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Tennessee’s state sales and use tax rate is 7 percent. The state also has discretionary taxes at the county and city levels. Tennessee taxes sales of tangible personal property, some services, certain digital products, amusements, computer software, telecommunications, and installation and repair of tangible personal property. Warranty contracts for tangible personal property and software maintenance contracts are also taxed.
Types of taxes
Tennessee’s main income source is sales and use tax on various items and services. Additionally, local jurisdictions can add sales tax to the state’s rate.
Sales and use tax for sales of goods and services
In addition to the sales tax rate of 7 percent, Tennessee has a complementary use tax. The use tax rate is the same as the sales tax. If a business does not pay tax on taxable items or services and stores or uses the item or service instead of reselling it, the business or individual must pay the use tax. An individual must pay the use tax if that person did not pay the sales tax on the purchase of the service or item.
Certain items have a special tax rate:
- Food: 4 percent.
- Aviation fuel: 4.25 percent.
- Industrial water for manufacturers: 1 percent.
- Industrial energy fuel for manufacturers: 1.5 percent.
- Electricity for a qualified data center: 1.5 percent.
- Interstate and international telecommunications sold to businesses: 7.5 percent.
- Manufactured homes: 3.5 percent.
- Video programming services (e.g., cable TV): 8.25 percent.
- Satellite TV services: 8.25 percent.
- Qualified common carriers direct pay use tax: 3.75 percent.
Sales tax returns and payments are due on the 20th day of every month, on the 20th day of the month following each quarter, or on January 20th for those filing annually.
Alcoholic beverage taxes
Tennessee has a three-tier system for alcohol taxes. All three tiers must be licensed. A retailer can only purchase alcohol from a wholesaler and the wholesaler from the manufacturer or importer. In most cases, manufacturers and wholesalers cannot sell alcohol to a consumer.
Beverage brands must register with the Tennessee Department of Revenue and pay a brand registration tax. Additionally, the state taxes each gallon of alcoholic beverages. This tax is usually paid by manufacturers but could be paid by wholesalers, direct shippers, common carriers, and wineries.
The third tax is the alcoholic beverage wholesale tax, which is also paid by wholesalers. Tennessee’s taxes and due dates are as follows:
- Brand Registration Tax, paid by the manufacturer or importer. The tax is due before the brand enters the state and is $250 per brand for distilled spirits, $0 for wine, and $100 per brand for high-alcohol beer.
- Brand Renewal Tax: This tax is due each year on or before May 31. $250 for 50 or more cases of distilled spirits per brand, $100 per brand for less than 50 cases of distilled spirits, $250 per brand for 250 or more cases of wine, $0 for less than 250 cases of wine, and $100 per brand for high-alcohol beer.
- Alcoholic Beverage and Wine Gallonage Tax: Usually paid by the wholesaler, a winery manufacturer, Armed Forces Imports Licensee, common carriers, and direct shipper licensee. The tax is due on the 15th of each month except for common carriers, who pay on the 30th of the month, and direct shipper licensees, who pay annually. The tax is:
- $1.21 per gallon for wine and high alcohol beer with an alcohol content of more than 7 percent ABW.
- $4.40 per gallon for distilled spirits with an alcohol content of more than 7 percent ABW.
- $1.10 per gallon for alcoholic beverages with an alcohol content of 7 percent or less ABW.
- Alcoholic Beverage Enforcement Tax: This tax is paid by the wholesaler at the rate of $0.15 per case. It is due every month on the 15th of the month.
Automobile rental surcharge tax (Leases)
Business taxpayers that rent motor vehicles must collect and remit a rental surcharge of 3 percent of the gross proceeds of the rental. The tax is due on the 15th of the month following the quarter. Quarterly payments are due on April 15, July 15, October 15, and January 15. The tax applies to all rentals for 31 or fewer days and includes charges for insurance, gas, etc.
Bail bond tax
Bail bondsmen must collect a bail bond tax on each bond they write. A bondsman collects the tax from the person who pays the bond on behalf of the accused before the bond is written. Tennessee’s bond tax is $12 per bail bond and is due each quarter on April 25, July 25, October 25, and January 25.
Tennessee charges a beer barrelage tax on distributing, selling, storing and manufacturing beer. Wholesalers that distribute beer pay the barrelage tax. However, the manufacturer pays the barrelage tax when:
- The manufacturer operates as a retailer and sells beer to other retailers in the same county; or
- When the manufacturer operates as a retailer or holds a license as a limited-service hotel or restaurant, or operates as a restaurant.
The wholesale tax, which is separate from the barrelage tax, is a tax on every case of beer sold by wholesalers. If a manufacturer self-distributes, it is responsible for the wholesale tax.
All manufacturers and wholesalers must register with the Tennessee Department of Revenue annually and pay the registration fee.
The taxes are as follows:
- Beer barrelage tax: Paid by the wholesaler or manufacturer. The tax is $4.29 per one-gallon barrel and is due on the 20th of every month.
- Wholesale beer tax: Paid by a self-distributing manufacturer or a wholesaler. The tax is $35.60 per 31-gallon barrel and is due on the 20th of every month. This tax is remitted to counties and municipalities.
- Beer manufacturer registration fee: This fee is paid by the manufacturer and is due every year on December 31. The tax is $40.
- Beer wholesaler registration fee: This fee is paid by the wholesaler and is $20. It is due every year on December 31.
Tennessee business tax
Most Tennessee businesses must pay a tax on gross receipts. The business tax is actually two separate taxes: The state business tax and the city business tax. If you have a physical presence or a financial nexus in the state, you must pay the tax.
The tax rate varies based on the business classification. The Tennessee Department of Revenue provides a listing of various classifications and tax rates for businesses.
Coin-operated amusement tax
Businesses that own coin-operating amusement machines for use by the general public must pay the coin-operated amusement tax. An amusement machine automatically provides music or other entertainment when the consumer inserts a coin, token or another object (e.g., credit card, cash) into the machine.
The tax is actually two separate taxes: A annual license tax due on July 1 every year and a per machine tax. The machine tax is due on the date the machine is put into service and every year on July 1. The individual machine tax is $10 per machine.
The license tax depends on the number of machines the business owns as follows:
- Level One License: $500 for 50 or fewer machines.
- Level Two License: $1,000 for 51 to 200 machines.
- Level Three License: $2,000 for more than 200 machines.
Fantasy sports tax
The fantasy sports tax, a privilege tax, is 6 percent on the adjusted revenues of fantasy sports contests. The fantasy sports operator – not the consumers – pays the tax. Operators must register with Tennessee’s Secretary of State. Tax returns are due quarterly on the 20th day of the month following the quarter.
Franchise and excise tax
Tennessee corporations, limited liability companies, limited partnerships and business trusts must pay a franchise tax on the net worth or book value of real and tangible personal property, whichever is greater. The excise tax is based on the company’s net earnings (income) for the tax year.
The minimum franchise tax is $100, even if the company is inactive. Taxes are due as follows:
- Annually: On the 15th day of the fourth month following the close of the business’s books. If the fiscal year is January through December, the tax is due on April 15.
- Quarterly estimated payments: On the 15th day of the month following the end of the quarter. Businesses must pay quarterly if the combined tax liability is $5,000 or more in the previous and current tax years.
The franchise tax is 0.25 percent and the excise tax is 6.5 percent of Tennessee’s taxable income.
Gross receipts tax
Tennessee levies a gross receipts tax on certain business activities. If sales are subject to the gross receipts tax, the business does not pay the business tax on them. The following pay gross receipts instead of business taxes:
- Bottlers: Businesses that produce and sell bottled soft drinks in Tennessee. Importers are also subject to the tax. Bottled soft drinks include nonalcoholic beverages except fruit juice, vegetable juice, milk and cider. The type of container does not exclude a business from paying the tax. The tax is due each year on August 1. The tax is 1.9 percent of gross receipts.
- Gas, Water, and Electric: Businesses that furnish gas, water or electricity to dealers, municipalities, consumers and other types of customers must pay a utilities privilege tax. Federal and state governmental agencies are exempt. The tax is due each year on August 1. The utility tax is 3 percent of gross receipts from intrastate business. Manufacturers pay 1.5 percent of their gross receipts.
- Businesses that operate vending machines can choose to pay gross receipts tax instead of sales tax on vending sales. The vending machine must be operated for the benefit of a charitable nonprofit organization, the merchandise must have a value of $0.25 or less, and the machine is built so that it offers only a fixed price for the item and is not capable of giving change or being adjusted to change the price. The tax is due quarterly on the first of November, February, May, and August. Vending taxes are 1.5 percent for non-tobacco sales.
- Mixing bar: Businesses that sell setups for soft drinks, water and ice for mixed drinks or alcoholic beverages are subject to the mixing bar tax. The establishment allows patrons to bring their own alcoholic beverages and provides the setups so that consumers can mix their own drinks. The tax is due on the 20th day of each month. The mixing bar tax is 15 percent of gross receipts.
Liquor by the drink tax
Businesses that sell alcoholic beverages by the drink must collect and remit a 15-percent tax. The tax also applies to alcoholic beverages purchased via drive-throughs, pick-up, carryout, and delivery orders. The tax is due on the 15th of each month.
Motor fuel taxes
Tennesse has seven motor fuel taxes. Fuel taxes include:
- Gasoline: Special Tax: $0.01 per gallon.
- Gasoline: Environmental Assurance Fee: $0.004 per gallon.
- Gasoline: Gasoline Tax: $0.26 per gallon.
- Diesel: $0.27 per gallon.
- Liquified gas: $0.22 per gallon.
- Compressed Natural Gas: $0.21 per gallon.
- Export tax: Paid in lieu of the special tax for petroleum products stored in Tennessee for export from Tennessee. This tax is 1/20th of $0.01 per gallon if the special tax was already paid.
All taxes are due on the 20th day of every month, except liquified gas, which is due on or before July 25 of every year for users and the 25th of April, July, October, and January for dealers. The tax for compressed natural gas is due on the 25th of each month.
Registering for and filing Tennessee’s taxes
Businesses must sign up for a tax account and file tax returns and remit state and local sales taxes online.
Tennessee sales tax holiday
The state has a sales tax holiday but has not published the dates for 2022.
Remote and marketplace sellers and retail sales tax
Remote sellers and marketplace facilitators (or sellers if the facilitator does not collect the tax) must register for and pay Tennessee sales tax on retail sales into Tennessee if their gross receipts are over $100,000 per year.
The Tennessee sales tax is 7 percent plus local taxes.
Each business that registers with the Tennessee Department of Revenue will receive a resale certificate. Each location needs a separate certificate.