From boutiques in downtown Nashville to barbecue restaurants in Memphis, coffee shops in Chattanooga, and ecommerce brands shipping statewide, Tennessee sales tax affects nearly every retail business operating in the Volunteer State. Whether you sell from a storefront, a food truck, a farmers market booth, or an online checkout, understanding how Tennessee sales tax works is essential to staying compliant and protecting your margins.
Tennessee’s sales tax system is straightforward at the state level, but it becomes more complex once you add in local rates, filing requirements, exemptions, and due dates. This guide walks through how Tennessee sales tax works, how to calculate and file it correctly, and how automation tools like DAVO by Avalara can remove much of the administrative burden.
What is the Tennessee sales tax?
Tennessee imposes a 7% state sales and use tax on the retail sale, lease, or rental of most tangible personal property, as well as certain services. Local jurisdictions can also levy additional sales taxes, which means the total rate varies depending on where a sale takes place.
Local option sales tax rates are set by counties and municipalities and generally range from 1.50% to 2.75%. Combined state and local rates typically fall between 8.50% and 9.75%.
Here are a few examples:
- Nashville combined sales tax rate: 9.25%
- Memphis combined rate: 9.75%
- Chattanooga combined rate: 9.25%
For the most up-to-date local rate information, find current local sales tax rates on the Tennessee Department of Revenue website.
For remote sellers and marketplace sellers, Tennessee generally uses destination-based sourcing, meaning the applicable rate is based on the buyer’s delivery location rather than the seller’s location.
How to calculate Tennessee sales tax?
At its simplest, Tennessee sales tax is calculated by multiplying the taxable sales price by the combined state and local tax rate where the sale occurs.
Sales price × total sales tax rate = sales tax due
For example, assume a retail shop in Nashville sells a jacket for $100. With a combined sales tax rate of 9.25%, the calculation would look like this:
$100 × 0.0925 = $9.25 in sales tax
The customer pays $109.25 total, and the business is responsible for collecting and remitting the $9.25 to the state.
Things become more complicated when a business sells across multiple counties, operates mobile locations, or ships products to different delivery addresses. Each location may have a different local rate, and applying the wrong rate can result in underpayments or penalties.
Use our reverse sales tax calculator
Many businesses want to display a “tax-included” price and need to work backward to determine how much tax to collect. This is common for food trucks, pop-up vendors, and cash-based sales environments, not to mention mobile sellers who operate in multiple jurisdictions.
Our reverse sales tax calculator simplifies this process. Just enter the local sales tax rate and the final display price to accurately calculate the tax owed. You can use the end price to update your POS system.
What is subject to sales tax in Tennessee?
In Tennessee, sales tax generally applies to tangible personal property, amusements, digital products, and certain services. Common taxable items include:
- Clothing, shoes, and accessories
- Furniture and home furnishings
- Electronics and appliances
- Prepared food and beverages
- Alcoholic beverages
- Toys, books, and household goods
- Digital audio-visual works, digital audio works, and digital books
- Specified digital products are taxed at the state rate of 7% and a standard local tax rate of 2.5%, instead of the local tax rate in effect in a county or municipality.
- Membership or admission to places of amusement, sports, entertainment, or recreation
- Online retail sales shipped to Tennessee addresses
The Tennessee Department of Revenue provides detailed guidance on taxable items and services in its Sales and Use Tax Manual.
Businesses selling both taxable and non-taxable items must track each category carefully to ensure correct reporting.
Does Tennessee charge sales tax on services?
Tennessee taxes fewer services than some states, but certain services are taxable when specifically listed in statute. Some specifically listed services include:
- Repair or installation of tangible personal property or computer software
- Lodging services and rooms
- Short-term space rental to a dealer or vendor without a permanent location in Tennessee
- Cleaning tangible personal property and animal bathing
- Parking and storing of motor vehicles
- Telecommunication services
- Television programming services
Most professional services, such as legal, accounting, and consulting services, are not subject to Tennessee sales tax. However, service providers should review state guidance carefully, as taxability often depends on how a service is bundled or billed.
The Department of Revenue’s Sales and Use Tax Manual outlines which services are taxable and under what conditions.
Make your sales tax less taxing with DAVO.
Tennessee sales tax on food
Food taxation in Tennessee depends on how the food is sold.
