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SALES AND USE TAX Sales or Use Tax[Tenn. Code Ann. §§ 67-6-102, 67-6-202] Sales or Use TaxThe sales or use tax is a combination of astate tax (7%) and a local option tax (whichvaries from 1.50% to 2.75%) imposed bycity and/or county governments. This taxis generally applied to the retail sales ofany business, organization, or personengaged in making retail sales, includingthe selling, leasing, or renting of tangiblepersonal property and the selling ofcertain taxable services, amusements, anddigital products specified in the law. Inaddition, there is a state single article taxrate of 2.75%, which is discussed later inthis text.The tax is imposed on the sales price ofsales, leases, and rentals of tangiblepersonal property and the sales price fortaxable services, amusements, and certaindigital products. It is the total amount ofconsideration for which products that aresubject to tax are sold. For example: Aconsumer buying four automobile tiressubject to the sales or use tax is charged afee for mounting the tires. The fee formounting the tires is also subject to thesales or use tax.Tangible personal property, taxableservices, amusements, and digitalproducts specifically intended for resaleare not subject to tax. Retail sales to thefederal government or its agencies andthe State of Tennessee or a county ormunicipality within Tennessee are notsubject to tax. In addition, there areexemptions for retail sales to certainentities that have qualified for taxexemption.The term “sales price” does not include: Sales PriceThe “sales price” of an item of tangiblepersonal property is the total amount ofconsideration (including cash, credit,property, and services) for which propertyor services are sold, including: Charges by the seller for servicesnecessary to complete the sale;Delivery charges made by the seller;Installation charges, andExempt property given to thepurchaser where taxable andnontaxable products are bundledand sold as a single product for oneprice. Cost of the property sold;Cost of materials, labor, or servicecost;Costs of transportation or deliveryto the seller;All taxes imposed on the seller;Expenses, interest, losses, andoverhead;10Dealer cash discounts allowed onproperty or services purchased.Manufacturer rebates are includedin the tax base.Interest charges on purchasesbought on an installment plan.Any tax legally imposed on theconsumer and separately stated onthe invoice, bill of sale, or similardocument given to the consumer.The value of items taken as “tradeins” on purchases of similar, new, orused items. The trade-in item mustbe listed by model and serialnumber, when applicable, on thecustomer’s invoice. [Tenn. CodeAnn. § 67-6-510]

SALES AND USE TAXSales or Use Tax (continued)There are some exceptions to the 7%general state sales or use tax rate: Sales of food and food ingredientsas defined in the law. These itemsare taxed at a state rate of 4.00%effective July 1, 2017. Whatconstitutes food and foodingredients is addressed later in thistext. [Tenn. Code Ann. § 67-6-228]Aviation fuel actually used in theoperation of aircraft motors is taxedat 4.5%. The 4.5% sales and use taximposed and remitted on any oneperson’s purchase, use,consumption, or storage of aviationfuel is limited to - 10,500,000 forany year occurring on or after July2018. [Tenn. Code Ann. § 67-6-217]Sales of property to commoncarriers for use outside Tennesseeare taxed at the rate of 3.75%.[Tenn. Code Ann. § 67-6-219]When sold to or used bymanufacturers, water is taxed at 1%,and gas, electricity, fuel oil, andother energy fuels are taxed at arate of 1.5%. [Tenn. Code Ann. § 676-206]Interstate or internationaltelecommunications services sold tobusinesses are taxed at a rate of7.5%. [Tenn. Code Ann. § 67-6-221]Gross receipts from the sale ofmanufactured homes, includingaccessories, furnishings, anddelivery or installation fees, aretaxed at half the current rate ofstate tax. [Tenn. Code Ann. § 67-6216]Property of a sole proprietorshipthat becomes property of acorporation as a result ofincorporation of the sole proprietorship is not subject to tax.[Tenn. Code Ann. § 67-6-223]Video programming servicesincluding cable television, wirelesscable television, and video servicesprovided through wireline facilitiesthat are offered for publicconsumption are taxed at a staterate of 8.25% on all charges of 15.01 - 27.50. Charges of 27.51and higher are taxed at the regularstate and local sales tax rates.Charges of 15 or less are exemptfrom tax. [Tenn. Code Ann. §§ 67-6103(f), 67-6-226]Sales of direct-to-home satellitetelevision programming or televisionservices are taxed at a state rate of8.25% only. [Tenn. Code Ann. § 67-6227]Electricity sold to or used by aqualified data center is taxed at astate rate of 1.5%. [Tenn. Code Ann.