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Tennessee Sales and Use Tax Guide
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Extracted from PDF file 2024-tennessee-sales-and-use-tax-guide.pdf, last modified December 2024Sales and Use Tax Guide
‘ December 2024 Chapter 1: Introduction ......................................................................................................... 16 General Overview ........................................................................................................................... 16 1. Administration.................................................................................................................... 16 2. Transactions Subject to Sales & Use Taxes .................................................................... 16 3. Rates and Impositions ....................................................................................................... 17 4. Credits ................................................................................................................................. 18 5. Exemptions ......................................................................................................................... 18 Tennessee Works Tax Act.............................................................................................................. 19 1. Use Tax on Services to Tangible Personal Property and Computer Software .......... 19 2. Magazine and Book Distribution Exemption ................................................................. 20 3. Cooperative Direct Mail Advertising ................................................................................ 20 4. Sourcing Provisions ........................................................................................................... 20 Chapter 2: Nexus .................................................................................................................... 22 Historical Overview ........................................................................................................................ 22 Tennessee Nexus Requirements ................................................................................................. 22 1. Out-of-State Dealers with no Physical Presence in Tennessee ................................... 23 2. Local Sales Tax Reporting by Out-of-State Dealers ....................................................... 24 Chapter 3: Administrative Requirements ........................................................................... 26 Registration Generally ................................................................................................................... 26 Registration Process ...................................................................................................................... 26 1. Consumers or Business Users ......................................................................................... 27 2. Flea Market Operators & Dealers .................................................................................... 28 3. Revocation of Certificate of Registration ........................................................................ 28 Filing and Payments ....................................................................................................................... 29 1. Filing through TNTAP ......................................................................................................... 29 2. Filing through an Approved Software Vendor ............................................................... 30 3. Filing through the Streamlined Central Registration System ...................................... 30 Filing Periods and Due Dates ........................................................................................................ 30 1. Filing Periods ...................................................................................................................... 30 2|Page 2. Filing and Payment Due Dates ......................................................................................... 30 1099-K Filing Requirement ............................................................................................................ 31 Rules for Billing Sales Tax .............................................................................................................. 31 1. Invoicing .............................................................................................................................. 31 2. Installment or Credit Sales ............................................................................................... 32 Refunds ............................................................................................................................................ 32 1. Refund Requests Made by Dealers ................................................................................. 32 2. Refund Requests Made by Customers............................................................................ 33 Statutes of Limitations ................................................................................................................... 34 1. Assessments ....................................................................................................................... 34 2. Refunds ............................................................................................................................... 34 3. Statute Waivers .................................................................................................................. 35 Penalties .......................................................................................................................................... 35 1. Penalties and Penalty Rates ............................................................................................. 35 2. Penalty Waivers .................................................................................................................. 36 Interest............................................................................................................................................. 38 Records Maintenance .................................................................................................................... 39 1. Records Requested ............................................................................................................ 39 2. Record Retention ............................................................................................................... 40 3. Failure to Retain Records .................................................................................................. 41 Assessment and Informal Conferences ...................................................................................... 41 Change in Business Ownership and Closing Your Business .................................................... 41 Closing Your Sales and Use Tax Account Through TNTAP .................................................... 42 Successor Liability .......................................................................................................................... 42 Responsible Person Liability ......................................................................................................... 44 Chapter 4: Common Sales Tax Concepts ............................................................................. 46 Overview .......................................................................................................................................... 46 Commonly Used Terms in Sales Tax Law ................................................................................... 46 1. Auctioneers, Agents, and Factors .................................................................................... 46 2. Business .............................................................................................................................. 46 3. Commissioner .................................................................................................................... 47 3|Page 4. Dealer .................................................................................................................................. 47 5. Leases and Rentals ............................................................................................................ 