- Food and food ingredients (groceries) are generally taxed at a reduced state rate of 4%, plus the applicable local tax rate.
- Prepared food sold by restaurants, cafes, and food trucks is subject to the full 7% state sales and use tax rate, plus the applicable local sales tax rate.
Some food items do not qualify as food or food ingredients and are taxed at the 7% rate plus the applicable local sales tax rate. Such foods include:
- Alcoholic beverages: beer, wine, distilled spirits
- Breath mints, spray, and strips
- Candy and candy-coated items
- Any preparation containing flour or requiring refrigeration is not considered candy.
- Cigarettes and other tobacco items
- Cough drops and lozenges
- Gum
- Herbal/dietary supplements, vitamins, and minerals
Prepared food typically includes meals sold hot, food intended for immediate consumption, and items sold with utensils. Restaurants and food trucks must apply the correct rate based on preparation and point of sale.
Businesses that sell prepared food, including full-service restaurants, quick service restaurants (QSRs), convenience stores, independent grocers, cafes, and mobile food operations, often manage multiple tax rates depending on location, product type, and how food is sold. For businesses operating multiple locations or mobile units, tracking the correct local rate for each transaction can become time-consuming.
DAVO by Avalara helps restaurants and prepared-food businesses automatically set aside the exact amount of sales tax owed from each transaction and remit it on time, even when operating across jurisdictions with different rates.
What is exempt from sales tax in Tennessee?
Tennessee sales and use tax exemptions can generally be divided into three categories: entity-based exemptions, product-based exemptions, and use-based exemptions. Some exemptions require the use of an exemption certificate, and others do not.
Common exemptions include:
- Sales for resale with a valid resale certificate
- Certain agricultural supplies and equipment
- Manufacturing machinery and industrial supplies
- Prescription drugs and medical devices
- Sales to exempt organizations, such as qualifying nonprofits and government entities
The Tennessee Department of Revenue outlines exemption categories and documentation requirements on its website.
How to manage tax-exempt sales in Tennessee?
Managing exempt sales requires consistent processes and recordkeeping. Businesses should:
- Collect and retain valid exemption or resale certificates
- Verify certificate accuracy and expiration dates
- Store exemption documentation with transaction records
- Report exempt sales accurately on sales tax returns
Exemptions must be properly documented. Without valid exemption documentation, the seller remains liable for the tax, even if the customer claims exemption.
If you don’t maintain proper documentation, you may open yourself to assessments during an audit. Automation tools can help flag exempt transactions and maintain digital records, reducing risk and administrative workload.
Tennessee sales tax holiday
Tennessee’s annual sales tax holidays take place on the last Friday in July each year at 12:01 am through 11:59 pm the following Sunday. During these holidays, qualifying items such as clothing, school supplies, and some computers may be exempt from state sales tax up to specified price thresholds.
Tax-free purchases include:
- Clothing and school supplies priced at $100 or less per item.
- Computers for personal use priced at $1500 or less.
- Qualifying items purchased online and in stores.
Businesses must update point-of-sale systems in advance to apply exemptions correctly during the holiday period.
How to register for a Tennessee sales tax license?
Businesses must register for a Tennessee sales and use tax account before making taxable sales. Registration is completed through the Tennessee Taxpayer Access Point, also known as TNTAP. Click on “Register a New Business” on the homepage.
During registration, businesses will need to provide:
- Legal business name and DBA, if applicable
- Federal Employer Identification Number (FEIN) or Social Security number
- Owner/officer details
- Business address and mailing address
- Description of business activities
- Estimated monthly taxable sales
- Bank information if enrolling in electronic payments
Once the application is approved, most businesses receive their sales tax account number within a few business days. This account number is required to file returns and remit tax.
Marketplace facilitators and out-of-state dealers
Marketplace facilitators operate a website or other platform where sales are made on behalf of third parties (“marketplace sellers”). Marketplace facilitators that make or facilitate more than $100,000 in sales to Tennessee customers in the previous 12-month period are required to register, collect, and remit Tennessee sales tax. Marketplace facilitators that do not have at least $100,000 in total sales in Tennessee do not have to collect sales tax.
In-state marketplace sellers should register in Tennessee even if all sales are made through a marketplace facilitator.
