Tennessee Sales and Use Tax Guide

Sales and Use Tax Guide
Sales and Use Tax Manual
Sales and Use Tax
Manual

‘

December 2025

Contents
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 ................................................................. 19

3.

Cooperative Direct Mail Advertising ................................................................................ 20

4.

Sourcing Provisions ........................................................................................................... 20

Chapter 2: Nexus .................................................................................................................... 21
Historical Overview ........................................................................................................................ 21
Tennessee Nexus Requirements ................................................................................................. 21
1.

Out-of-State Dealers with no Physical Presence in Tennessee ................................... 22

2.

Local Sales Tax Reporting by Out-of-State Dealers ....................................................... 23

Chapter 3: Administrative Requirements ........................................................................... 25
Registration Generally ................................................................................................................... 25
Registration Process ...................................................................................................................... 25
1.

Consumers or Business Users ......................................................................................... 26

2.

Flea Market Operators & Dealers .................................................................................... 27

3.

Revocation of Certificate of Registration ........................................................................ 27

Filing and Payments ....................................................................................................................... 28
1.

Filing through TNTAP......................................................................................................... 28

2.

Filing through an Approved Software Vendor ............................................................... 28

3.

Filing through the Streamlined Central Registration System ...................................... 29

Filing Periods and Due Dates ........................................................................................................ 29
1.

Filing Periods ...................................................................................................................... 29

2.

Filing and Payment Due Dates ......................................................................................... 29

1099-K Filing Requirement ............................................................................................................ 29
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Rules for Billing Sales Tax .............................................................................................................. 30
1.

Invoicing .............................................................................................................................. 30

2.

Installment or Credit Sales ............................................................................................... 31

Refunds ............................................................................................................................................ 31
1.

Refund Requests Made by Dealers ................................................................................. 31

2.

Refund Requests Made by Customers............................................................................ 32

Statutes of Limitations ................................................................................................................... 33
1.

Assessments ....................................................................................................................... 33

2.

Refunds ............................................................................................................................... 33

3.

Statute Waivers .................................................................................................................. 34

Penalties .......................................................................................................................................... 34
1.

Penalties and Penalty Rates ............................................................................................. 34

2.

Penalty Waivers .................................................................................................................. 35

Interest............................................................................................................................................. 37
Records Maintenance .................................................................................................................... 37
1.

Records Requested ............................................................................................................ 37

2.

Record Retention ............................................................................................................... 39

3.

Failure to Retain Records .................................................................................................. 39

Assessment and Informal Conferences ...................................................................................... 39
Change in Business Ownership and Closing Your Business .................................................... 40
Closing Your Sales and Use Tax Account Through TNTAP .................................................... 40
Successor Liability .......................................................................................................................... 40
Responsible Person Liability ......................................................................................................... 42
Examples ...................................................................................................................................... 43
Chapter 4: Common Sales Tax Concepts ............................................................................. 44
Overview .......................................................................................................................................... 44
Commonly Used Terms in Sales Tax Law ................................................................................... 44
1.

Auctioneers, Agents, and Factors .................................................................................... 44

2.

Business .............................................................................................................................. 44

3.

Commissioner .................................................................................................................... 45

4.

Dealer .................................................................................................................................. 45

5.

Leases and Rentals ............................................................................................................ 46

6.

Marketplace Facilitator...................................................................................................... 51

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7.

Person ................................................................................................................................. 51

8.

Resale .................................................................................................................................. 51

9.

Retail Sale ............................................................................................................................ 51

10.

Retailer ................................................................................................................................ 52

11.

Sale ...................................................................................................................................... 52

12.

Sales Price ........................................................................................................................... 53

13.

Specified Digital Product ................................................................................................... 54

14.

Tangible Personal Property .............................................................................................. 54

15.

Use ....................................................................................................................................... 54

Chapter 5: Sales Tax Imposition on Services and Tangible Personal Property................ 56
Taxable Services ............................................................................................................................. 56
1.

Repair of Tangible Personal Property or Computer Software ..................................... 57

2.

Installation of Tangible Personal Property or Computer Software ............................. 59

3.

Lodging Services & Rooms ............................................................................................... 59

Sales by Hotel Intermediaries ...................................................................................................... 62
4.