§ 67-6-206(c)]Tennessee vendors must indicate inspecific ways whether customers arepaying sales or use tax. If the purchaseprice of a product includes the tax, it mustbe indicated in writing on the invoice, on asign posted in the business, or in amanner that is assured to make thecustomer aware of that fact. [Tenn. CodeAnn. § 67-6-503]Local Option Sales or Use TaxAny county or incorporated city may levy atax on the same privileges that are subjectto the state’s sales or use tax; all countiesand some incorporated cities haveadopted a local option tax of up to 2.75%.11

SALES AND USE TAXSales or Use Taxjurisdiction. [Tenn. Code Ann. § 67-6702(g)(2)](continued)The tax is imposed in the locality of theseller’s location in Tennessee from whichthe sale is made. If a sale is made from anout-of-state location by a seller withlocations in Tennessee, the local tax isimposed based on the purchaser’slocation of receipt. Effective October 1,2019, out-of-state dealers who collect andremit Tennessee sales and use tax mustreport their sales based on the shipped toor delivered to address of the customer.Out-of-state dealers will no longer be ableto use the uniform local rate option of2.25%. Instead, out-of-state dealers mustapply the specific local sales tax rate ineffect for the city or county jurisdictioninto which the sale was shipped ordelivered.Interstate or internationaltelecommunications services sold tobusinesses are subject to the state taxrate of 7.5% and exempt from local tax.[Tenn. Code Ann. § 67-6-702(g)(1)]Interstate and internationaltelecommunications services sold topersons other than businesses are subjectto a state tax rate of 7% and a flat 1.5%local tax rate regardless of the local taxrate levied by the local jurisdiction. [Tenn.Code Ann. § 67-6-702(g)(1)]Video programming services includingcable television, wireless cable television,and video services provided throughwireline facilities that are offered forpublic consumption are exempt from localtax up to an amount of 27.50. [Tenn.Code Ann. § 67-6-714]The sale of water services is subject to thelocal tax rate for the locality where waterservices are delivered to the consumer.[Tenn. Code Ann. §§ 67-6-702(a-f)]Vending machine sales of both food andnon-food items are taxed at a flat rate of2.25% local tax on all sales regardless ofthe local tax rate levied by the localjurisdiction. [Tenn. Code Ann. § 67-6702(h)]The law limits some local option tax rates:There is no local option tax on electricpower or energy, natural or artificial gas,coal, or fuel oil. [Tenn. Code Ann. § 67-6704]Specified digital products (digital audiovisual works, digital audio works, anddigital books) are subject to a standardlocal tax rate of 2.50% regardless of thelocal tax rate levied by the localjurisdiction. [Tenn. Code Ann. § 67-6702(g)(4)]The local tax rate for water sold tomanufacturers is 0.5%. [Tenn. Code Ann. §67-6-702(b)]The local tax rate for sales of tangibleproperty to common carriers for useoutside Tennessee is 1.5%. [Tenn. CodeAnn. § 67-6-702(e)]Sales Tax Application to the Lease orRental of Tangible Personal PropertyIntrastate telecommunications servicesare taxed at the state rate of 7% and aflat 2.5% local tax rate regardless of thelocal tax rate levied by the localFor leases under which the lessee willmake periodic (e.g., weekly or monthly)payments, sales tax is to be collected oneach lease payment at the time the12

SALES AND USE TAXtangible personal property in this stateare subject to sales and use tax.Sales or Use Tax (continued)payment is due. For leases under whichthe lessee will make a lump sum paymentup front, tax is due with that payment.The state general sales tax rate of 7% iscollected for the entire length of the leasecontract. Tenn. Code Ann. § 67-6-702defines a “single article” for purpose of thelocal option tax. Generally, the localoption tax is required only on the first 1,600 of the cost of statutorily definedsingle articles of tangible personalproperty.A lease does not include financeagreements for the transfer of possessionor control of property. A contract thatrequires the transfer of title uponcompletion of allpayments and payment of an option pricethat does not exceed the greater of 100or 1% of the total payments under thecontract is a financing contract and not alease. Sales tax is due at the time