Tennessee Sales Tax Rates 2025: Rules, Penalties & Exemptions

Understanding Tennessee sales tax is crucial for businesses operating in the state. Whether you’re selling goods or services, knowing when and how to collect sales tax is key to staying compliant.

In this article, we’ll explore topics such as:

• When you are required to collect tax in Tennessee.
• How to register your business for sales tax.
• What goods and services are taxable, and which are exempt.
• The process of filing your sales tax returns.

Let’s get started!

What Is the Sales Tax Rate in Tennessee?

Tennessee has a base state sales tax rate of 7%, which is applied to most tangible goods and certain services sold within the state. In addition to the state tax, local jurisdictions (counties and cities) can impose their own sales taxes, further increasing the total rate that businesses must charge customers.

• State Sales Tax Rate: 7%
• Local Sales Tax Rate: Local jurisdictions can add up to an additional 2.75%.

For example, Nashville and Memphis both have a total sales tax rate of 9.75% (7% state + 2.75% local).

It’s crucial for businesses to understand both the state and local sales tax rates to ensure they are collecting the correct amount from customers. Knowing the local rates will help you avoid overcharging or undercharging sales tax.

Tennessee Sales and Use Tax Overview

As a business owner in Tennessee, you are required to collect state sales tax on taxable goods and services and remit the tax to the Tennessee Department of Revenue (DOR). The state applies sales tax on most tangible goods and certain services, and businesses must also be aware of the use tax for out-of-state purchases.

Key Features of Tennessee Sales Tax

• Sales Tax: Charged on tangible personal property and certain services.
• Use Tax: Applicable to purchases made out-of-state that are used or consumed within Tennessee where no sales tax was paid.

Taxable and Exempt Items

Generally, tangible personal property is subject to Tennessee sales tax unless a specific exemption applies. This includes:

• Clothing
• Certain Services
• Digital goods (taxed at the state rate of 7.0% plus a uniform local rate of 2.5%)
• Software as a Service (SaaS)
• Food (taxed at a reduced state rate of 4% plus the local rate)

Common examples of sales tax exemption in Tennessee include:

• Prescription drugs
• Property used primarily by a qualified farmer in agricultural operations
• Certain healthcare products
• Textbooks
• Certain agricultural products like seeds and fertilizers
• Food sold under WIC

For a comprehensive list of taxable and exempt items, refer to the Tennessee Department of Revenue’s guidelines and resources.

When Do Businesses Need to Collect Sales Tax in Tennessee?

Businesses in Tennessee must collect tax if they meet specific sales tax nexus requirements or sales thresholds. Here’s a breakdown:

Nexus Requirements:

1. Physical Nexus: Businesses with a physical presence in Tennessee must collect sales tax. This includes having a(n):

• Corporate presence
• Employee in the state
• Lease or rental of tangible personal property
• Ownership of real or personal property
• Independent contractors or other representatives in Tennessee

2. Economic Nexus: Out-of-state sellers with no physical presence in Tennessee must register and collect sales tax if they have more than $100,000 in sales to Tennessee in the prior 12-month period.

Other Requirements:

• In-State Businesses: Retailers based in Tennessee must collect sales tax based on the tax rate at the address where the sale originates.
• Annual Revenue: Businesses that generate at least $4,800 per year in revenue in Tennessee are required to have a sales tax permit.

If a business meets any of the above criteria and sells taxable goods or services to Tennessee residents, they are required to register with the state tax authority, collect sales tax per sale, file returns, and remit to the state.

Failure to Collect Tennessee Sales Tax

Tennessee imposes penalties for the late filing of sales tax returns or late payments. Awareness of these sales tax penalties is important to ensure compliance and avoid unnecessary costs.

Penalties for Late Filing and Payment

• Late Filing or Payment: Tennessee charges a penalty of 5% per month, up to a maximum of 25%, on late-filed returns or late payments. An additional penalty of 5% is charged for returns filed more than 30 days late.
• Minimum Penalty: Where a return or report is delinquent, the minimum penalty is $15, regardless of the amount of tax due or whether there is any tax due.
• Failure to File with No Sales: Even if you didn’t collect any Tennessee sales tax during the period, you still need to file a $0 sales tax return. Failure to file a return with $0 tax due leads to a penalty of $15.
• Interest: Interest also accrues on unpaid tax. As of May 2023, the interest rate is 12.50%, and it is compounded monthly.

Criminal Penalties:

Tennessee’s criminal penalty for failure to pay sales tax is a Class E felony. An offense involving less than $500 in use tax is a Class A misdemeanor.

To avoid penalties, it’s essential to file and pay sales tax on time. If facing challenges, consult with sales and use tax experts.