Short-Term Space Rented by Dealers ............................................................................. 63

5.

Cleaning Tangible Personal Property .............................................................................. 63

6.

Parking and Storage of Motor Vehicles .......................................................................... 67

7.

Telecommunications Services .......................................................................................... 68

8.

Ancillary Services ............................................................................................................... 69

9.

Uranium Enrichment ......................................................................................................... 69

10.

Television Programming Services .................................................................................... 70

11.

Made to Order Sales.......................................................................................................... 70

Nontaxable Services in Connection with Real Property ............................................................ 70
Tangible Personal Property........................................................................................................... 71
1.

Coins, Currency, and Bullion ............................................................................................ 72

2.

Hemp-Derived Products ................................................................................................... 72

3.

Artwork Used in Advertising Materials ........................................................................... 74

Chapter 6: Use Tax ................................................................................................................. 76
Overview .......................................................................................................................................... 76
1.

Definitions ........................................................................................................................... 76

2.

Use Tax Imposition ............................................................................................................ 77

Activities Subject to Use Tax ......................................................................................................... 77
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1.

Specified Digital Products and Video Game Digital Products ...................................... 78

2.

Use Tax on Certain Services to Tangible Personal Property ........................................ 78

When Use Tax Does Not Apply ..................................................................................................... 79
1.

Personal Items Moved into Tennessee ........................................................................... 79

2.

Import for Export ............................................................................................................... 80

3.

Interstate Commerce - Title and Property Pass outside the State .............................. 80

4.

Storage of Tangible Personal Property ........................................................................... 81

5.

Tangible Personal Property Held for Resale .................................................................. 81

Contractor’s Use Tax ...................................................................................................................... 81
1.

Contractor’s Use Tax ......................................................................................................... 81

2.

Contractor-Dealers ............................................................................................................ 82

3.

Exemptions ......................................................................................................................... 82

4.

Tax on Fabricated Materials ............................................................................................. 84

5.

Installation of Industrial Machinery ................................................................................ 85

6.

Property Owned by the United States Government ..................................................... 85

7.

Qualified Disaster Restoration ......................................................................................... 86

Credit for Taxes Paid in Another State ........................................................................................ 87
Chapter 7: Sourcing Sales to Tennessee .............................................................................. 88
Overview .......................................................................................................................................... 88
Sourcing Sales and Leases from Out of State into Tennessee................................................. 88
1.

Sourcing Sales into Tennessee......................................................................................... 89

2.

Sourcing Lease or Rental of Tangible Personal Property Imported into Tennessee 90

3.

Marketplace Facilitator Sourcing ..................................................................................... 91

Sourcing Sales and Leases from a Place of Business in Tennessee ........................................ 92
Sourcing Services to Tangible Personal Property and Computer Software ........................... 93
Florists.............................................................................................................................................. 94
Sourcing Sales of Direct Mail ........................................................................................................ 94
1.

Advertising and Promotional Direct Mail ....................................................................... 95

2.

Other Direct Mail................................................................................................................ 95

3.

Product ................................................................................................................................ 96

4.

Sourcing Sales of Direct Mail ............................................................................................ 96

5.

Purchasers Must Provide Delivery Information ............................................................ 97

Chapter 8: Local Sales Tax Imposition ................................................................................. 99
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Overview .......................................................................................................................................... 99
Local Tax Limitations ..................................................................................................................... 99
Local Option Tax Rates ................................................................................................................100
Local Sourcing Rules ....................................................................................................................100
1.

Sales at Special Events ....................................................................................................100

2.

Food Trucks ......................................................................................................................101

Single Article..................................................................................................................................101
Chapter 9: Single Article ...................................................................................................... 102
Overview ........................................................................................................................................102
Single Article Local Tax ................................................................................................................102
1.

Local Tax Base Limitations .............................................................................................102

2.

Reporting Local Single Article Sales ...............................................................................103

State Single Article Tax ................................................................................................................104
Reporting State Single Article Sales Tax .................................................................................104
Example Calculations ...................................................................................................................104
Single Article: Lease or Rental of Tangible Personal Property ...............................................105
Single Article: Software ................................................................................................................105
Single Article Application to Sales of Boats and Trailers .........................................................106
1.