49 6. Marketplace Facilitator ...................................................................................................... 53 7. Person ................................................................................................................................. 53 8. Resale .................................................................................................................................. 54 9. Retail Sale ............................................................................................................................ 54 10. Retailer ................................................................................................................................ 54 11. Sale ...................................................................................................................................... 54 12. Sales Price ........................................................................................................................... 56 13. Specified Digital Product ................................................................................................... 56 14. Tangible Personal Property .............................................................................................. 56 15. Use ....................................................................................................................................... 57 Chapter 5: Sales Tax Imposition on Services and Tangible Personal Property................ 58 Taxable Services ............................................................................................................................. 58 1. Repair of Tangible Personal Property or Computer Software ..................................... 59 2. Installation of Tangible Personal Property or Computer Software ............................. 61 3. Lodging Services & Rooms ............................................................................................... 62 4. Short-Term Space Rented by Dealers ............................................................................. 65 5. Cleaning Tangible Personal Property .............................................................................. 65 6. Parking and Storage of Motor Vehicles .......................................................................... 69 7. Telecommunications Services .......................................................................................... 70 8. Ancillary Services ............................................................................................................... 71 9. Uranium Enrichment ......................................................................................................... 72 10. Television Programming Services .................................................................................... 72 11. Made to Order Sales .......................................................................................................... 72 Nontaxable Services in Connection with Real Property ............................................................ 72 Tangible Personal Property........................................................................................................... 73 1. Coins, Currency, and Bullion ............................................................................................ 74 2. Hemp-Derived Products ................................................................................................... 74 3. Artwork Used in Advertising Materials ........................................................................... 76 Chapter 6: Use Tax ................................................................................................................. 78 4|Page Overview .......................................................................................................................................... 78 1. Definitions ........................................................................................................................... 78 2. Use Tax Imposition ............................................................................................................ 79 Activities Subject to Use Tax ......................................................................................................... 79 1. Specified Digital Products and Video Game Digital Products ...................................... 80 2. Use Tax on Certain Services to Tangible Personal Property ........................................ 80 When Use Tax Does Not Apply ..................................................................................................... 81 1. Personal Items Moved into Tennessee ........................................................................... 81 2. Import for Export ............................................................................................................... 82 3. Interstate Commerce - Title and Property Pass outside the State .............................. 82 4. Storage of Tangible Personal Property ........................................................................... 83 5. Tangible Personal Property Held for Resale .................................................................. 83 Contractor’s Use Tax ...................................................................................................................... 84 1. Contractor’s Use Tax ......................................................................................................... 84 2. Contractor-Dealers ............................................................................................................ 84 3. Exemptions ......................................................................................................................... 85 4. Tax on Fabricated Materials ............................................................................................. 87 5. Installation of Industrial Machinery ................................................................................ 88 6. Property Owned by the United States Government ..................................................... 88 7. Qualified Disaster Restoration ......................................................................................... 88 Credit for Taxes Paid in Another State ........................................................................................ 90 Chapter 7: Sourcing Sales to Tennessee .............................................................................. 91 Overview .......................................................................................................................................... 91 Sourcing Sales and Leases from Out of State into Tennessee ................................................. 91 1. Sourcing Sales into Tennessee......................................................................................... 92 2. Sourcing Lease or Rental of Tangible Personal Property Imported into Tennessee 93 3. Marketplace Facilitator Sourcing ..................................................................................... 94 Sourcing Sales and Leases from a Place of Business in Tennessee ........................................ 95 Sourcing Services to Tangible Personal Property and Computer Software ........................... 96 Florists .............................................................................................................................................. 97 Sourcing Sales of Direct Mail ........................................................................................................ 98 5|Page 1. Sourcing Sales of Direct Mail ............................................................................................ 99 2. Purchasers Must Provide Delivery Information ..........................................................100 Chapter 8: Local Sales Tax Imposition ............................................................................... 