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Tennessee Sales and Use Tax Guide
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Sales and Use Tax Manual ‘ December 2023 Contents Chapter 1: Introduction ......................................................................................................... 17 General Overview ........................................................................................................................... 17 1. Administration.................................................................................................................... 17 2. Transactions Subject to Sales & Use Taxes .................................................................... 17 3. Rates and Impositions ....................................................................................................... 18 4. Credits ................................................................................................................................. 19 5. Exemptions ......................................................................................................................... 20 Tennessee Works Tax Act.............................................................................................................. 20 1. Use Tax on Taxable Services ............................................................................................ 21 2. Magazine and Book Distribution Exemption ................................................................. 21 3. Cooperative Direct Mail Advertising ................................................................................ 21 4. Sourcing Provisions ........................................................................................................... 22 Chapter 2: Nexus .................................................................................................................... 23 Historical Overview ........................................................................................................................ 23 Tennessee Nexus Requirements ................................................................................................. 24 1. Out-of-State Dealers with no Physical Presence in Tennessee ................................... 25 2. Local Sales Tax Reporting by Out-of-State Dealers ....................................................... 25 Chapter 3: Administrative Requirements ........................................................................... 27 Registration Generally ................................................................................................................... 27 Registration Process ...................................................................................................................... 28 1. Consumers or Business Users ......................................................................................... 28 2. Flea Market Operators & Dealers .................................................................................... 29 3. Revocation of Certificate of Registration ........................................................................ 30 Filing and Payments ....................................................................................................................... 30 1. Filing through TNTAP......................................................................................................... 30 2|Page 2. Filing through an Approved Software Vendor ............................................................... 31 3. Filing through the Streamlined Central Registration System ...................................... 31 Filing Periods and Due Dates ........................................................................................................ 31 1. Filing Periods ...................................................................................................................... 31 2. Filing and Payment Due Dates ......................................................................................... 32 1099-K Filing Requirement ............................................................................................................ 32 Rules for Billing Sales Tax .............................................................................................................. 33 1. Invoicing .............................................................................................................................. 33 2. Installment or Credit Sales ............................................................................................... 34 Refunds ............................................................................................................................................ 34 1. Refund Requests Made by Dealers ................................................................................. 34 2. Refund Requests Made by Customers............................................................................ 34 Statutes of Limitations ................................................................................................................... 36 1. Assessments ....................................................................................................................... 36 2. Refunds ............................................................................................................................... 36 3. Statute Waivers .................................................................................................................. 37 Penalties .......................................................................................................................................... 37 1. Penalties and Penalty Rates ............................................................................................. 38 2. Penalty Waivers .................................................................................................................. 38 Interest............................................................................................................................................. 41 Records Maintenance .................................................................................................................... 41 1. Records Requested ............................................................................................................ 41 2. Record Retention ............................................................................................................... 43 3. Failure to Retain Records .................................................................................................. 43 Assessment and Informal Conferences ...................................................................................... 43 Change in Business Ownership and Closing Your Business .................................................... 44 Successor Liability .......................................................................................................................... 45 Responsible Person Liability ......................................................................................................... 46 3|Page Chapter 4: Common Sales Tax Concepts ............................................................................. 49 Overview .......................................................................................................................................... 49 Commonly Used Terms in Sales Tax Law ................................................................................... 49 1. Auctioneers, Agents, and Factors .................................................................................... 49 2. Business .............................................................................................................................. 50 3. Commissioner .................................................................................................................... 50 4. Dealer .................................................................................................................................. 50 5. Leases and Rentals ............................................................................................................ 52 6. Marketplace Facilitator...................................................................................................... 57 7. Person ................................................................................................................................. 58 8. Resale .................................................................................................................................. 58 9. Retail Sale ............................................................................................................................ 58 10. Retailer ................................................................................................................................ 58 11. Sale ...................................................................................................................................... 