Applying the Single Article Cap and the State Single Article Tax ...............................107

2.

Examples ...........................................................................................................................107

Motor Vehicles ..............................................................................................................................109
Manufactured Homes ..................................................................................................................110
Tractors ..........................................................................................................................................110
Chapter 10: Marketplace Facilitators ................................................................................ 111
Background ...................................................................................................................................111
1.

Marketplace Facilitators and Marketplace Sellers.......................................................111

2.

When Must a Marketplace Collect Tennessee Sales Tax? ..........................................113

3.

Exceptions to Marketplace Facilitator Collection Requirement ................................114

4.

Delivery Network Company Election .............................................................................115

Marketplace Facilitator Administration .....................................................................................116
1.

Sourcing Sales Made through Marketplace Facilitator ...............................................116

2.

Facilitated Sales Must be Reported Separately ...........................................................116

3.

Auditing a Marketplace Facilitator .................................................................................116

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4.

Exemption Certificates – Purchases for Resale ...........................................................117

5.

Claims for Refund ............................................................................................................119

Chapter 11: Sales Price (Purchase Price) and Bundled Transactions ............................. 120
Sales Price (Purchase Price) ........................................................................................................120
1.

Consideration ...................................................................................................................121

2.

Miscellaneous Taxes Listed on Invoice .........................................................................122

3.

Federal Excise Taxes ........................................................................................................123

4.

Finance/Carrying Charges...............................................................................................124

5.

Late Charges .....................................................................................................................124

6.

Delivery Charges ..............................................................................................................125

7.

Installation Charges .........................................................................................................128

8.

Services Necessary to Complete Sale ...........................................................................128

9.

Trade-in Credit .................................................................................................................129

10.

Discounts ..........................................................................................................................129

11.

Credit Card Surcharges ...................................................................................................130

12.

Restocking Fees ................................................................................................................131

Bundled Transactions and the True Object Test......................................................................131
1.

True Object Test Application ..........................................................................................132

2.

Examples of True Object Test ........................................................................................133

Chapter 12: Tangible Personal Property vs. Realty .......................................................... 135
Overview ........................................................................................................................................135
Realty vs Tangible Personal Property ........................................................................................135
1.

Intent of the Parties .........................................................................................................135

2.

Objective Factors .............................................................................................................136

Restaurant Equipment.................................................................................................................139
Pipeline and Railroad Components ...........................................................................................141
1.

Installation of Pipelines ...................................................................................................141

2.

Installation of Railroads ..................................................................................................141

3.

Unattached Pipeline and Railroad Components .........................................................141

Fiber-Optic Cable ..........................................................................................................................141
Electricity for Electric Vehicles ....................................................................................................142
Chapter 13: Computer Software ......................................................................................... 143
Historical Overview ......................................................................................................................143
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Sale of Computer Software .........................................................................................................143
1.

Computer Software .........................................................................................................144

2.

Remotely Accessed Software .........................................................................................145

Sales Price/Purchase Price of Computer Software ..................................................................146
Services ..........................................................................................................................................146
1.

Nontaxable Services ........................................................................................................146

2.

Installation and Repair Services .....................................................................................147

3.

Computer Software Configuration and Training .........................................................148

Single Article..................................................................................................................................148
1.

In-house Computer Software .........................................................................................149

2.

Video Game Digital Products .........................................................................................150

Use of Computer Software .........................................................................................................150
1.

Allocation of Purchase Price (Users Located in Multiple States) ...............................150

2.

Purchases with Resale Certificate ..................................................................................151

3.

Remotely Accessed Software Direct Pay Permit ..........................................................151

4.

Remotely Accessed Software Used to Fabricate Software for Personal Use is

Exempt .......................................................................................................................................152
Computer Software Maintenance Contracts ............................................................................152
1.

Definition of Computer Software Maintenance Contract ..........................................153

2.

Software Maintenance Contracts Are Subject to Sales and Use Tax ........................153

3.

Separate Sales of Support Services ...............................................................................154

4.

Single Article Tax Limitation Does Not Apply to Computer Software Maintenance

Contracts ....................................................................................................................................155
5.

Software Installed on Computers Both Inside and Outside the State ......................155

6.