103 Overview ........................................................................................................................................103 Local Tax Limitations ...................................................................................................................103 Local Option Tax Rates ................................................................................................................104 Local Sourcing Rules ....................................................................................................................104 1. Sales at Special Events ....................................................................................................104 2. Food Trucks ......................................................................................................................105 Single Article..................................................................................................................................105 Chapter 9: Single Article ...................................................................................................... 106 Overview ........................................................................................................................................106 Single Article Local Tax ................................................................................................................106 1. Local Tax Base Limitations .............................................................................................106 2. Reporting Local Single Article Sales ...............................................................................108 State Single Article Tax ................................................................................................................108 1. Reporting State Single Article Sales Tax ........................................................................108 Example Calculations ...................................................................................................................108 Single Article: Lease or Rental of Tangible Personal Property ...............................................109 Single Article: Software ................................................................................................................110 Single Article Application to Sales of Boats and Trailers .........................................................110 1. Applying the Single Article Cap and the State Single Article Tax ...............................111 2. Examples ...........................................................................................................................111 Motor Vehicles ..............................................................................................................................113 Manufactured Homes ..................................................................................................................114 Tractors ..........................................................................................................................................114 Chapter 10: Marketplace Facilitators ................................................................................ 116 Background ...................................................................................................................................116 1. Marketplace Facilitators and Marketplace Sellers .......................................................116 2. When Must a Marketplace Collect Tennessee Sales Tax? ..........................................119 3. Exceptions to Marketplace Facilitator Collection Requirement ................................119 6|Page 4. Delivery Network Company Election .............................................................................121 Marketplace Facilitator Administration .....................................................................................121 1. Sourcing Sales Made through Marketplace Facilitator ...............................................121 2. Facilitated Sales Must be Reported Separately ...........................................................121 3. Auditing a Marketplace Facilitator .................................................................................122 4. Exemption Certificates – Purchases for Resale ...........................................................123 5. Claims for Refund ............................................................................................................124 Chapter 11: Sales Price (Purchase Price) and Bundled Transactions ............................. 125 Sales Price (Purchase Price) ........................................................................................................125 1. Consideration ...................................................................................................................126 2. Miscellaneous Taxes Listed on Invoice .........................................................................127 3. Federal Excise Taxes ........................................................................................................128 4. Finance/Carrying Charges...............................................................................................129 5. Late Charges .....................................................................................................................129 6. Delivery Charges ..............................................................................................................130 7. Installation Charges .........................................................................................................133 8. Services Necessary to Complete Sale ...........................................................................133 9. Trade-in Credit .................................................................................................................134 10. Discounts ..........................................................................................................................134 11. Credit Card Surcharges ...................................................................................................136 12. Restocking Fees ................................................................................................................136 Bundled Transactions and the True Object Test......................................................................137 1. True Object Test Application ..........................................................................................137 2. Examples of True Object Test ........................................................................................138 Chapter 12: Tangible Personal Property vs. Realty .......................................................... 141 Overview ........................................................................................................................................141 Realty vs Tangible Personal Property ........................................................................................141 1. Intent of the Parties .........................................................................................................141 2. Objective Factors .............................................................................................................142 Restaurant Equipment .................................................................................................................145 Pipeline and Railroad Components ...........................................................................................147 7|Page 1. Installation of Pipelines ...................................................................................................147 2. Installation of Railroads ..................................................................................................147 3. Unattached Pipeline and Railroad Components .........................................................147 Fiber-Optic Cable ..........................................................................................................................147 Electricity for Electric Vehicles ....................................................................................................148 Chapter 13: Computer Software ......................................................................................... 