Tennessee Sales Tax Handbook

RATE OF SALES TAX:

7.00%

LOCAL & COUNTY MAXIMUM RATES:

2.75%

What are the taxable goods and services?

The first step in sales tax compliance is determining if the items or services your firm offers are taxable in Tennessee.

Traditional Products and Services

Physical property, such as furniture, household appliances, and automobiles, is subject to sales tax in Tennessee.

Prescription drugs and fuel are both tax-free.

Some Tennessee services are subject to sales tax. View the Tennessee Department of Revenue’s website for a complete list of taxable services.

Digital Products and Services

A digital item or service is anything that is supplied electronically, such as a music downloaded from iTunes or a movie bought from Amazon.

Businesses in Tennessee are required to collect sales tax on the sale of digital products or services.

How to Register for Sales Tax in Tennessee

If you have concluded that you must charge sales tax on part or all of the products and services that your company sells, the next step is to apply for a seller’s licence.

This enables your company to collect sales tax on behalf of the municipal and state governments.

You will need the following information to register:

The business’s name, address, and phone number; all owners, officials, or partners; and the individual filing the application.
The owner(s), partners, or officials’ Social Security Number(s).
The U.S. Department of Labor’s Federal Employer Identification Number (FEIN) If you have one, contact the Internal Revenue Service.
A description of the business; the type of ownership; a short explanation of the nature of the company; and the date of formation, if the firm is a corporation.
If you have acquired your firm, include the former owner’s name and address.
The signature of the single owner, a partner, or an executive of a corporation on the application.
Estimated annual gross sales (Must be at least $4800 or your sales tax license may be cancelled).

A Resale Certificate might help you save money.

When acquiring items for resale, your firm does not have to pay sales tax if you obtain a resale certificate, also known as a reseller’s permit.

Sales Tax Collection

After obtaining your seller’s licence and starting your company, you’ll need to figure out how much sales tax to charge various consumers. It is critical for company owners to collect the right rate of sales tax to avoid penalties and the danger of expensive audits.

When computing sales tax, consider the following types of transactions:

Retail Sales
Shipping inside the state
Out-of-State Purchases

Retail Sales

For conventional company owners who sell products or services on-site, calculating sales tax is simple: all sales are taxed at the rate determined by the store’s location.

Here’s an illustration of how this situation may look:

In Chattanooga, Tennessee, Mary owns and operates a bookshop. Because books are taxable in Tennessee, Mary charges her clients a flat-rate sales tax of 9.250% on all purchases. This includes Tennessee’s 7.000% state sales tax and Hamilton County’s 2.250% sales tax.

Sales inside the state

Tennessee has what is known as an origin-based sales tax regime. This implies that long-distance transactions inside Tennessee are taxed based on the seller’s address. This regulation applies to sales taxes levied by the state, county, and city.

Consider the following scenario:

Steve operates his own eBay electronics company from his home in Memphis, Tennessee. A Clarksville resident discovers Steve’s eBay website and orders a $350 set of headphones. Steve uses the Tennessee state tax rate of 7.000% plus the Shelby County tax rate of 2.250% when computing the sales tax for this transaction. The total cost is $382.38 ($32.38 sales tax) at a total sales tax rate of 9.250%.

Out-of-State Purchases

Tennessee firms must only pay sales tax on out-of-state sales if they have a presence in other states.

Nexus indicates that the company has a physical presence in another state.

Common nexus types include:

A physical place, such as an office, retail shop, or warehouse.
An employee who works from home or as a roaming sales representative.
An affiliate marketer
Dropshipping from a third-party vendor.
A temporary physical site, such as a festival or fair booth.

Submit Your Sales Tax Return

You’re ready to submit your sales tax return now that you’ve obtained your Tennessee seller’s permit and understand how to charge the correct amount of sales tax to all of your customers. You avoid penalties and fines, be sure to meet all filing dates.

How to File a Claim

Businesses in Tennessee are required to file sales tax forms and make sales tax payments online.

How Frequently Should You File?

Tennessee requires all businesses to submit monthly sales tax filings.

Deadlines for Filing

The deadline for all Tennessee sales tax returns is the 20th of the month, unless it is a weekend or federal holiday, in which case the deadline is postponed to the following working day.

Penalties for Filing Late

Tennessee assesses a late filing penalty of 5% every month or partial month, with a maximum penalty of 30% of the tax stated on the tax return.

The state levies the unpaid tax at a compounded annual interest rate of 7.50%.