Repairs...............................................................................................................................155

Chapter 14: Specified Digital Products .............................................................................. 157
Specified Digital Products ...........................................................................................................157
1.

Electronically Transferred ...............................................................................................157

2.

Tax Rates ...........................................................................................................................160

3.

Sourcing ............................................................................................................................160

4.

Digital Codes for Obtaining Specified Digital Products ..............................................160

5.

Sales and Use Tax Exemptions for Digital Equivalents ...............................................160

6.

Other Sales and Use Tax Exemptions ...........................................................................161

7.

Online Courses .................................................................................................................162

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Chapter 15: Warranty & Service Contracts........................................................................ 163
Contracts Covering Tangible Personal Property ......................................................................163
1.

Sourcing Rules ..................................................................................................................163

Use Tax ..........................................................................................................................................166
1.

Examples ...........................................................................................................................166

2.

Contracts Covering Vehicles, Boats, and Aircraft Sold to Nonresidents ..................167

3.

Contracts Covering Vehicles, Boats, and Aircraft Purchased in Another State .......167

4.

State Single Article Tax and Single Article Local Tax Limitation .................................168

5.

Contracts Covering Property Located Inside and Outside Tennessee .....................168

6.

Repairs Performed Under a Warranty or Service Contract........................................168

Contracts or Warranties for Repair of Real Property ..............................................................168
Chapter 16: Sales Tax Imposition on Amusements .......................................................... 170
Amusement Tax............................................................................................................................170
Taxable Amusements ..................................................................................................................170
1.

Dues/Fees to Membership Sports and Recreation Clubs ..........................................170

2.

Admissions to Entertainment/Recreational Facilities, Activities, or Events .............171

3.

Charges for Engaging in a Recreational Activity When Spectators Are Not Charged a

Fee for Admission .....................................................................................................................172
4.

Providing Use of Tangible Personal Property for Sport, Entertainment/Recreational

Activities .....................................................................................................................................173
Sales or Use Tax Due on Tangible Personal Property Used on Amusement Premises ......173
Exemptions ...................................................................................................................................173
1.

Dues, Fees, and Memberships including Physical Fitness .........................................173

2.

Admissions to Entertainment Facilities, Activities, or Events .....................................175

3.

Engaging in Recreational Activities When Spectators are not Charged Admission 176

4.

Air Commerce Recreational Activities ...........................................................................176

Reporting Amusement Tax .........................................................................................................177
Ticket Sales ................................................................................................................................177
Sourcing Amusements.................................................................................................................177
Coin Operated Amusement Devices..........................................................................................178
Chapter 17: Telecommunications, Ancillary Services, and Television Programming ... 180
Overview ........................................................................................................................................180
Telecommunications Services ....................................................................................................180
1.

Telephone Services ..........................................................................................................182

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2.

Wireless Telecommunications Services ........................................................................182

3.

Prepaid Calling Services ..................................................................................................182

4.

Enhanced Telecommunications Services .....................................................................183

5.

Private Communication Services ...................................................................................184

6.

Telecommunications Service Tax Rates ........................................................................185

Telecommunications Credits and Exemptions .........................................................................186
1.

Hotels, Motels, Colleges, Universities, and Hospitals .................................................186

2.

Headquarters Taxpayer Sales of Telecommunications to Affiliates .........................187

3.

ATM and Wire Transfer Services ....................................................................................187

4.

Telecommunications Used in Operation of Qualified Call Center ............................188

5.

Access to the Local Exchange Area and Landline Network ........................................188

6.

Sales for Resale ................................................................................................................188

Ancillary Services ..........................................................................................................................188
Sourcing Sales of Telecommunications and Ancillary Services..............................................189
1.

General Telecommunications Services Sourcing ........................................................189

2.

Sourcing Mobile Telecommunications Service ............................................................190

3.

Sourcing Post-paid Calling Service ................................................................................190

4.

Sourcing Private Communication Service ....................................................................190

5.

Ancillary Service ...............................................................................................................190

6.

Sourcing Prepaid Calling Services and Prepaid Wireless Calling Services ...............190

Emergency Communications 911 Surcharge ...........................................................................191
1.

Collecting the 911 Surcharge .........................................................................................191

2.

Uncollected 911 Surcharges ...........................................................................................192

3.