149 Historical Overview ......................................................................................................................149 Sale of Computer Software .........................................................................................................149 1. Computer Software .........................................................................................................150 2. Remotely Accessed Software .........................................................................................151 Sales Price/Purchase Price of Computer Software ..................................................................152 Services ..........................................................................................................................................152 1. Nontaxable Services ........................................................................................................152 2. Installation and Repair Services .....................................................................................154 3. Computer Software Configuration and Training .........................................................154 Single Article..................................................................................................................................155 1. In-house Computer Software .........................................................................................156 2. Video Game Digital Products .........................................................................................157 Use of Computer Software .........................................................................................................157 1. Allocation of Purchase Price (Users Located in Multiple States) ...............................157 2. Purchases with Resale Certificate ..................................................................................158 3. Remotely Accessed Software Direct Pay Permit ..........................................................158 4. Remotely Accessed Software Used to Fabricate Software for Personal Use is Exempt .......................................................................................................................................159 Computer Software Maintenance Contracts ............................................................................160 1. Definition of Computer Software Maintenance Contract ..........................................160 2. Software Maintenance Contracts Are Subject to Sales and Use Tax ........................160 3. Separate Sales of Support Services ...............................................................................161 4. Single Article Tax Limitation Does Not Apply to Computer Software Maintenance Contracts ....................................................................................................................................162 5. Software Installed on Computers Both Inside and Outside the State ......................162 6. Repairs...............................................................................................................................163 8|Page Chapter 14: Specified Digital Products .............................................................................. 164 Specified Digital Products ...........................................................................................................164 1. Electronically Transferred ...............................................................................................164 2. Tax Rates ...........................................................................................................................167 3. Sourcing ............................................................................................................................167 4. Digital Codes for Obtaining Specified Digital Products ..............................................167 5. Sales and Use Tax Exemptions for Digital Equivalents ...............................................168 6. Other Sales and Use Tax Exemptions ...........................................................................168 7. Online Courses .................................................................................................................169 Chapter 15: Warranty & Service Contracts........................................................................ 171 Contracts Covering Tangible Personal Property ......................................................................171 1. Sourcing Rules ..................................................................................................................171 Use Tax ..........................................................................................................................................174 1. Examples ...........................................................................................................................174 2. Contracts Covering Vehicles, Boats, and Aircraft Sold to Nonresidents ..................175 3. Contracts Covering Vehicles, Boats, and Aircraft Purchased in Another State .......176 4. State Single Article Tax and Single Article Local Tax Limitation .................................176 5. Contracts Covering Property Located Inside and Outside Tennessee .....................176 6. Repairs Performed Under a Warranty or Service Contract........................................177 Contracts or Warranties for Repair of Real Property ..............................................................177 Chapter 16: Sales Tax Imposition on Amusements .......................................................... 178 Amusement Tax ............................................................................................................................178 Taxable Amusements ..................................................................................................................178 1. Dues/Fees to Membership Sports and Recreation Clubs ..........................................178 2. Admissions to Entertainment/Recreational Facilities, Activities, or Events .............179 3. Charges for Engaging in a Recreational Activity When Spectators Are Not Charged a Fee for Admission .....................................................................................................................180 4. Providing Use of Tangible Personal Property for Sport, Entertainment/Recreational Activities .....................................................................................................................................181 Sales or Use Tax Due on Tangible Personal Property Used on Amusement Premises ......181 Exemptions ...................................................................................................................................182 1. Dues, Fees, and Memberships including Physical Fitness .........................................182 9|Page 2. Admissions to Entertainment Facilities, Activities, or Events .....................................184 3. Engaging in Recreational Activities When Spectators are not Charged Admission 185 4. Air Commerce Recreational Activities ...........................................................................185 Sourcing Amusements.................................................................................................................185 Coin Operated Amusement Devices..........................................................................................186 Chapter 17: Telecommunications, Ancillary Services, and Television Programming ... 