of sale,and the periodic payments, includinginterest and financing charges madeunder the agreement, are not subject totax.The state single article tax rate of 2.75% islevied on the sales price of single articlesof tangible personal property beginning at 1,600.01 and continuing up to, andincluding, 3,200. On a lease or rental, thismeans the local tax applies to the first 1,600 of lease or rental income on eachsingle article, then the state tax rate of2.75% begins and continues up to, andincluding, 3,200 on the single articlelease price. Tenn. Code Ann. § 67-6204(b)(3) allows for a lump sum paymentof the local option tax due on the costprice to the lessee; this can be remitted tothe Department on the sales tax returnfor the tax period in which the tax for thefirst periodic lease payment is due. [Tenn.Code Ann. § 67-6-204 and Sales and UseTax Rule 1320-05-01-.32]Sales tax applies to the “sales price” of thelease or rental. Generally, the totalamount received from the customerbecomes the base for state sales tax.However, charges that are optional to thepurchaser and separately stated are notpart of the sales price that is subject to taxfor the lease of the property. Interestcharges associated with the lease orrental are included in the sales price uponwhich sales tax is to be collected.When leased property is relocated toTennessee from another state during thelease period, Tennessee use tax applies toeach lease payment for periods duringwhich the property is located inTennessee. The lessor is required toregister with the Department to collectand remit the use tax. If the lessor doesnot collect the tax, the lessee must remitthe tax directly to the Department. If thelessor properly collects and remits salestax to another state with respect to thelease payments, such sales tax will be aFor sales and use tax purposes, insurancepolicies such as accident, collision, andgap on motor vehicles and charges forfuel used in motor vehicles are notincluded in the sales price of a lease orrental when the charges are separatelystated on the invoice and the purchaserhas the option of leasing the propertywithout purchasing the insurance policyor fuel from the lessor.Extended warranties or repair andmaintenance agreements covering13

SALES AND USE TAXor permanent, must also hold a Certificateof Registration. A business having morethan one location must hold a certificatefor each business location. For example: Aclothing business with locations in twomalls must hold a certificate for eachlocation.Sales or Use Tax (continued)credit against the Tennessee use taxliability.Who Must Register for Sales or Use Tax[Tenn. Code Ann. §§ 67-6-102, 67-6-201,67-6-210, and 67-6-602]Dealers having average monthly grosssales of 400 of tangible personalproperty or less and taxable services of 100 or less, may, at the discretion of theCommissioner, be required to pay tax totheir suppliers on purchases in lieu ofregistering for sales or use tax purposes.Any entity wishing to manufacture,distribute, sell, rent, or lease tangiblepersonal property, or provide taxableservices, in this state must hold aCertificate of Registration to conductbusiness in Tennessee. Business may beconducted by: Who is Liable for Sales Tax?[Tenn. Code Ann. §§ 67-6-501, 67-6-502]Selling, renting, or leasing, even by atransient vendor, any type oftangible personal propertySelling any type of taxable service inthe stateFurnishing property or services thatare subject to the sales taxCharging admission, dues, or feesthat are subject to the sales taxUsing tangible personal property,computer software, specified digitalproducts, or warranty ormaintenance contracts notpreviously taxed.Selling any item from a vendingmachine or device in whichmerchandise is provided upondeposit of money, other than certainvending machines operated for thebenefit of tax-exempt organizations,is taxable under the sales or use taxlaw.In Tennessee, the responsibility for salestax rests on the dealer that provides thetaxable product or service. The lawrequires that the dealer pass the tax tothe customer; failure to do so does notrelieve the dealer of the responsibility totimely remit the tax to the state. In thecase of a property management companyhired to manage vacation lodging for anindividual property owner, the sales taxwill be imposed on the gross charge forrental and will be remitted by the propertymanagement company.Tax will be reported and paid each monthbased on the gross sales, or purchases,from all taxable sales and purchasesduring the preceding month. The tax willbe paid on the return for the month inwhich the taxable event occurs, even if thetax is not collected from the customerduring that month. For example: A chargesale is made during the month of June.The dealer must pay the tax on the Junereturn even though the customer may notpay the account until July.This requirement applies whether yourbusiness is a sole proprietorship,partnership, LLC, corporation, or anyother type of organization including thosethat are not for profit. Retailers fromother states that maintain a physicallocation in Tennessee, whether temporary14