Administrative Fee ...........................................................................................................192

4.

Statute of Limitations ......................................................................................................192

Television Programming Services ..............................................................................................192
1.

Video Programming Services .........................................................................................192

2.

Direct-to-Home Satellite Services ..................................................................................194

3.

Streaming Television Programming Services...............................................................194

4.

Hotels, Motels, and Other Lodging Service Providers ................................................194

Registration and Filing .................................................................................................................195
1.

Telecommunications Service Providers Filing..............................................................195

2.

Video Programming Service Providers Filing ...............................................................195

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3.

Direct-to-home Satellite Service Providers Filing ........................................................196

Bundled Transactions Involving Services ..................................................................................196
1.

Bundled Transaction .......................................................................................................196

2.

Calculation of Tax ............................................................................................................197

Chapter 18: Food .................................................................................................................. 200
Overview ........................................................................................................................................200
Food and Food Ingredients .........................................................................................................200
1.

Qualifying Food and Food Ingredients..........................................................................201

2.

Items that do not Qualify as Food or Food Ingredients .............................................203

3.

Alcoholic Beverages .........................................................................................................203

4.

Tobacco .............................................................................................................................204

5.

Candy .................................................................................................................................204

6.

Dietary Supplements .......................................................................................................207

7.

Prepared Food..................................................................................................................208

8.

Meal Substitutes and Other Ingestible Items ..............................................................212

Restaurants ...................................................................................................................................214
1.

Taxable Transactions .......................................................................................................214

2.

Nontaxable Transactions ................................................................................................216

Convenience Stores .....................................................................................................................217
1.

Taxable Transactions .......................................................................................................217

2.

Nontaxable Transactions ................................................................................................218

3.

Tobacco Buydown Payments .........................................................................................219

Grocery Stores ..............................................................................................................................219
1.

Taxable Transactions .......................................................................................................219

2.

Nontaxable Transactions ................................................................................................219

Chapter 19: Exemptions ...................................................................................................... 222
Overview ........................................................................................................................................222
Resale and Sale for Resale ..........................................................................................................225
1.

Airplanes ...........................................................................................................................225

2.

Leased Property ...............................................................................................................226

3.

Sales to Dealer/Lessor.....................................................................................................226

4.

Resale Exemption Certificates........................................................................................227

5.

Third Party Drop Shipments and Use of Resale Certificates .....................................229

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6.

Credit for Tax Paid - Resale ............................................................................................231

7.

Use of Resale Certificates – TennCare Diaper Program .............................................231

Business and Occasional and Isolated Sales ............................................................................231
1.

Activities Included in “Business” ....................................................................................231

2.

Activities that are Not Included in “Business” ..............................................................232

Entity-Based Exemptions ............................................................................................................233
1.

Common Carriers ............................................................................................................234

2.

Warehouse or Distribution Facility ................................................................................236

3.

Research and Development ...........................................................................................237

4.

Nonprofit, Charitable Organizations, and Schools ......................................................239

5.

Credit Unions ....................................................................................................................241

6.

Qualified Data Center ......................................................................................................241

7.

Headquarters/Telecommunication Center ..................................................................243

8.

Health and Fitness Facilities ...........................................................................................243

9.

Operation of Call Center .................................................................................................245

10.

Government Exemptions ................................................................................................245

11.

Foreign Missions & Diplomats .......................................................................................246

12.

Qualified Production Exemption ...................................................................................248

13.

Broadband Communications and Internet Service Providers ...................................249

14.

Taxidermists .....................................................................................................................250

Product-Based Exemptions.........................................................................................................250
1.

Textbooks and Workbooks .............................................................................................250

2.

Aircraft Used in Flight Training.......................................................................................252

3.

Newspapers and Periodicals ..........................................................................................253

4.

Healthcare Products ........................................................................................................253

5.

Firearm Safes and Safety Devices..................................................................................258

Use-Based Exemptions ................................................................................................................259
1.

Vehicles, Vessels, Trailers, and Aircraft – Removal from Tennessee ........................259

2.

Pollution Control ..............................................................................................................260

3.

Green Energy Production Facility ..................................................................................261

Exemption Administration ..........................................................................................................262
1.

Exemption Certificates ....................................................................................................262

2.