Out-of-state dealers with no physical presence (“remote sellers”) in Tennessee who make $100,000 or more in sales to Tennessee customers must register and collect Tennessee sales and use tax. Remote dealers may register through the online Tennessee Taxpayer Access Point (TNTAP) under “Register a New Business.” Dealers may also register with Tennessee by accessing the Streamlined Sales Tax Registration System.
How to file Tennessee sales tax?
All sales and use tax returns and associated payments must be submitted electronically through the TNTAP.
- Log in to the TNTAP portal.
- In the Sales & Use Tax section of TNTAP, click View/File Returns.
- Click the reporting period for which you need to file, or click File Now.
- Respond if you have a return file to upload.
- Select a Location ID to enter filing details. Continue until you have entered details for all locations listed. Pay attention to error messages indicating missing information.
- After you have entered all information for all locations and you are ready to file your return, click Next.
- You can upload supporting documents, if applicable.
- The Payment screen offers your payment options: ACH Debit and credit card.
Businesses must file a return even if no tax is due for the period. A zero return confirms there were no taxable sales and prevents late filing penalties.
How to pay Tennessee sales tax?
Tennessee accepts several electronic payment methods, including:
- ACH debit through TNTAP
- ACH credit initiated by the taxpayer’s bank
- Electronic funds transfer
- Credit card (Visa, Mastercard, American Express, or Discover) through approved third-party payment processors. An additional service fee will likely apply.
Paper checks are generally discouraged and may not be accepted for certain filers. Late payments may result in penalties and interest.
DAVO helps businesses by automatically setting aside sales tax daily and remitting payments on the business’s behalf. This removes the risk of spending tax funds and missing due dates.
Tennessee sales tax due dates
Tennessee sales and use tax applies on an accrual basis, not a cash basis. Therefore, taxpayers should report all taxable transactions that occur during the month associated with the return (this includes reporting credits and deductions).
TN DOR assigns the filing frequency, which may be monthly, quarterly, or annually, depending on sales volume. Dealers with an average monthly tax liability of $1,000 or less, as adjusted to reflect inflation, are authorized to file monthly or quarterly.
Reporting annually generally applies only to manufacturers, wholesalers, and marketplace sellers that only make sales through a marketplace facilitator that is collecting Tennessee sales and use tax.
| Filing Frequency | Due Date |
|---|---|
| Monthly | 20th day of the month following the end of the reporting period |
| Quarterly | 20th day of the month following the end of the quarter (January 20, April 20, July 20, October 20) |
| Annually | January 20 |
If the due date falls on a weekend or holiday, it moves to the next business day.
Sales tax deduction for out-of-state dealers
For out-of-state businesses that are not legally required to register in Tennessee, the state offers a deduction equal to 2% of the first $2,500 of state tax due and 1.15% of any amount over $2,500 per filing period, as long as the return is filed on time.
If you operate outside of Tennessee, don’t miss out on states that offer on-time sales tax discounts. DAVO returns this collection allowance to the business in full, which is sometimes enough to cover the entire subscription cost.
What is the Tennessee sales tax late payment penalty?
Late filings and payments may result in penalties and interest. Tennessee generally imposes a penalty based on the amount of tax due, plus annual interest, that accrues until the balance is paid.
A penalty of 5% of the unpaid amount is added when a payment is delinquent or deficient. An additional 5% is added each month the amount is unpaid, up to a maximum of 25%. The current rate of interest is 11.5% per annum. You can view the calculated penalty and interest through TNTAP.
Penalties can apply even if a business intended to pay but missed the deadline. Filing on time, even with zero tax due, is critical to avoiding unnecessary charges.
Tennessee taxpayers can petition for a waiver of the late payment penalty.
How DAVO can help with Tennessee sales tax
From gift shops in Nashville and breweries in Chattanooga to restaurants in Memphis and ecommerce brands shipping statewide, Tennessee sales tax compliance touches every part of a retail operation. Managing different rates, due dates, exemptions, and filings manually can quickly become overwhelming.
DAVO automates the most stressful parts of sales tax by setting aside funds daily, filing, and paying sales tax for you on time, every time, guaranteed. Instead of worrying about deadlines and penalties, business owners can focus on growth, customers, and running their business with confidence.
If Tennessee sales tax feels like a constant distraction, automation may be the simplest way to stay compliant and regain your time.
Choose your POS system to get started with DAVO.
Additional Tennessee sales and use tax information:
