Sales Tax APIThe same engine Zamp customers use.Navigating Tennessee’s sales tax can seem daunting, with intricate rules and deadlines.
But don’t worry; we’re here to simplify things in this Tennessee sales tax guide.
We’ll tell you how to calculate sales tax for each county and city in Tennessee, discuss tax exemptions, and determine if you’re required to collect it at all.
We’ll also let you in on a reliable solution to streamline your entire process and ensure sales tax compliance across the United States.
Collecting Tennessee Sales Tax from Customers
Here are a few questions you may have about Tennessee state sales tax collection.
Do I Have to Collect Tennessee Sales Tax from Customers?
If you meet these two requirements, then you need to collect sales tax in Tennessee:
- You have a sales tax nexus in Tennessee
- You sell taxable products or services in Tennessee
What Creates a Sales Tax Nexus in Tennessee?
If you meet any of these conditions, then you’ll have a sales tax nexus in Tennessee:
- Economic Nexus: Out-of-state businesses that have sold more than $100,000 in a tax year.
- Physical Location: Businesses with stores, offices, warehouses, or inventory. Using company-owned trucks or contract carriers can also create a sales tax nexus.
- Employee Location: Businesses with employees, independent contractors, and agents in the state.
- Tangible Personal Property: Businesses that rent and lease tangible personal property. Repairing, installing, and assembling tangible personal property, even if you use an agent or independent contractor, also creates a sales tax nexus in Tennessee.
- Events: Businesses participating in promotional activities, including trade shows. Vendors who only attend these special events occasionally and haven’t registered for sales tax in Tennessee can apply for a Special Event Vendor Registration.
Learn more about the sales tax nexus and when you’re required to collect sales tax.
Do I Have to Collect Sales Tax from Tennessee Customers if I Sell on Amazon, Walmart, Ebay, or Etsy?
No.
Tennessee has a marketplace facilitator law, which means that marketplaces like Amazon or eBay are required to collect sales tax on behalf of 3rd party sellers on their platforms.
If you have a sales tax nexus in Tennessee, you must still collect sales tax on your other non-marketplace Tennessee sales.
Further, Tennessee specifies that in-state sellers are still required to register for a sales tax permit even if they only have an economic nexus through marketplaces.
Taxable Products in Tennessee
Some products and services in Tennessee are taxed at lower state sales tax rates. For example, food and its ingredients are taxed at 4.000%, while the sales tax of industrial water for manufacturers is at 1.000% of the sales price.
Additionally, Tennessee also imposes a Single Article Local Tax, where the local option tax is only charged on the first $1,600 of a single item’s purchase price. This applies to items like cars, software, boats, trailers, and more.
For instance, if someone buys a car for $20,000 in Nashville, and the local sales tax rate is 2.250%, they would pay $36 in local tax (2.250% of $1,600 is $36).
Let’s take a detailed look at how items are taxed in Tennessee:
Are Groceries Taxable in Tennessee?
Yes, groceries are taxable in Tennessee, but at a reduced state tax rate of 4.000% of the sales price.
Further, local areas might impose an additional sales tax on groceries.
Is Clothing Taxable in Tennessee?
Yes, clothing is taxable in Tennessee.
Are Digital Products Taxable in Tennessee?
Yes.
Digital products are taxable in Tennessee. However, they are taxed at the state’s 7.000% sales tax rate and a standardized 2.500% local sales tax rate.
Is Software-as-a-Service (SaaS) Taxable in Tennessee?
Yes, SaaS is taxable in Tennessee.
Are Services Taxable in Tennessee?
Services are non-taxable unless specifically listed by the sales tax law or sold as part of a taxable sale of a tangible product. Taxable services include:
- Cleaning of tangible personal property
- Enriching of uranium materials
- Lodging services
- Parking and storing motor vehicles
- Repair or installation (including mending, altering, refinishing, etc.) of tangible personal property
- Short-term space rental
- Telecommunications
Tax-Exempt Items
Here are some items that have a tax exemption:
- Drugs prescribed by a licensed physician. It also includes medical equipment, like nebulizers, prescribed by a licensed physician and for home use.
- Broadband equipment purchased by an internet service provider.
- Industry machinery and supplies purchased by a manufacturer.
- Health and fitness clubs.
- Rental of films, transcriptions, and recordings to radio stations and television stations that have the certificate from the Federal Communications Commission.
- Gas, electricity, fuel, oil, coal, and other energy fuels sold to the consumer for residential use.
- Textbooks, workbooks, newspapers, and come periodicals.
- Specified digital goods that are not taxable in their tangible form (electronically transferred digital audio-visual works).
Additionally, Tennessee state tax law offers an entity-based tax exemption where some purchasers, such as qualified farmers and manufacturers, can buy certain items tax-free or at a discounted rate.
All products bought by government entities and non-profit organizations are also tax-exempt.
How to Register for a Tennessee Sales Tax Permit
You can register for a Tennessee sales tax permit at TNTAP.
Learn how to register for a sales tax or seller’s permit in every US state.
Do I Need a Tennessee Sales Tax License if I’m Only a Wholesaler?
Yes.
You’re considered a wholesaler if over 50% of your total sales come from wholesale transactions.
A wholesale transaction may include, but is not limited to:
- Selling to a retailer for resale.
- Selling materials that go into a resale product.
- Selling goods to the government or a nonprofit.
In such cases, most items have a retailer and wholesaler rate. Once you’ve identified as a wholesaler, you should apply for a Business Tax Wholesaler Certificate. It’ll be available through the Department’s TNTAP portal when you file your business tax return.
Do I Need a Tennessee Seller’s Permit if I Only Sell Temporarily in the State?
Yes. All sellers making sales in the state, even temporarily, such as at a craft fair or flea market, must register and collect Tennessee sales tax.
How to Collect Sales Tax in Tennessee
A. How to Collect Sales Tax on Intrastate Tennessee Sales
Tennessee uses origin-based sales tax sourcing for in-state sales. This means that sales tax is charged at the rate of the location from which the order originates.
So, if your online store’s headquarters is in Tazewell, Tennessee, and you sell to a buyer in Knoxville, Tennessee, then you’d charge the sales tax rate of Tazewell, where the sale started.
B. How to Collect Sales Tax on Interstate Tennessee Sales
For interstate sales, Tennessee is a destination-based sales tax sourcing state.
So, if you are located in South Dakota but make a sale to a buyer in Tennessee, you would charge the sales tax rate at your buyer’s location in Tennessee.
This is with the exception of digital products, which are subject to the 7.000% Tennessee state tax rate and a 2.500% local tax rate across the state.
Zamp Tip
Effective July 1, 2024, the Tennessee Works Tax Act requires destination-based sourcing for sales of services performed on tangible personal property and computer software. The Tennessee Works Tax Act also applies to marketplace facilitators and leased property.
Find out more about sales tax on shipping in every US state.
How to File and Pay Sales Tax in Tennessee
Here are some ways you can file Tennessee sales tax returns:
- File and pay online: File and pay sales and use tax return at the TN TaxPayer Access Point (TNTAP).
- File and pay by mail: File out Form SLS-450 State and Local Sales Tax Return and mail it in.
- Let Zamp handle your Tennessee sales tax filing and remittance so you never have to look at a sales tax return again!
Explore how you can file and pay sales tax in other US states.
