. A purchase of 10 items at $500 each: local tax applies to the full $500 per item (since each is under $1,600). Bundled items: If items are sold as a unit, the bundle is treated as one article. [T2]

7.2 No State Income Tax Impact [T1]

• No state income tax impact — Tennessee has no state income tax (the Hall Tax on interest and dividends was fully repealed effective January 1, 2021). Sales tax is a critical revenue source for the state. Tennessee has less incentive to reduce sales tax rates. The high combined rate (up to 9.75%) partially compensates for no income tax. Businesses relocating to Tennessee for income tax savings must budget for higher sales tax costs. [T2]

7.3 Manufacturing Exemptions [T2]

• Manufacturing exemptions — Tennessee provides a broad manufacturing exemption: Machinery used directly and primarily in manufacturing is exempt. [T2] Raw materials incorporated into finished products are exempt. [T1] The "directly and primarily" test requires that the machinery's primary purpose be manufacturing (51%+ of use). [T2] Energy fuel and water used in manufacturing are exempt. [T2] (T.C.A. Section 67-6-206)

7.4 Sales Tax Holiday [T1]

• Sales tax holiday — Tennessee holds an annual sales tax holiday (typically late July/early August): Clothing ($100 or less per item): exempt from state and local tax. School supplies ($100 or less per item): exempt. Computers ($1,500 or less): exempt. Specific dates and items vary annually -- verify with TNDOR each year.

7.5 Short-Term Rental Tax [T2]

• Short-term rental tax rules — Short-term rentals (less than 90 consecutive days) are subject to: State sales tax (7%). Local sales tax. Additional state and local occupancy taxes. [T2] Marketplace facilitators (Airbnb, VRBO) collect and remit.

7.6 Amusement Tax / Admissions [T1]

• Amusement tax / admissions rules — Admissions to amusement, sports, and entertainment events are taxable: State rate of 7% applies. Local rates apply. Nonprofit exempt events may be excluded with proper documentation. [T2]

7.7 Waste Collection Services [T2]

• Waste collection services taxability — Tennessee taxes certain waste collection and disposal services: Commercial waste collection: taxable. [T2] Residential waste collection: may be exempt in some circumstances. [T2]

Test Suite

Test 1: Basic Rate Calculation [T1]

Question: A retailer in Nashville (2.25% local) sells a $200 pair of shoes. What is the total sales tax?

Expected Answer: State: $200 x 7% = $14.00. Local: $200 x 2.25% = $4.50. Total: $18.50.

Test 2: Grocery Food Rate [T1]

Question: A consumer buys $300 in groceries in Memphis (2.25% local). What tax is due?

Expected Answer: State: $300 x 4% = $12.00. Local: $300 x 2.25% = $6.75. Total: $18.75.

Test 3: Single Article Cap [T1]

Question: A customer buys a $50,000 boat in a county with 2.75% local tax. What is the total sales tax?

Expected Answer: State: $50,000 x 7% = $3,500 (no cap). Local: $1,600 x 2.75% = $44 (capped). Total: $3,544.

Test 4: SaaS Taxability [T2]

Question: A Tennessee business subscribes to a $500/month SaaS CRM tool. Is Tennessee sales tax due?

Expected Answer: Yes. Tennessee explicitly taxes SaaS. At Nashville's rate: $500 x 9.25% = $46.25/month.

Test 5: Economic Nexus [T1]

Question: An out-of-state seller made $90,000 in sales and 400 transactions in Tennessee. Does the seller have nexus?

Expected Answer: No. Tennessee's economic nexus is revenue-only at $100,000. The seller is below the threshold. Transaction count is not relevant.

Test 6: No Income Tax Context [T1]

Question: A company considering relocating from New York to Tennessee asks about the overall tax burden. What should be highlighted about sales tax?

Expected Answer: Tennessee has no state income tax, but it has one of the highest combined sales tax rates (up to 9.75%). The 7% state rate is among the highest in the US. Businesses must factor in higher sales tax costs on purchases to offset income tax savings.

Test 7: Sales Tax Holiday [T1]

Question: During Tennessee's sales tax holiday, a customer buys a $90 shirt and a $120 pair of boots. Which qualify?

Expected Answer: The $90 shirt qualifies ($100 or less) and is exempt. The $120 boots do NOT qualify (exceeds $100 threshold) and are fully taxable.

Reviewer Escalation Protocol

Reviewer Escalation Protocol

Trigger	Action
Any [T3] tagged item encountered	STOP. Do not guess. Escalate to licensed CPA, EA, or tax attorney.
Client has audit notice or assessment	Escalate immediately. Do not advise on audit response.
Multi-state nexus question involving 3+ states	Flag for senior reviewer with multi-state experience.
Penalty abatement or voluntary disclosure	Escalate to licensed professional with state-specific experience.
Ambiguous taxability of a product/service	Present both interpretations to reviewer with supporting authority.

Contribution Notes

• This skill follows the Q1 execution format (Step 0 through Step 7).
• All rules are tagged [T1], [T2], or [T3] per the Confidence Tier Definitions.
• Rate tables are deterministic lookup tables -- no narrative explanation of rates.
• To update this skill, submit a pull request with the specific section, supporting statutory authority, and effective date of the change.
• All changes require validation by a US CPA or EA before merging.

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com. Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes.