If you’re a retailer in Tennessee, or if you make online sales to customers who live there, then you’ll want to make yourself familiar with Tennessee sales tax law. All in-state retailers and many out-of-state sellers are now required to collect sales tax from their Tennessee customers, then file a sales tax return and remit that money to the Tennessee Department of Revenue. Read on to find out if you have Tennessee sales tax nexus, and how that affects your responsibilities as a retailer.
Tennessee sales tax varies by location. There is a state sales tax of 7%, as well as local tax imposed by city, county or school districts, no higher than 2.75%. Groceries are taxed at 5% (some locations charge more), and some services have a different tax rate.
Tennessee also has a state single article rate of 2.75% on any single item sold in excess of $1,600 but not more than $3,200.
Tennessee is an origin-based state. This means that the tax rate you use to calculate sales tax on orders is the rate where your business is located. If your local tax rate is 9.25%, then you’ll charge 9.25% sales tax on all orders shipping to Tennessee addresses, regardless of what the sales tax rate is at the location you’re shipping to.
Like certain other states, Tennessee also has a sales tax holiday that exempts the tax for clothing and school supplies that cost $100 or less, and for computers and tablets that cost $1500 or less. The tax holiday falls on the last weekend in July (Friday-Sunday).
A sales tax nexus is a legal way of stating that a business has a significant enough presence within a state, that the state can require them to collect and remit sales tax on behalf of their customers. Traditionally this has been only a physical presence, but as of 2017 that changed. The types of physical presence that constitute nexus include:
The state will also determine that out of state sellers have economic nexus if they make more than $500,000 in sales to customers located in Tennessee, even if they have no physical presence as defined by the state. This rule was new for 2017, and more information can be found here.
Amazon sellers who use Fulfillment by Amazon (FBA) will particularly want to note the first element in the list above, because FBA does have several warehouses in Tennessee. Your use of FBA may create a sales tax nexus for your business regardless of the amount of sales you make within the state.
Tennessee sales tax applies to the sale of most goods, commonly known as tangible personal property (TPP). This includes property that can be seen, weighed, measured, felt, or touched. It also includes gas, steam, electric, water, and pre-written computer sofware. Custom-written software is taxable in certain situations as well.
Most other services are not taxable, including (but not limited to): furniture moving, medical services, beauty services, carpentry, lawn care service, and others.
For more details please see Tennessee’s Sales and Use Tax Guide.
All in-state retailers and some out-of-state retailers are required to register for Tennessee sales and use tax. The out-of-state seller requirement was new in 2017. It states that retailers who make sales in excess of $500,000 to Tennessee consumers have a "substantial nexus", also sometimes know as an "economic nexus". If your business meets this threshold, you are required to register with the state of Tennessee for the purpose of filing and paying sales tax.
Registration for in-state filers is done through the department’s Tennessee Taxpayer Access Point, or TNTAP. The website uses a wizard-based questionnaire to guide you through the process of registering. For out of state retailers who meet the requirements, you must also register to collect and remit Tennessee sales tax. This is also done through TNTAP.
Visit the Department of Revenue for:
Payees may only file and pay online. Payments may be done via:
Note that taxpayers with a block or restriction on their account who use ACH must provide the information as required by the state.
Tennessee requires all sales and use tax returns and payments to be filed and paid electronically. This is done through the Tennessee Taxpayer Access Point (TNTAP). First time filers must register for an account in order to file their return and make payments. After that, filers log in with their username and password to make file future taxes.
A helpful video about filing your sales and use tax return through TNTAP can be found here.
The state of Tennessee requires that all business file their sales tax returns electronically. The Department of Revenue provides a sales and use tax online filing application on their website. Returns can also be filed using software by an approved software vendor.
Tennessee requires businesses to file and pay sales tax either monthly, quarterly, or annually. The frequency with which you must file is determined by your business’s estimated yearly income. This will be determined when you apply for a sales tax acount, and should be listed on your exemption certificate.
The deadlines for filing sales tax in Tennessee are as follows:
Monthly Filer Due Dates
Quarterly Filer Due Dates
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
Annual Filer Due Dates
|January – December||January 20 of the following year|
If any of the above dates fall on holiday or weekend, the deadline is extended until the next business day.
If you do not make your sales tax payment on time, it is considered delinquent. If you make a smaller payment than the amount due, then it is called deficient. In both cases, both penalties and interest apply to the unpaid amount. Penalties may also be assessed if you pay by a method other than electronic payment.
The penalty is 5% of the unpaid amount for each month or partial month the tax is unpaid, for a maximum of 25%. Interest is calculated at the current rate, which can be found here. To calculate the interest, use the following formula:
Original liability * Rate * # of days delinquent / 365.25
If you aren’t comfortable calculating it, the Tennessee Department of Revenue will send you a bill for the correct amount.
The TN Department of Revenue does allow the penalty to be waived if there is a "good and reasonable cause" for the delay. One example is that the payer has no previous payment problems over the last two years. If you think you qualify, sign into your TNTAP account and follow the link for "Petition for Penalty Waiver".
While calculating sales tax in Tennessee is easier than in many destination-based states, retailers may find that sales tax software helps them streamline the process and avoid the kinds of mistakes that lead to audits. Our TaxTools software is the answer. It pinpoints the right sales tax for every US address, and applies the appropriate sales tax to each order placed on your site. Then when you’re ready to file your return, our reports make the process simple. Configuring sales tax on your ecommerce store has never been easier. Contact us for more information or register for a free trial of AccurateTax’s TaxTools software.
You can also use our free sales tax calculator to look up the rate for any Tennessee address.