188 Overview ........................................................................................................................................188 Telecommunications Services ....................................................................................................188 1. Telephone Services ..........................................................................................................190 2. Wireless Telecommunications Services ........................................................................190 3. Prepaid Calling Services ..................................................................................................191 4. Enhanced Telecommunications Services .....................................................................191 5. Private Communication Services ...................................................................................192 6. Telecommunications Service Tax Rates ........................................................................194 Telecommunications Credits and Exemptions .........................................................................195 1. Hotels, Motels, Colleges, Universities, and Hospitals .................................................195 2. Headquarters Taxpayer Sales of Telecommunications to Affiliates .........................196 3. ATM and Wire Transfer Services ....................................................................................196 4. Telecommunications Used in Operation of Qualified Call Center ............................196 5. Access to the Local Exchange Area and Landline Network ........................................197 6. Sales for Resale ................................................................................................................197 Ancillary Services ..........................................................................................................................197 Sourcing Sales of Telecommunications and Ancillary Services ..............................................198 1. General Telecommunications Services Sourcing ........................................................198 2. Sourcing Mobile Telecommunications Service ............................................................199 3. Sourcing Post-paid Calling Service ................................................................................199 4. Sourcing Private Communication Service ....................................................................199 5. Ancillary Service ...............................................................................................................199 6. Sourcing Prepaid Calling Services and Prepaid Wireless Calling Services ...............199 Emergency Communications 911 Surcharge ...........................................................................200 1. Collecting the 911 Surcharge .........................................................................................200 10 | P a g e 2. Uncollected 911 Surcharges ...........................................................................................201 3. Administrative Fee ...........................................................................................................201 4. Statute of Limitations ......................................................................................................201 Television Programming Services ..............................................................................................201 1. Video Programming Services .........................................................................................202 2. Direct-to-Home Satellite Services ..................................................................................203 3. Streaming Television Programming Services...............................................................203 4. Hotels, Motels, and Other Lodging Service Providers ................................................204 Registration and Filing .................................................................................................................204 1. Telecommunications Service Providers Filing ..............................................................204 2. Video Programming Service Providers Filing ...............................................................205 3. Direct-to-home Satellite Service Providers Filing ........................................................205 Bundled Transactions Involving Services ..................................................................................205 1. Bundled Transaction .......................................................................................................206 2. Calculation of Tax ............................................................................................................206 Chapter 18: Food .................................................................................................................. 209 Overview ........................................................................................................................................209 Food and Food Ingredients .........................................................................................................209 1. Qualifying Food and Food Ingredients..........................................................................210 2. Items that do not Qualify as Food or Food Ingredients .............................................213 3. Alcoholic Beverages .........................................................................................................213 4. Tobacco .............................................................................................................................214 5. Candy .................................................................................................................................214 6. Dietary Supplements .......................................................................................................217 7. Prepared Food..................................................................................................................219 8. Meal Substitutes and Other Ingestible Items ..............................................................223 Restaurants ...................................................................................................................................225 1. Taxable Transactions .......................................................................................................226 2. Nontaxable Transactions ................................................................................................227 Convenience Stores .....................................................................................................................229 1. Taxable Transactions .......................................................................................................229 11 | P a g e 2. Nontaxable Transactions ................................................................................................230 3. Tobacco Buydown Payments .........................................................................................231 Grocery Stores ..............................................................................................................................231 1. Taxable Transactions .......................................................................................................231 2. Nontaxable Transactions ................................................................................................231 Chapter 19: Exemptions ...................................................................................................... 234 Resale and Sale for Resale ..........................................................................................................237 1. Sales to Dealer/Lessor.....................................................................................................238 2. Resale Exemption Certificates ........................................................................................240 3. Third Party Drop Shipments and Use of Resale Certificates .....................................242 4. Credit for Tax Paid - Resale ............................................................................................243 5. Use of Resale Certificates – TennCare Diaper Program .............................................244 Business and Occasional and Isolated Sales ............................................................................244 1. Activities Included in “Business” ....................................................................................244 2. Activities that are Not Included in “Business” ..............................................................245 Entity-Based Exemptions ............................................................................................................246 1. Common Carriers ............................................................................................................247 2. Warehouse or Distribution Facility ................................................................................250 3. Research and Development ...........................................................................................251 4. Nonprofit, Charitable Organizations, and Schools ......................................................252 5. Credit Unions ....................................................................................................................255 6. Qualified Data Center ......................................................................................................255 7. Headquarters/Telecommunication Center ..................................................................257 8. Health and Fitness Facilities ...........................................................................................258 9. Operation of Call Center .................................................................................................259 10. Government Exemptions ................................................................................................259 11. Foreign Missions & Diplomats .......................................................................................260 12. Qualified Production Exemption ...................................................................................262 13. Broadband Communications and Internet Service Providers ...................................263 14. Taxidermists .....................................................................................................................264 Product-Based Exemptions.........................................................................................................264 12 | P a g e 1. Textbooks and Workbooks .............................................................................................265 2. Aircraft Used in Flight Training.......................................................................................266 3. Newspapers and Periodicals ..........................................................................................268 4. Healthcare Products ........................................................................................................268 5. Firearm Safes and Safety Devices..................................................................................274 Use-Based Exemptions ................................................................................................................274 1. Vehicles, Vessels, Trailers, and Aircraft – Removal from Tennessee ........................274 2. Pollution Control ..............................................................................................................276 3. Green Energy Production Facility ..................................................................................277 Exemption Administration ..........................................................................................................277 1. Exemption Certificates ....................................................................................................277 2. Streamlined Certificate of Exemption ...........................................................................279 3. Exemptions Not Requiring a Certificate........................................................................281 4. Relief of Liability ...............................................................................................................281 Chapter 20: Manufacturers ................................................................................................. 283 1. Industrial Machinery........................................................................................................283 2. Industrial Materials and Supplies ..................................................................................285 3. Energy Fuel and Water ....................................................................................................285 4. Manufacturing Location ..................................................................................................288 Manufacturer Exemption Certificate – Generally ....................................................................288 1. Contractor Use of a Manufacturer’s Industrial Machinery Exemption .....................289 Miscellaneous Issues and Examples ..........................................................................................289 Chapter 21: Credits .............................................................................................................. 291 Sales or Use Tax Paid in Another State .....................................................................................291 Returned Merchandise ................................................................................................................292 1. Merchandise Priced Over $1,600 ...................................................................................292 2. Merchandise less than or equal to $1,600 ...................................................................292 Trade-In Credit ..............................................................................................................................293 1. Partial Payments ..............................................................................................................293 2. Trade-In from Dealer’s Business ....................................................................................294 3. Receiving Credit ...............................................................................................................294 13 | P a g e 4. Imported Vehicles ............................................................................................................294 Repossession ................................................................................................................................295 1. Examples ...........................................................................................................................296 Pollution Control Credit ...............................................................................................................299 1. Eligible Entities .................................................................................................................300 2. Application Requirements ..............................................................................................301 3. Certificates ........................................................................................................................301 4. Federal or Tennessee State or Local Government Entities ........................................302 5. Credits or Refunds ...........................................................................................................302 Certified Green Energy Production ............................................................................................303 1. Facility Requirements ......................................................................................................303 2. Application Procedures ...................................................................................................303 3. Exemption Certificate ......................................................................................................304 Bad Debt ........................................................................................................................................304 Headquarters Facility Tax Credit ................................................................................................306 1. Eligibility Requirements ..................................................................................................306 2. Headquarters Facility ......................................................................................................307 3. Minimum Investment ......................................................................................................307 4. Qualified Tangible Personal Property ...........................................................................307 5. Headquarters Staff Positions .........................................................................................309 6. Application Process .........................................................................................................309 7. Procedures........................................................................................................................310 8. Private Communication Services ...................................................................................311 Fire Protection Sprinkler Contractors ........................................................................................311 Fuel or Petroleum Products Sold to Air Common Carriers ....................................................311 Motor Vehicle Incentive Payments ............................................................................................312 Retail Tobacco Sales Tax – Tobacco Buydowns........................................................................312 Transaction Accommodation Fees .............................................................................................313 Chapter 22: Miscellaneous Sales and Use Tax Provisions ................................................ 