59 12. Sales Price ........................................................................................................................... 61 13. Specified Digital Product ................................................................................................... 61 14. Tangible Personal Property .............................................................................................. 61 15. Use ....................................................................................................................................... 62 Chapter 5: Sales Tax Imposition on Services and Tangible Personal Property................ 63 Taxable Services ............................................................................................................................. 63 1. Repair of Tangible Personal Property or Computer Software ..................................... 64 2. Installation of Tangible Personal Property or Computer Software ............................. 66 3. Lodging Services & Rooms ............................................................................................... 67 4. Short-Term Space Rented by Dealers ............................................................................. 70 5. Cleaning Tangible Personal Property .............................................................................. 71 6. Parking and Storage of Motor Vehicles .......................................................................... 75 7. Telecommunications Services .......................................................................................... 76 8. Ancillary Services ............................................................................................................... 77 4|Page 9. Uranium Enrichment ......................................................................................................... 78 10. Television Programming Services .................................................................................... 78 11. Made to Order Sales.......................................................................................................... 78 Nontaxable Services in Connection with Real Property ............................................................ 79 Tangible Personal Property........................................................................................................... 79 1. Coins, Currency, and Bullion ............................................................................................ 80 2. Hemp-Derived Products ................................................................................................... 81 3. Artwork Used in Advertising Materials ........................................................................... 82 Chapter 6: Use Tax ................................................................................................................. 85 Overview .......................................................................................................................................... 85 1. Definitions ........................................................................................................................... 85 2. Use Tax Imposition ............................................................................................................ 86 Activities Subject to Use Tax ......................................................................................................... 86 1. Specified Digital Products and Video Game Digital Products ...................................... 87 When Use Tax Does Not Apply ..................................................................................................... 87 1. Personal Items Moved into Tennessee ........................................................................... 88 2. Import for Export ............................................................................................................... 88 3. Interstate Commerce - Title and Property Pass outside the State .............................. 89 4. Storage of Tangible Personal Property ........................................................................... 89 5. Tangible Personal Property Held for Resale .................................................................. 90 Contractor’s Use Tax ...................................................................................................................... 90 1. Contractor’s Use Tax ......................................................................................................... 90 2. Contractor-Dealers ............................................................................................................ 91 3. Exemptions ......................................................................................................................... 91 4. Tax on Fabricated Materials ............................................................................................. 94 5. Installation of Industrial Machinery ................................................................................ 94 6. Property Owned by the United States Government ..................................................... 95 7. Qualified Disaster Restoration ......................................................................................... 95 5|Page Credit for Taxes Paid in another State ........................................................................................ 97 Chapter 7: Local Sales Tax Imposition ................................................................................. 98 Overview .......................................................................................................................................... 98 Local Tax Limitations ..................................................................................................................... 98 Local Option Tax Rates .................................................................................................................. 99 Local Sourcing Rules ...................................................................................................................... 99 1. Sales at Special Events ....................................................................................................100 2. Food Trucks ......................................................................................................................100 Single Article..................................................................................................................................101 Chapter 8: Single Article ...................................................................................................... 102 Overview ........................................................................................................................................102 Single Article Local Tax ................................................................................................................102 1. Local Tax Base Limitations .............................................................................................102 2. Reporting Local Single Article Sales ...............................................................................104 State Single Article Tax ................................................................................................................104 1. Reporting State Single Article Sales Tax ........................................................................104 Example Calculations ...................................................................................................................104 Single Article: Lease or Rental of Tangible Personal Property ...............................................105 Single Article: Software ................................................................................................................106 Single Article Application to Sales of Boats and Trailers .........................................................107 1. Applying the Single Article Cap and the State Single Article Tax ...............................107 2. Examples ...........................................................................................................................108 Motor Vehicles ..............................................................................................................................110 Manufactured Homes ..................................................................................................................111 Tractors ..........................................................................................................................................111 Chapter 9: Marketplace Facilitators .................................................................................. 