Tennessee Sales Tax for Out-of-State and Amazon FBA Program Sellers

Here’s what out-of-state sellers and Amazon FBA (Fulfillment by Amazon) program participants need to know about Tennessee sales tax:

Amazon FBA Sellers

• If you live in Tennessee but use FBA, use the rate of your home location. Do not use the rate of any of the warehouses.
• If you live out-of-state but sell through FBA, you can collect the sales tax rate at the buyer’s ship-to address for all orders shipped to Tennessee (i.e., destination-based sourcing), or collect the 7% state rate and just add 2.25% to all purchases, meaning you would charge a flat 9.25% rate to all Tennessee buyers.

Marketplace Facilitators

Marketplace facilitators are businesses that own or operate a website or other platform where sales are made on behalf of marketplace sellers.

Beginning October 1, 2020, marketplace facilitators that make or facilitate more than $100,000 in sales to Tennessee customers in the previous 12-month period are required to collect and remit Tennessee sales tax.

Registering for a Tennessee Seller’s Permit

To legally collect sales tax in Tennessee, you must obtain a sales tax permit (seller’s permit) from the Tennessee Department of Revenue (TDOR) online before making your first sale.

Steps to Register:

1. Online Application: Register online via the Tennessee Taxpayer Access Point (TNTAP) by clicking “Register a New Business” under “View Exemption/Registration Links”.
2. Account Type: Select “Sales and Use Tax” and complete the survey to determine if you need a Tennessee sales and use tax account.
3. Provide Information: Submit the required information.
   • Legal Business Name
   • Physical & Mailing Addresses
   • Business Entity Structure (Sole Proprietorship, LLC, etc.)
   • Federal Employer Identification Number (EIN)
   • Owner/Partner/Officer Details (Name, Address, SSN)
   • Date & State of Incorporation
   • Start Date in Tennessee (Nexus Start Date)
   • Estimated Monthly Sales Tax Liability
   • Estimated Annual Taxable Sales in TN
   • NAICS Code
   • Products to be sold
   • Reason for applying
   • Gross sales
   • Date business began
   • Type of ownership
   • Business activity
   • EDI/EFT, if applicable
4. Out-of-state businesses should select “foreign” when asked about the “State of Original Charter/Certification.”
5. Confirmation: You’ll receive a confirmation page and code. Your Sales Tax Permit and Resale Certificate should arrive in 7-14 business days.

How to Collect Sales Tax in Tennessee

Collection methods depend on how you sell:

• Brick-and-mortar: Use POS systems to set tax rates by location.
• Online stores (Shopify, Squarespace): Use integrated sales tax tools.

Tennessee is a destination-based state: calculate sales tax based on the buyer’s “ship-to” address. Use the TDOR Tax Rate Lookup Tool for correct rates. Itemize tax rates clearly on receipts.

For more information on managing sales tax, filing returns, and staying compliant, consult with Commenda. Our tools make it easy to track taxes and streamline your sales tax process.

Tax-Exempt Customers

Here’s a list of customers that come under sales tax exemption in Tennessee: 

• Nonprofit Organizations: Religious, educational, and charitable entities with proper certification.
• Government Entities: Federal, state, and local agencies on purchases for official use.
• Resellers: Businesses purchasing goods for resale with a resale certificate.
• Educational Institutions: Schools, colleges, and universities purchasing for educational purposes.
• Religious Institutions: Churches and religious organizations with proper documentation.

Filing Sales Tax Returns in Tennessee

Once you’ve collected sales tax, you must remit it to the TDOR. Filing a Tennessee sales tax return involves submitting the required sales data and remitting the collected tax. Tennessee sales tax returns and payments must be remitted at the same time and share the same due date.

Filing Frequency

The TDOR assigns your filing frequency, typically based on your business’s size or sales volume, with larger businesses generally filing more frequently.

Filing Steps

While Tennessee sales tax filing form SLS-450 is available for download, online filing via the TNTAP access point is required unless it creates a hardship for the filer. Here are the general steps to manually file a sales tax return in Tennessee:

1. Gather necessary information:
   • Your TaxJar sales tax report.
   • Your Tennessee sales and use tax account number.
   • Your state-assigned filing frequency.
   • Your Tennessee electronic filing login details.
   • Your bank account and routing number for payment.
2. Log in to TNTAP: Access the Tennessee Taxpayer Access Point website and sign in using your username and password. If you do not have a username and password, you will need to set one up.
3. Select Account: On your dashboard, select the “Sales and Use Tax” button for the relevant account.
4. File or Amend Return: Choose the correct filing period and select “File or amend a return.”
5. Enter Sales Data: Answer the questions and enter your sales data, including any exemptions on Schedule A.
6. Enter Local Taxes: Enter your local taxes by selecting the appropriate option and adding counties/municipalities as needed. Complete Schedule C if necessary.
7. Review and Submit: Carefully review all entered information before submitting your return.
8. Record Filing & Payment: Record your filing and payment in your accounting system for organized sales tax records and easy access later.