Streamlined Certificate of Exemption ...........................................................................264

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3.

Exemptions Not Requiring a Certificate........................................................................265

4.

Relief of Liability ...............................................................................................................266

Chapter 20: Manufacturers ................................................................................................. 268
Industrial Machinery Exemption ................................................................................................268
1.

Overview ...........................................................................................................................268

2.

Definition of Manufacturer .............................................................................................268

3.

Definition of Processing ..................................................................................................269

4.

Items that Qualify for Exemption ..................................................................................269

5.

Items that Do Not Generally Qualify for the Industrial Machinery Exemption .......269

6.

Industrial Machinery Exemption for Pollution Control Facilities ...............................270

7.

Industrial Materials and Supplies ..................................................................................271

8.

Energy Fuel and Water ....................................................................................................271

9.

Manufacturing Location ..................................................................................................274

Manufacturer Exemption Certificate – Generally ....................................................................274
Contractor Use of a Manufacturer’s Industrial Machinery Exemption ..............................274
Miscellaneous Issues and Examples ..........................................................................................275
Chapter 21: Credits .............................................................................................................. 277
Sales or Use Tax Paid in Another State .....................................................................................277
Returned Merchandise ................................................................................................................278
1.

Merchandise Priced Over $1,600 ...................................................................................278

2.

Merchandise less than or equal to $1,600 ...................................................................278

Trade-In Credit ..............................................................................................................................279
1.

Partial Payments ..............................................................................................................279

2.

Trade-In from Dealer’s Business ....................................................................................279

3.

Receiving Credit ...............................................................................................................280

4.

Imported Vehicles ............................................................................................................280

Repossession ................................................................................................................................280
1.

Examples ...........................................................................................................................281

Pollution Control Credit ...............................................................................................................285
1.

Eligible Entities .................................................................................................................285

2.

Application Requirements ..............................................................................................286

3.

Certificates ........................................................................................................................286

4.

Federal or Tennessee State or Local Government Entities ........................................287

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5.

Credits or Refunds ...........................................................................................................287

Certified Green Energy Production ............................................................................................288
1.

Facility Requirements ......................................................................................................288

2.

Application Procedures ...................................................................................................288

3.

Exemption Certificate ......................................................................................................289

Bad Debt ........................................................................................................................................289
Headquarters Facility Tax Credit ................................................................................................291
1.

Eligibility Requirements ..................................................................................................291

2.

Headquarters Facility ......................................................................................................291

3.

Minimum Investment ......................................................................................................292

4.

Qualified Tangible Personal Property ...........................................................................292

5.

Headquarters Staff Positions .........................................................................................293

6.

Application Process .........................................................................................................294

7.

Procedures........................................................................................................................294

8.

Private Communication Services ...................................................................................295

Fire Protection Sprinkler Contractors ........................................................................................295
Fuel or Petroleum Products Sold to Air Common Carriers ....................................................295
Motor Vehicle Incentive Payments ............................................................................................296
Retail Tobacco Sales Tax – Tobacco Buydowns........................................................................297
Transaction Accommodation Fees.............................................................................................297
Chapter 22: Miscellaneous Sales and Use Tax Provisions ................................................ 298
Sales and Use Tax Applications to Aircrafts and Boats ...........................................................298
1.

Aircrafts .............................................................................................................................298

2.

Boats ..................................................................................................................................302

Vending Machine Sales ................................................................................................................303
1.

Tax Rate for Vending Machines .....................................................................................303

2.

Filing Requirements .........................................................................................................303

3.

Vending Machines Operated for Benefit of Charitable Nonprofit Organization ....303

Micro Markets ...............................................................................................................................304
1.

Registration Requirement...............................................................................................304

2.

Filing Requirement ..........................................................................................................304

New or Used Tires ........................................................................................................................305

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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 is 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, which 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
Sales and use tax apply in various ways:


Sales tax on the in-state retail sale of a taxable product; 8

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

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 calculated 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

Some 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.

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.

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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 properly imposed 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 is
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 both entitybased 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.

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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 to construct an electric generating plant (such as a
dam), it 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
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 provisions and bring the state into 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
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 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
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delivering the magazines or books to the mail or common carrier or maintaining 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) tha