Tennessee has no state income tax, but collects revenue through sales tax and property tax instead

Tennessee does not tax wages, salaries, or investment income at the state level. This means you keep 100 percent of your paycheck without a state income tax deduction. However, Tennessee funds state services through a sales tax and property tax system instead. The state sales tax rate is 7 percent, though counties and cities can add local sales taxes on top of that amount, bringing the total to between 8.55 and 9.55 percent depending on where you live. Property tax rates vary by county and are set locally, not by the state.

If you work in Tennessee but live in another state, or vice versa, you may owe income tax to the state where you earned the money. Tennessee's lack of income tax makes it attractive to high earners and retirees, but the sales and property tax burden can offset that advantage depending on your spending and home value.

Key Takeaways

  • Tennessee has no state income tax on wages, salaries, interest, or dividends.
  • The state sales tax is 7 percent, but your actual rate depends on local additions that range from 1.55 to 2.55 percent.
  • Property tax rates are set by each county and range from roughly 0.4 to 1.6 percent of home value.
  • If you work across state lines, you owe income tax to the state where you earned the income, not where you live.

State Sales Tax and Local Add-Ons

Tennessee's base state sales tax is 7 percent on most goods and services. However, counties and cities layer their own local sales taxes on top of that rate. The total sales tax you pay ranges from 8.55 percent in some areas to 9.55 percent in others. For example, Davidson County (Nashville) charges 9.55 percent total, while some rural counties charge 8.55 percent. You can find your exact rate by entering your zip code on the Tennessee Department of Revenue website or asking a local retailer.

Sales tax applies to most tangible goods — clothing, groceries, electronics, furniture — but not to services like haircuts, repairs, or professional fees. Some items are exempt or taxed at a lower rate. Groceries for home consumption are taxed at a reduced rate of 4 percent instead of the full sales tax. This distinction matters if you buy food at a grocery store versus a restaurant.

Property Tax Rates by County

Tennessee property tax is assessed and collected at the county level, so the rate you pay depends entirely on where your property is located. County rates range from approximately 0.4 percent to 1.6 percent of the assessed home value per year. Knox County (Knoxville) charges around 0.7 percent, while Shelby County (Memphis) charges around 0.9 percent. Rural counties often have lower rates than urban ones.

Your property tax bill is calculated by multiplying your home's assessed value by the county's tax rate. Counties reassess property values periodically, which can raise or lower your tax bill even if you make no changes to the home. You can contact your county assessor's office to learn your home's assessed value and your county's current tax rate.

How Tennessee Compares to Other States

Tennessee's lack of income tax puts it in a small group of nine states with no state income tax. Other states in this category include Florida, Texas, Wyoming, and Nevada. However, these states compensate by collecting more through sales tax and property tax. Tennessee's combined state and local sales tax average of around 9.5 percent is higher than the national average of 7.2 percent.

For someone earning $60,000 per year, the absence of state income tax saves roughly $3,000 to $4,000 annually compared to a state with a 5 to 7 percent income tax rate. However, a household that spends heavily on taxable goods or owns a high-value home may pay more in sales and property tax than they would save on income tax in a higher-income-tax state. The overall tax burden depends on your personal spending and property ownership patterns.

Tax Brackets and Credits That Do Not explore

Because Tennessee has no state income tax, there are no state tax brackets, standard deductions, or state tax credits to claim. You will not file a Tennessee state income tax return. This simplifies your tax filing if you only earn W-2 wages or standard income, though you will still file a federal return.

However, Tennessee does tax certain types of income that other states do not. The state taxes interest and dividend income at a rate of 6 percent, though this tax is being phased out and will be eliminated by 2022 for most taxpayers. If you have substantial investment income, check the current rules with the Tennessee Department of Revenue or a tax professional, as the phase-out schedule may affect your situation.

Who Pays Tennessee Taxes and Residency Rules

You owe Tennessee sales tax on purchases made within the state, regardless of where you live. If you live in Kentucky but shop in Tennessee, you pay Tennessee's sales tax. If you live in Tennessee but work in Kentucky, you owe Kentucky income tax on wages earned there — Tennessee will not tax that income because you did not earn it in Tennessee.

Tennessee considers you a resident for tax purposes if you live in the state for more than 183 days in a calendar year or maintain a permanent home there. Military members stationed in Tennessee are not considered residents for tax purposes. If you move to Tennessee during the year, you may owe taxes to both your old state and Tennessee, depending on when you moved and each state's rules.

Frequently Asked Questions

Do I have to file a Tennessee state income tax return?

No. Tennessee has no state income tax, so you do not file a state return. You still file a federal return if your income meets the federal threshold. If you earned interest or dividend income before the phase-out was complete, you may have had to file a state return for that income, but this requirement has largely ended.

What is the sales tax on groceries in Tennessee?

Groceries for home consumption are taxed at 4 percent instead of the full sales tax rate. This applies to food you buy at a grocery store to cook at home. Restaurant meals and prepared foods are taxed at the full rate.

How do I find my county's property tax rate?

Contact your county assessor's office directly — you can find the phone number by searching "[your county name] assessor" online. They will tell you your home's assessed value and your county's tax rate. You can also check your property tax bill, which lists the rate used to calculate it.

If I work in another state but live in Tennessee, which state taxes my income?

The state where you earned the income taxes it. If you work in Kentucky, Kentucky taxes your wages. Tennessee will not tax that income because you did not earn it in Tennessee. You may owe taxes to both states if you worked in multiple states during the year.

Does Tennessee tax retirement income or Social Security?

No. Tennessee does not tax Social Security benefits, pensions, or retirement account withdrawals. This is one reason Tennessee attracts retirees. However, if you have interest or dividend income, check the current rules, as the phase-out of that tax may still be in progress depending on the year.