How to Pay Your Tennessee Sales Tax

Tennessee sales tax returns and payments must be remitted at the same time, and both have the same due date. You can file and pay directly through the Tennessee Taxpayer Access Point (TNTAP) by manually entering your transaction data.

Also read: State Sales Tax Filing: Due date, Applicability, and Filing process

Using Sales Tax Automation Tools

Sales tax automation tools simplify this process by streamlining calculations, filings, and reporting. These tools eliminate the risk of human error in tax calculations and filings and help ensure businesses remain compliant with all applicable laws, reducing the risk of penalties and audits.

One such solution is Commenda, which offers services to help businesses automate their sales tax compliance processes.

Here’s how Commenda can help:

• Sales Tax Automation: Automates sales tax calculation, exemption certificate management, and sales tax return filing.
• Multi-State and International Operations: Tracks nexus status, files sales tax returns, and ensures compliance for businesses operating in many US states and internationally.
• Nexus Analysis and Management: Tracks transactions and alerts you if your business approaches a threshold limit, helping you identify your sales tax nexus in time.
• Exemption-Certificate Management: Manages and ensures that exemption certificates are valid at the time of sales tax filing.
• Integrations: Seamlessly integrates with e-commerce platforms (Shopify, Amazon) and ERP systems.

Tennessee Sales Tax Compliance Checklist

To ensure sales tax compliance with Tennessee regulations, follow this checklist:

1. Determine Nexus: Establish if you have a physical or economic nexus in Tennessee.
2. Register for a Sales Tax Permit: Register online via the Tennessee Taxpayer Access Point (TNTAP).
3. Determine Taxability: Know which products/services are taxable or exempt in Tennessee.
4. Collect Sales Tax: Determine the correct combined tax rate and clearly itemize on receipts.
5. Manage Exemption Certificates: Obtain, verify, and document valid exemption certificates.
6. File Sales Tax Returns: File accurate returns online through TNTAP by the deadline.
7. Remit Sales Tax Payments: Pay sales tax on time via TNTAP.
8. Keep Accurate Records: Maintain detailed sales, exemption, and tax return records.
9. Stay Updated: Stay informed about changes to Tennessee sales tax laws.
10. Consider Sales Tax Automation: Explore tools like Commenda to streamline compliance.
11. Prepare for Audits: Maintain organized records and understand the audit process.

How Should I Prepare for Tennessee Sales Tax Audits and Appeals?

Here’s how to prepare for Tennessee sales tax audits and what to do if you need to appeal:

Understanding the Audit Process

• Audit Notification: Receive an audit notice outlining the period and records under review.
• Records Request: Auditors examine records to discover oversight or fraud.
• Examination: Auditors compare sales revenue, sales tax collected, and tax payments.
• Audit Report: An audit report with supporting documentation is produced.

Steps to Prepare for an Audit

1. Pre-Audit Diagnostic: Involve a tax professional to identify potential issues.
2. Key Records: Have ready invoices, sales records, purchase records, exemption documentation, and inventory.
3. Self-Audit:
   • Reconcile sales tax returns with federal tax returns.
   • Review exempt sales and documentation.
   • Reconcile the sales tax payable account.
   • Analyze fixed asset purchases for sales tax.
   • Locate expense accounts representing taxable purchases.

During the Audit

• Expect Review: Auditors review financial statements, tax returns, invoices, and exemption certificates.
• Have Representation: An experienced representative can manage requests and challenge assessments.
• Common Areas Audited: Advertising, auto/truck, repair/maintenance, office, miscellaneous, supplies, equipment.

Appealing the Results

• Exit Conference: Have a tax professional present during the exit conference.
• Review Assessment: Have a professional review the assessment before agreeing.
• Voluntary Disclosure Agreement (VDA): Consider a VDA to limit the lookback period and reduce penalties if applicable.

Also read: Sales Tax Audits: Common Triggers, Risks, and How to Prepare

Tennessee Sales Tax Rates by City

Here’s a list of some Tennessee cities and their corresponding total sales tax rates:

Don’t let sales tax complexities hold your business back. Simplify tax collection and ensure compliance with Commenda’s powerful sales tax automation tools. Schedule a free consultation with our experts today to see how we can help your business stay on track and avoid penalties.

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FAQs

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