113 Background ...................................................................................................................................113 1. Marketplace Facilitators and Marketplace Sellers.......................................................113 6|Page 2. When Must a Marketplace Collect Tennessee Sales Tax? ..........................................116 3. Exceptions to Marketplace Facilitator Collection Requirement ................................116 4. Delivery Network Company Election .............................................................................118 Marketplace Facilitator Administration .....................................................................................118 1. Sourcing Sales Made through Marketplace Facilitator ...............................................118 2. Facilitated Sales Must be Reported Separately ...........................................................119 3. Auditing a Marketplace Facilitator .................................................................................119 4. Taxpayers are also required to maintain exemption and resale certificates. Purchases for Resale ................................................................................................................120 5. Claims for Refund ............................................................................................................122 Chapter 10: Sales Price (Purchase Price) and Bundled Transactions ............................. 123 Sales Price (Purchase Price) ........................................................................................................123 1. Consideration ...................................................................................................................124 2. Miscellaneous Taxes Listed on Invoice .........................................................................125 3. Federal Excise Taxes ........................................................................................................126 4. Finance/Carrying Charges...............................................................................................127 5. Late Charges .....................................................................................................................127 6. Delivery Charges ..............................................................................................................128 7. Installation Charges .........................................................................................................132 8. Services Necessary to Complete Sale ...........................................................................132 9. Trade-in Credit .................................................................................................................133 10. Discounts ..........................................................................................................................133 11. Credit Card Surcharges ...................................................................................................135 12. Restocking Fees ................................................................................................................135 Bundled Transactions and the True Object Test......................................................................136 1. True Object Test Application ..........................................................................................137 2. Examples of True Object Test ........................................................................................138 Chapter 11: Tangible Personal Property vs. Realty .......................................................... 140 Realty vs Tangible Personal Property ........................................................................................140 7|Page 1. Intent of the Parties .........................................................................................................140 2. Objective Factors .............................................................................................................141 Restaurant Equipment.................................................................................................................145 Pipeline and Railroad Components ...........................................................................................146 1. Installation of Pipelines ...................................................................................................146 2. Installation of Railroads ..................................................................................................147 3. Unattached Pipeline and Railroad Components .........................................................147 Fiber-Optic Cable ..........................................................................................................................147 Chapter 12: Computer Software ......................................................................................... 148 Historical Overview ......................................................................................................................148 Sale of Computer Software .........................................................................................................148 1. Computer Software .........................................................................................................149 2. Remotely Accessed Software .........................................................................................150 Sales Price/Purchase Price of Computer Software ..................................................................151 Services ..........................................................................................................................................152 1. Nontaxable Services ........................................................................................................152 2. Installation and Repair Services .....................................................................................153 3. Computer Software Configuration and Training .........................................................153 Single Article..................................................................................................................................154 1. In-house Computer Software .........................................................................................155 2. Video Game Digital Products .........................................................................................156 Use of Computer Software .........................................................................................................156 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 ............................................................................159 1. Definition of Computer Software Maintenance Contract ..........................................159 8|Page 2. Computer Software Maintenance Contracts Are Subject to Both 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 Chapter 13: 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 ..............................................168 5. Sales and Use Tax Exemptions for Digital Equivalents ...............................................168 6. Other Sales and Use Tax Exemptions ...........................................................................169 7. Online Courses .................................................................................................................170 Chapter 14: Warranty & Service Contracts........................................................................ 172 Contracts Covering Tangible Personal Property ......................................................................172 1. Sourcing Rules ..................................................................................................................172 Use Tax ..........................................................................................................................................175 1. Examples ...........................................................................................................................176 2. Contracts Covering Vehicles, Boats, and Aircraft Sold to Nonresidents ..................177 3. Contracts Covering Vehicles, Boats, and Aircraft Purchased in Another State .......177 4. State Single Article Tax and Single Article Local Tax Limitation .................................178 5. Contracts Covering Property Located Inside and Outside Tennessee .....................178 6. Repairs Performed Under a Warranty or Service Contract........................................178 Contracts or Warranties for Repair of Real Property ..............................................................179 Chapter 15: Sales Tax Imposition on Amusements .......................................................... 