314 Sales and Use Tax Applications to Aircrafts and Boats ...........................................................314 1. Aircrafts .............................................................................................................................314 14 | P a g e 2. Boats ..................................................................................................................................318 Vending Machine Sales ................................................................................................................319 1. Tax Rate for Vending Machines .....................................................................................319 2. Filing Requirements .........................................................................................................319 3. Vending Machines Operated for Benefit of Charitable Nonprofit Organization ....320 Micro Markets ...............................................................................................................................320 1. Registration Requirement...............................................................................................321 2. Filing Requirement ..........................................................................................................321 15 | P a g e The Tennessee General Assembly enacted the Tennessee Retailers’ Sales Tax Act (the “Act”) in 1947. The Act imposed a sales tax on the privilege of engaging in the business of selling tangible personal property.1 The Act also imposed a complementary use tax that applies when a taxable product is used, consumed, distributed, or stored in this state and the seller did not collect sales tax on the product brought or shipped into Tennessee at the time of sale.2 Sales tax was first imposed on certain services in 1955. 3 Tennessee sales tax serves as the primary source of state tax revenue and makes up approximately 60% of all tax collections. Sales and use tax have two parts: a state portion and a local option portion. The local option portion is imposed by city and/or county governments and was first enacted under the 1963 Local Option Revenue Act. Current sales and use tax laws are found in Tenn. Code Ann. §§ 67-6-101 et seq., and the local option sales and use tax laws are found in Tenn. Code Ann. §§ 67-6-701 et seq. Rules and regulations may be found in TENN. COMP. R. & REGS. 1320-05-01-.01 et seq. and TENN. COMP. R. & REGS. 1320-05-02-.01 et seq. Links to the Tennessee code, rules, and regulations may be found on the Tennessee Department of Revenue’s (the “Department”) website under the Tax Resources page.4 1. Administration The Department administers both the state and local sales and use taxes. Taxpayers file all sales and use tax returns and make payments directly to the Department, who then distributes the local tax proceeds minus administrative fees to the counties and municipalities. Generally, all dealers are liable for collecting sales tax from their customers and remitting the tax to the Department.5 All Tennessee residents and businesses must pay use tax when sales tax was not collected by the seller on otherwise taxable products brought or shipped into Tennessee. 2. Transactions Subject to Sales & Use Taxes Sales and use taxes are transactional taxes applied to sales or purchases. Sales tax generally applies to the retail sales of any business, organization, or person engaged in making retail sales, including selling, leasing, or renting tangible personal property and selling certain taxable services, amusements, software, and digital products specified in the law.6 Use tax applies to all items otherwise subject to sales tax except for certain services and amusements.7 16 | P a g e Sales and use tax apply in various ways: Sales tax on the in-state retail sale of a taxable product;8 Use tax on the out-of-state retail sale of a taxable product shipped to Tennessee consumers by an out-of-state retailer who is not required to register in Tennessee;9Use tax on the importation of taxable products for use, consumption, storage for use, and distribution in this state; 10 and Use tax on a contractor’s use of tangible personal property in the performance of a contract where no sales and use tax was paid on the retail purchase.11 3. Rates and Impositions State Sales and Use Tax The state sales tax and use tax are each calculated by using the same basis (sales price/purchase price) and share the same tax rate.12 The general state sales tax rate for most tangible personal property, taxable services, and other taxable products is currently 7%. However, the select products and services below are taxed at different state tax rates. Food and Food Ingredients – 4.0%13 Aviation Fuel – 4.25%14 Industrial Water for Manufacturers – 1.0%15 Industrial Energy Fuel for Manufacturers – 1.5%16 Electricity for Qualified Data Centers – 1.5%17 Interstate and International Telecommunications Sold to Businesses – 7.5%18 Manufactured Homes – 3.5%19 Video Programming Services (Cable TV Monthly Charges of $15.00 to $27.50) – 8.25%20 Direct-to-Home Satellite Television Services – 8.25%21 Qualified Common Carriers Direct pay the sales tax on Tennessee Purchases of Tangible Property that is used Outside the State – 3.75%22 A portion of the above items are also taxed at different local tax rates. Special local tax rates can be found in Tenn. Code Ann. § 67-6-712. For more information on local sales and use tax and different rates, see Chapter 8 of this manual titled Local Sales and Use Tax Imposition. 17 | P a g e Single Article An additional state single article tax at a rate of 2.75% is applied to any single item of tangible personal property sold with a sales price in excess of $1,600 but less than $3,200. 23 Single article is discussed in more detail in Chapter 9. Local Option Tax Any county or incorporated city, by resolution or ordinance, may levy a local sales and use tax on the same privileges that are subject to the state sales or use tax. 24 Every local jurisdiction in Tennessee that has enacted a local sales and use tax has its own respective tax rate. The local option sales and use tax rates vary from 1.50% to 2.75%. The local option tax rate may not exceed 2.75% and must be a multiple of .25. 25 The local sales tax rate and local use tax rate in a specific location are the same. Local sales tax rate charts, tables, boundary databases, and other local tax resources are available on the Department’s website HERE.26 The local option tax is discussed in more detail in Chapter 8. 4. Credits Credits are tax incentives that offset tax liabilities. Depending on the type of credit and the year, a credit may offset both sales and use tax or just one of the taxes. To prevent multi-state taxation, Tennessee taxpayers are allowed credit for sales and use tax legally paid in another state against use tax owed in Tennessee.27 Credit is only allowable if the tax paid was a properly imposed tax and may not exceed the amount of use tax due in Tennessee.28 Credits are discussed in more detail in Chapter 21. 