Your 2024 Guide to State Taxes in Tennessee

What's the sales tax rate in Tennessee? Is there a state income tax? How much are property taxes? Find out these answers and more.

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Your 2024 Guide to State Taxes in Tennessee

Posted by Gary Ashton on Thursday, May 9th, 2024 at 10:23am.

What Are the Tax Rates in Tennessee?

Tennessee is known for its favorable tax climate, which includes the absence of a state income tax. This means that individuals and businesses can keep more of their hard-earned money. Although other taxes exist, such as sales tax, property tax, and gas tax, the rates are still relatively low compared to many other states. The advantageous tax landscape is, in fact, one of the factors that often sway homebuyers comparing Tennessee with North Carolina and other states.

Let's break down taxes in Tennessee.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Tennessee's Tax Landscape: What Makes It Unique

No State Income Tax: Tennessee is one of the few states with no personal income tax, making it a significant draw for residents. It means that whether you're earning a salary, freelancing, or enjoying retirement, the state won't take a portion of your hard-earned income.

Tennessee Property Tax: Property taxes are determined by local governments, with the average effective property tax rate being 0.77%.

Tennessee Sales Tax: While there's no income tax, Tennessee's sales tax system has a few quirks to be aware of.

  • Base Rate: The starting point is a 7% statewide sales tax applied to most purchases. This rate is relatively low compared to other states.
  • Exempted Items: Certain necessities have reduced tax rates or are exempted from sales tax entirely.
  • Additional Single Item Tax: For items costing over $1,600, a further 2.75% tax is charged on the portion exceeding that amount. This extra tax only applies to the portion of the item's price that exceeds $1,600.
  • Local Variations: Remember, your final sales tax bill depends on your specific county or city. The combined state and local sales tax rate can vary, with an average combined rate (state + local) of around 9.55%.

Example: If you purchase a new TV for $2,500 in Tennessee, the sales tax calculation would be as follows:

  • 7% of $1,600 (the portion up to $1,600) = $112
  • 2.75% of $900 (the portion over $1,600) = $24.75
  • Total sales tax = $112 + $24.75 = $136.75

Remember that neighboring counties can have significant variations in sales tax rates. In Davidson County—which encompasses Nashville—the local sales tax rate is 2.25%. Throughout neighboring Williamson County cities like Franklin, on the other hand, the rate is 2.75%.  

Taxable and Exempt Items

In Tennessee, the sales tax system provides certain consumer benefits and considerations. Groceries are taxed at a reduced rate of 4%, providing some relief to consumers. However, potential local taxes may still apply, so it's important to factor those in when budgeting for groceries.

Conversely, clothing is subject to the total sales tax rate, which can make back-to-school shopping sprees more expensive. Prescription drugs offer a significant advantage as they are exempt from sales tax, benefiting individuals who rely on regular medications.

Property taxes greatly influence home purchases, and Tennessee offers good news for homeowners. The state's property taxes are generally lower than the national average, making homeownership more attainable and reducing the financial burden of property ownership. The local government assesses the value of your property, which is used to determine your property tax bill. Exemptions or reduced tax rates may be available for some properties, such as owner-occupied homes and agricultural land. These factors combine to create a favorable environment for homeowners in Tennessee, encouraging individuals and families to consider purchasing property in the state.

Senior-Focused Tax Relief: Tennessee Senior Tax Breaks

Senior Tax Exemptions in Tennessee

Property Tax Relief Program: If you're 65 or older and have a qualifying income, you could get a reimbursement for your property taxes. Visit the Tennessee Department of Revenue website for details.

The Property Tax Freeze program stabilizes property taxes for eligible low-to-moderate-income homeowners, typically 65 or older, who meet specific income and residency requirements. The program locks in the property's assessed value, preventing future tax increases even if property values rise. Benefits include tax stabilization, protection from tax hikes, and affordability. 

Homeowners can apply through their local tax assessor's office. Renewal requirements may exist, and there may be exceptions to the eligibility criteria. It's important to note that while the assessed value is frozen, the property's market value may fluctuate. The Property Tax Freeze program can help homeowners manage their property taxes and maintain the stability of their housing situation.

Tennessee Vehicle Taxes

When purchasing a car in Tennessee, be prepared to pay the 7% sales tax and the higher-priced items tax. Additionally, it's essential to check for any applicable local taxes. On the other hand, Tennessee's gas tax of $0.274 per gallon gives drivers a break compared to many other states, making it a relatively reasonable cost.

Tennessee Taxes on Alcohol & Tobacco

Cigarettes: Expect a $0.62 per pack tax on the retail price, which is in line with many other states.

Other Tobacco Products: Cigars, chewing tobacco, and snuff carry a 6.6% tax based on their wholesale price.

Alcohol Taxes: Tennessee takes drinking seriously! The beer, wine, and liquor tax varies by type and alcohol content. The Tennessee Department of Revenue website has the complete list to help you calculate costs. Cheers to that!

Other Tennessee Taxes to Note

Hall Income Tax: This tax specifically targets interest and dividend income. The good news is it's gradually being phased out, meaning fewer people will need to worry about it yearly.

Excise and Franchise Taxes (Geared Towards Businesses):  These taxes are primarily focused on businesses operating within Tennessee. They likely won't be on your radar if you're an individual taxpayer. However, business owners should consult the Tennessee Department of Revenue for specifics.

Lifestyle and Cost of Living in Tennessee

The cost of living in Tennessee enhances the state’s appeal significantly. Some advantages of living in budget-friendly Tennessee include:

Affordable Housing: While prices vary across the state, home prices in Tennessee tend to be lower than the national average. Whether you're considering urban condos in Nashville or sprawling homes in the suburbs, you might be surprised by how much further your dollar stretches.

Lower Overall Expenses: Groceries, transportation, and utilities are often more reasonably priced in Tennessee than in higher-cost states. This translates to daily savings that add up over time.

Regional Variations: Costs are higher in bustling cities like Nashville or Memphis. However, even in these hubs, you'll often find more affordable living options compared to similar-sized cities in other regions of the country.

A Budget-Friendly Lifestyle: Tennessee lets you enjoy a comfortable lifestyle without breaking the bank.  Many find it easier to save money, pursue hobbies, and take advantage of all the state offers, from its vibrant music scene to its stunning natural beauty.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Navigating Tennessee Taxes: What to Remember & Where to Find Help

The absence of state income tax significantly impacts the economy in Tennessee, attracting both individuals and businesses. However, staying informed about sales tax, its nuances, property tax (and the relief programs available), and any other taxes relevant to your situation is vital.  Remember, where you live and what you purchase can significantly impact your overall tax picture.

Taxes are personal! Think of this guide as your Tennessee tax primer. Use it to understand the basics, then dive deeper into the Tennessee Department of Revenue resources. Consider your planned county of residence, whether you'll be a homeowner or renter, and your income sources. The Department of Revenue website is your go-to for the most up-to-date forms, official tax rates, and potential calculators to help you map out your unique tax obligations.

Ready to move to the great state of Tennessee? Call The Ashton Real Estate Group of RE/MAX Advantage with Nashville's MLS at (615) 603-3602 to talk with a real estate agent who can help you find your dream Tennessee home.


Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 RE/MAX team in the World!

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