180 Amusement Tax............................................................................................................................180 9|Page Taxable Amusements ..................................................................................................................180 1. Dues/Fees to Membership Sports and Recreation Clubs ..........................................180 2. Admissions to Entertainment/Recreational Facilities, Activities, or Events .............181 3. Charges for Engaging in a Recreational Activity When Spectators Are Not Charged a Fee for Admission .....................................................................................................................183 4. Providing Use of Tangible Personal Property for Sport, Entertainment/Recreational Activities .....................................................................................................................................183 Sales or Use Tax Due on Tangible Personal Property Used on Amusement Premises ......184 Exemptions ...................................................................................................................................184 1. Dues, Fees, and Memberships including Physical Fitness .........................................184 2. Admissions to Entertainment Facilities, Activities, or Events .....................................186 3. Engaging in Recreational Activities When Spectators are not Charged Admission 187 4. Air Commerce Recreational Activities ...........................................................................188 Sourcing Amusements.................................................................................................................188 Coin Operated Amusement Devices..........................................................................................189 Chapter 16: Telecommunications, Ancillary Services, and Television Programming ... 191 Overview ........................................................................................................................................191 Telecommunications Services ....................................................................................................191 1. Telephone Services ..........................................................................................................193 2. Wireless Telecommunications Services ........................................................................194 3. Prepaid Calling Services ..................................................................................................194 4. Enhanced Telecommunications Services .....................................................................195 5. Private Communication Services ...................................................................................196 6. Telecommunications Service Tax Rates ........................................................................198 Telecommunications Credits and Exemptions .........................................................................199 1. Hotels, Motels, Colleges, Universities, and Hospitals .................................................199 2. Headquarters Taxpayer Sales of Telecommunications to Affiliates .........................200 3. ATM and Wire Transfer Services ....................................................................................200 4. Telecommunications Used in Operation of Qualified Call Center ............................200 10 | P a g e 5. Access to the Local Exchange Area and Landline Network ........................................200 6. Sales for Resale ................................................................................................................201 Ancillary Services ..........................................................................................................................201 Sourcing Sales of Telecommunications and Ancillary Services..............................................202 1. General Telecommunications Services Sourcing ........................................................202 2. Sourcing Mobile Telecommunications Service ............................................................203 3. Sourcing Post-paid Calling Service ................................................................................203 4. Sourcing Private Communication Service ....................................................................203 5. Ancillary Service ...............................................................................................................203 Emergency Communications 911 Surcharge ...........................................................................203 1. Collecting the 911 Surcharge .........................................................................................204 2. Uncollected 911 Surcharges ...........................................................................................205 3. Administrative Fee ...........................................................................................................205 4. Statute of Limitations ......................................................................................................205 Television Programming Services ..............................................................................................205 1. Video Programming Services .........................................................................................206 2. Direct-to-Home Satellite Services ..................................................................................207 3. Streaming Television Programming Services...............................................................207 4. Hotels, Motels, and Other Lodging Service Providers ................................................208 Registration and Filing .................................................................................................................208 1. Telecommunications Service Providers Filing..............................................................209 2. Video Programming Service Providers Filing ...............................................................209 3. Direct-to-home Satellite Service Providers Filing ........................................................210 Bundled Transactions Involving Services ..................................................................................210 1. Bundled Transaction .......................................................................................................210 2. Calculation of Tax ............................................................................................................211 Chapter 17: Food .................................................................................................................. 214 Overview ........................................................................................................................................214 11 | P a g e Food and Food Ingredients .........................................................................................................214 1. Qualifying Food and Food Ingredients..........................................................................215 2. Items that do not Qualify as Food or Food Ingredients .............................................216 3. Alcoholic Beverages .........................................................................................................217 4. Tobacco .............................................................................................................................217 5. Candy .................................................................................................................................217 6. Dietary Supplements .......................................................................................................220 7. Prepared Food..................................................................................................................222 8. Meal Substitutes and Other Ingestible Items ..............................................................226 Restaurants ...................................................................................................................................229 1. Taxable Transactions .......................................................................................................230 2. Nontaxable Transactions ................................................................................................232 Convenience Stores .....................................................................................................................233 1. Taxable Transactions .......................................................................................................233 2. Nontaxable Transactions ................................................................................................234 3. Tobacco Buydown Payments .........................................................................................235 Grocery Stores ..............................................................................................................................235 1. Taxable Transactions .......................................................................................................235 2. Nontaxable Transactions ................................................................................................236 Chapter 18: Exemptions ...................................................................................................... 