5. Exemptions Generally, the sale of all tangible personal property and specifically enumerated services are subject to sales tax, unless a statutory exemption applies. Sales and use tax exemptions may generally be divided into three categories: entity-based exemptions, product-based exemptions, and use-based exemptions. However, some exemptions can be entity-based and use-based, such as the agricultural exemption. Entity-based Exemptions Entity-based exemptions are available depending on who the purchaser is or what the purchaser does. For example, qualified farmers and qualified manufacturers can make purchases of certain items tax free or at a discounted tax rate. Most entity-based exemptions require a special exemption certificate while most product-based exemptions do not. 18 | P a g e Product-based Exemptions Product-based exemptions are available depending on the product purchased. For example, gasoline, textbooks, school meals, and several healthcare products are not subject to sales and use tax. If taxpayers sell exempt products, they should not collect tax on the sales. Use-based Exemptions Use-based exemptions are available when certain types of tangible personal property or services are put to a specific exempt use. For example, concrete is generally subject to sales tax. However, if the concrete is purchased for use to construct an electric generating plant (such as a dam), the concrete is tax exempt.29 Most use-based exemptions require a special exemption certificate, such as a pollution control exemption certificate. Sales and use tax exemptions are generally found in Tenn. Code Ann. § 67-6-301 through Tenn. Code Ann. § 67-6-396. Exemptions are discussed in more detail in Chapters 18 and 19. On May 11, 2023, Governor Lee signed into law the Tennessee Works Tax Act (“TWTA”), Public Chapter 377 (2023). The TWTA made several Tennessee sales and use tax changes to modernize the sales and use tax provisions and bring the state in further compliance with the Streamlined Sales and Use Tax Agreement. These provisions are effective July 1, 2024. These changes are incorporated throughout this version of the sales and use tax manual. 1. Use Tax on Services to Tangible Personal Property and Computer Software The TWTA amended Tenn. Code Ann. § 67-6-203 to state that the following services are subject to Tennessee use tax if such services occur outside of Tennessee and the serviced tangible personal property or computer software is delivered to a purchaser inside Tennessee for use or consumption. Such services include: Repairing tangible personal property or computer software; Laundering or dry-cleaning tangible personal property; Installing tangible personal property that remains tangible personal property after installation; and Installing computer software. For example, a Portland, Tennessee resident sends a motorcycle to a repair shop in Bowling Green, Kentucky. The repair shop repairs the motorcycle and delivers it to the customer in Portland. Beginning on July 1, 2024, the Bowling Green, Kentucky repair shop must collect Tennessee use tax on the price of the motorcycle repair service. If the repair shop does not 19 | P a g e collect Tennessee tax, then the resident must remit Tennessee use tax to the Department on the repair service. 2. Magazine and Book Distribution Exemption The TWTA deleted a provision that provided an exemption from sales and use tax for magazines and books that are distributed and sold to consumers by mail or common carrier, where the seller only had certain activities in Tennessee, such as printing, storing, labeling, and/or delivering to the mail or common carrier of the magazines or books, or the maintenance of raw materials with respect to those activities. This provision is currently codified in Tenn. Code Ann. § 67-6-329(a)(6). This exemption is eliminated effective July 1, 2024. 3. Cooperative Direct Mail Advertising The TWTA deleted an exemption currently found in Tenn. Code Ann. § 67-6-344 for the sale or use of cooperative direct mail advertising materials (i.e., combined mailings of discount coupons and advertising leaflets for multiple businesses) that are distributed in Tennessee from outside Tennessee by a person engaged solely and exclusively in the business of providing cooperative direct mail advertising. 4. Sourcing Provisions The TWTA adopted a majority of the sourcing provisions in the Streamlined Sales and Use Tax Agreement (“SSUTA”) and elected origin-based sourcing for sales within Tennessee. These provisions bring the state into better compliance with the SSUTA. Tenn. Code Ann. §§ 67-6-901 – 903 These code sections are sourcing provisions to determine whether a transaction is sourced to Tennessee, how to source the retail sale, lease, or rental of products imported into Tennessee; how to source sales of products made from a place of business within Tennessee; how to source recurring periodic lease or rental payments where the primary property location of the property is no longer in Tennessee; and how to source the sale of repair, cleaning, and installation services on tangible personal property that remains tangible personal property after installation and repairing and installation of computer software where the serviced property of software is shipped out of state. 20 | P a g e Direct Mail Sourcing – Tenn. Code Ann. § 67-6-904 This section provides Changes for sales made of both advertising and promotional direct mail and other direct mail from a place of business in Tennessee that is distributed to direct mail recipients outside Tennessee. Telecommunication Definitions and Prepaid Calling Services – Tenn. Code Ann. § 67-6905 This section provides Tennessee’s sourcing rule for sales of prepaid calling services and prepaid wireless calling services. 21 | P a g e Tennessee, like most states, taxes the retail sale of tangible personal property and specifically enumerated services in the state. Retailers are generally required to collect sales tax from their customers on their taxable sales. If an out-of-state retailer does not collect sales tax, the consumer must pay the corresponding consumer use tax on taxable purchases imported from out-of-state. A state’s ability to require a retailer to collect state and local sales tax is based on “nexus.” When a business has “nexus” with a given state, or in other words a connection (physical or economic) with the state, the state can constitutionally exercise authority to require the business to collect and remit the tax. The specific United States Constitutional principles that apply to making a nexus determination are the Commerce Clause and Due Process Clause. Two seminal United States Supreme Court decisions, National Bellas Hess, Inc. v. Department of Revenue of Ill.30 and Quill Corp. v. North Dakota31 first interpreted these constitutional principles and stated that if a retailer did not ha
Sales and Use Tax Manual - December 2024
More about the Tennessee Sales and Use Tax Guide Individual Income Tax TY 2024
This is a Sales and Use Tax Guide for residents of Tennessee
We last updated the Sales and Use Tax Guide in January 2025, so this is the latest version of Sales and Use Tax Guide, fully updated for tax year 2024. You can download or print current or past-year PDFs of Sales and Use Tax Guide directly from TaxFormFinder. You can print other Tennessee tax forms here.
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TaxFormFinder has an additional 65 Tennessee income tax forms that you may need, plus all federal income tax forms.
| Form Code | Form Name |
|---|---|
| Form INC-250 | Individual Income Tax Return Kit |
| Form SLS450 | State and Local Sales and Use Tax Return |
| Form SLS450 (Instructions) | Sales and Use Tax Return (Instructions) |
| Sales and Use Tax Guide | Sales and Use Tax Guide |
| Tennessee Business Tax Manual | Tennessee Business Tax Manual |
View all 66 Tennessee Income Tax Forms
Form Sources:
Tennessee usually releases forms for the current tax year between January and April. We last updated Tennessee Sales and Use Tax Guide from the Department of Revenue in January 2025.
About the Individual Income Tax
The IRS and most states collect a personal income tax, which is paid throughout the year via tax withholding or estimated income tax payments.
Most taxpayers are required to file a yearly income tax return in April to both the Internal Revenue Service and their state's revenue department, which will result in either a tax refund of excess withheld income or a tax payment if the withholding does not cover the taxpayer's entire liability. Every taxpayer's situation is different - please consult a CPA or licensed tax preparer to ensure that you are filing the correct tax forms!
Historical Past-Year Versions of Tennessee Sales and Use Tax Guide
We have a total of three past-year versions of Sales and Use Tax Guide in the TaxFormFinder archives, including for the previous tax year. Download past year versions of this tax form as PDFs here:
2024 Sales and Use Tax Guide
Sales and Use Tax Manual - December 2024
2023 Sales and Use Tax Guide
Sales and Use Tax Manual - December 2023
2022 Sales and Use Tax Guide
Sales and Use Tax Guide
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