239 Resale and Sale for Resale ..........................................................................................................243 1. Sales to Dealer/Lessor.....................................................................................................244 2. Resale Exemption Certificates........................................................................................246 3. Third Party Drop Shipments and Use of Resale Certificates .....................................248 4. Credit for Tax Paid - Resale ............................................................................................249 Business and Occasional and Isolated Sales ............................................................................250 1. Activities Included in “Business” ....................................................................................250 2. Activities that are Not Included in “Business” ..............................................................251 12 | P a g e Entity-Based Exemptions ............................................................................................................252 1. Common Carriers ............................................................................................................253 2. Warehouse or Distribution Facility ................................................................................256 3. Research and Development ...........................................................................................257 4. Nonprofit, Charitable Organizations, and Schools ......................................................259 5. Credit Unions ....................................................................................................................261 6. Qualified Data Center ......................................................................................................261 7. Headquarters/Telecommunication Center ..................................................................263 8. Health and Fitness Facilities ...........................................................................................264 9. Operation of Call Center .................................................................................................265 10. Government Exemptions ................................................................................................266 11. Foreign Missions & Diplomats .......................................................................................266 12. Qualified Production Exemption ...................................................................................269 13. Broadband Communications and Internet Service Providers ...................................270 Product-Based Exemptions.........................................................................................................271 1. Textbooks and Workbooks .............................................................................................272 2. Aircraft Used in Flight Training.......................................................................................273 3. Newspapers and Periodicals ..........................................................................................275 4. Healthcare Products ........................................................................................................275 5. Firearm Safes and Safety Devices..................................................................................281 Use-Based Exemptions ................................................................................................................282 1. Vehicles, Vessels, Trailers, and Aircraft – Removal from Tennessee ........................282 2. Pollution Control ..............................................................................................................284 3. Green Energy Production Facility ..................................................................................285 Exemption Administration ..........................................................................................................285 1. Exemption Certificates ....................................................................................................285 2. Streamlined Certificate of Exemption ...........................................................................287 3. Exemptions Not Requiring a Certificate........................................................................289 13 | P a g e 4. Relief of Liability ...............................................................................................................290 Chapter 19: Manufacturers ................................................................................................. 292 1. Industrial Machinery........................................................................................................292 2. Industrial Materials and Supplies ..................................................................................294 3. Energy Fuel and Water ....................................................................................................294 4. Manufacturing Location ..................................................................................................297 Manufacturer Exemption Certificate – Generally ....................................................................298 1. Contractor Use of a Manufacturer’s Industrial Machinery Exemption.....................298 Miscellaneous Issues and Examples ..........................................................................................298 Chapter 20: Credits .............................................................................................................. 301 Sales or Use Tax Paid in Another State .....................................................................................301 Returned Merchandise ................................................................................................................302 1. Merchandise Priced Over $1,600 ...................................................................................302 2. Merchandise less than or equal to $1,600 ...................................................................302 Trade-In Credit ..............................................................................................................................303 1. Partial Payments ..............................................................................................................303 2. Trade-In from Dealer’s Business ....................................................................................304 3. Receiving Credit ...............................................................................................................304 4. Imported Vehicles ............................................................................................................305 Repossession ................................................................................................................................305 1. Examples ...........................................................................................................................306 Pollution Control Credit ...............................................................................................................310 1. Eligible Entities .................................................................................................................310 2. Application Requirements ..............................................................................................311 3. Certificates ........................................................................................................................312 4. Federal or Tennessee State or Local Government Entities ........................................312 5. Credits or Refunds ...........................................................................................................313 Certified Green Energy Production ............................................................................................313 14 | P a g e 1. Facility Requirements ......................................................................................................314 2. Application Procedures ...................................................................................................314 3. Exemption Certificate ......................................................................................................315 Bad Debt ........................................................................................................................................315 Headquarters Facility Tax Credit ................................................................................................317 1. Eligibility Requirements ..................................................................................................317 2. Headquarters Facility ......................................................................................................318 3. Minimum Investment ......................................................................................................318 4. Qualified Tangible Personal Property ...........................................................................318 5. Headquarters Staff Positions .........................................................................................320 6. Application Process .........................................................................................................321 7. Procedures........................................................................................................................321 8. Private Communication Services ...................................................................................322 Fire Protection Sprinkler Contractors ........................................................................................322 Fuel or Petroleum Products Sold to Air Common Carriers ....................................................323 Motor Vehicle Incentive Payments ............................................................................................323 Retail Tobacco Sales Tax – Tobacco Buydowns........................................................................324 Transaction Accommodation Fees.............................................................................................324 Chapter 21: Miscellaneous Sales and Use Tax Provisions ................................................ 326 Sales and Use Tax Applications to Aircrafts and Boats ...........................................................326 1. Aircrafts .............................................................................................................................326 2. Boats ..................................................................................................................................330 Vending Machine Sales ................................................................................................................331 1. Tax Rate for Vending Machines .....................................................................................331 2. Filing Requirements .........................................................................................................331 3. Vending Machines Operated for Benefit of Charitable Nonprofit Organization ....332 Micro Markets ...............................................................................................................................332 1. Registration Requirement...............................................................................................333 15 | P a g e 2. Filing Requirement ..........................................................................................................333 16 | P a g e Chapter 1: Introduction General Overview 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 17 | P a g e 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 services and amusements. 7 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; 9 Use 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 18 | P a g e 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 7 of this manual titled Local Sales and Use Tax Imposition. 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 8. 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 7. 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 20. 19 | P a g e 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. 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. Tennessee Works Tax Act The Tennessee Works Tax Act (“TWTA”), Public Chapter 377 (2022), was signed into law on May 11, 2023. The TWTA made several Tennessee sales and use tax changes in order to modernize the sales and use tax provisions and bring the state in further compliance with the Streamlined Sales and Use Tax Agreement. Many of the provisions, however, are not effective until July 1, 2024. Therefore, the TWTA changes are not reflected throughout this 20 | P a g e version of the manual. However, this section will summarize the changes that will be incorporated into future versions. 1. Use Tax on Taxable Services Under current Tennessee law, use tax is not owed on taxable services. The TWTA amended Tenn. Code Ann. § 67-6-203 to state that the following services are subject to Tennessee use tax if the serviced tangible personal property is delivered to a purchaser inside Tennessee for use or consumption. Such services include: Repairing of 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 resident must remit Tennessee use tax to the Department on the repair service. 2. Magazine and Book Distribution Exemption The TWTA deleted an outdated 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 direct mail advertising materials (such as discount coupons and advertising leaflets) that are distributed in Tennessee from outside Tennessee by cooperative direct mail advertising businesses. 21 | P a g e 4. Sourcing Provisions The TWTA adopted several sales and use tax sourcing provisions that bring the state into better compliance with the Streamlined Sales and Use Tax Agreement. 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 or lease of products imported into Tennessee, explain how to source items manufactured in Tennessee, and how to source the sale or repair of tangible personal property or software. Direct Mail Sourcing – Tenn. Code Ann. § 67-6-904 This section provides a new sourcing rule for direct mail. Telecommunication Definitions and Prepaid Calling Services – Tenn. Code Ann. § 67-6905 This section consolidates telecommunication definitions into one statute for purposes of sourcing sales of telecommunication services. This section also provides Tennessee’s sourcing rule for prepaid calling services and sales of prepaid wireless calling. 22 | P a g e Chapter 2: Nexus Historical Overview 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 Dakota 31 first interpreted these constitutional principles and stated that if a retailer did not have physical presence in a state, it was not required to collect that state’s sales tax. In other words, the business did not have nexus in the state; thus, the state could not force the business to collect sales tax from its in-state customers. Many states challenged the Court’s interpretation and sought to require retailers to collect sales tax because consumer use tax compliance rates are notoriously low. 32 This issue also became more prevalent as electronic commerce fundamentally altered how businesses make sales. In 2018, the Court overturned its decisions in Bellas Hess and Quill when issuing its decision in South Dakota v. Wayfair. 33 The Court ruled, in part, that the physical presence requirement was illogical on its face, that it was contrary to the realities of the modern marketplace, and that it served to promote tax evasion. Using this reasoning, the Court overturned the physical presence requirement as the sole basis of determining nexus; thus, states may now require out-of-state retailers to collect sales tax on sales made in their respective states if certain economic factors are present (i.e., the business has “economic presence” in the state). These economic factors are discussed in more detail below. 23 | P a g e Tennessee Nexus Requirements All in-state businesses have nexus in Tennessee and must collect sales tax from their customers and remit the tax to the Department. Out-of-state retailers must register with the Department and obtain a certificate of registration and collect and remit sales or use tax if they have “nexus” with Tennessee. The following list contains activities that would require retailers to register and collect sales tax in Tennessee: Use of employees, agents, or independent contractors to solicit sales in Tennessee. Use of third parties in Tennessee to conduct substantial business activities in Tennessee. 34 Maintaining inventory in Tennessee and using in-state independent contractors to fulfill Tennessee retail sales of that inventory. In-state promotional activity by company personnel, including participation in trade shows. Physical Tennessee business presence of a subsidiary that is acting as an agent of the out-of-state dealer or that is conducting activities in Tennessee on behalf of such a dealer (e.g., a retail store that takes returns of purchases made online from parent). Use of company-owned trucks or use of contract-carriers acting as an agent for the seller. Maintaining a store, office, warehouse, showroom, or other place of business in Tennessee. Leasing or renting tangible personal property in Tennessee. Repairing, installing,
Sales and Use Tax Manual - December 2023
More about the Tennessee Sales and Use Tax Guide Individual Income Tax TY 2023
This is a Sales and Use Tax Guide for residents of Tennessee
We last updated the Sales and Use Tax Guide in February 2024, so this is the latest version of Sales and Use Tax Guide, fully updated for tax year 2023. 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 |
| Sales and Use Tax Guide | Sales and Use Tax Guide |
| Form SLS450 (Instructions) | Sales and Use Tax Return (Instructions) |
| 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 February 2024.
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 two 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:
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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