SALES AND USE TAXSales or Use Tax (continued)Who is Liable for Use Tax?[Tenn. Code Ann. §§ 67-6-203, 67-6-210,67-6-208, 67-6-231] When a user of tangible personalproperty, computer software, computersoftware maintenance contracts, warrantyor maintenance contracts coveringtangible personal property located in thisstate, and specified digital property doesnot pay sales tax to a dealer, the userbecomes personally liable for the tax. Thisgenerally occurs when a user purchasesarticles from an out-of-state dealer notregistered in Tennessee. It also occurswhen a dealer withdraws inventory itemspurchased on a resale certificate forbusiness or personal use. For example: Aclothing store owner purchases clothingon a resale certificate and then takesitems from inventory for personal use.Use tax is then due on that clothing. How to Register[Tenn. Code Ann. §§ 67-6-601, 67-6-602]Tennessee RetailersYou may apply for the Certificate ofRegistration online. Select the link to“Register a New Business” in theAdditional Services section of our TNTAPwebsite https://tntap.tn.gov/eservices/ /.The use tax rate is equal to the sales taxrate on both the state and local level. Usetax is due even when a resident importstangible personal property into Tennesseefor use.You may also visit one of the Departmentof Revenue offices listed on the insidefront cover of this publication. Trainedpersonnel are available to explainTennessee’s tax system and answer any ofyour questions.For example: A business relocating toTennessee brings property purchased in astate with no sales or use tax. The dealerwould be liable for use tax on thisproperty. [Tenn. Code Ann. § 67-6-210]When registering, you will need thefollowing information to complete yourapplication:Use tax is normally incurred when: paying no sales or use tax [Tenn.Code Ann. § 67-6-210]Purchasing a product from atransient business that does notcollect sales or use tax [Tenn. CodeAnn. § 67-6-210]Consuming or using a product thatwas purchased without paying salesor use tax [Tenn. Code Ann. § 67-6203]Consuming, as a service provider,tangible products in theperformance of a service [Tenn.Code Ann. § 67-6-102(75)] Purchasing a product in anotherstate without paying sales or use taxand bringing it into Tennessee foruse in the state [Tenn. Code Ann. §67-6-210]Purchasing a product from a mailorder catalog or on the internet and 15The name, address, and phonenumber of the business, all owners,officers, or partners, and the personmaking the applicationThe Social Security Number(s) of theowner(s), partners, or officers

SALES AND USE TAX Sales or Use Tax (continued) The Federal Employer IdentificationNumber (FEIN) issued by the U.S.Internal Revenue Service if you haveone.A description of the business, thetype of ownership, a briefexplanation of the nature of thebusiness, and, if the business is acorporation, the date ofincorporationIf you have purchased yourbusiness, the name and address ofthe previous ownerThe signature, on the paperapplication, of the sole proprietor, apartner, or an officer of acorporation This requirement applies even though thesale of the product or its delivery is ininterstate commerce. For example: Anout-of-state computer company sellscomputer systems to Tennesseebusinesses through a salesperson thattravels in this state. This business isrequired to obtain a Certificate ofRegistration and collect sales or use taxon the price of the system.Out-of-State RetailersOut-of-state retailers must register withthe Department of Revenue and obtain acertificate of registration for payment ofthe sales or use tax if they have “nexus”with Tennessee. Nexus is essentiallyhaving enough contact with Tennessee sothat the state can place tax requirementson the business. Retailers are consideredto have nexus if they: Have company personnelparticipate in promotional activity inTennessee, including trade shows.Use company-owned trucks or usecarriers acting as an agent to deliversales in Tennessee.Provide telecommunications tosubscribers located in Tennessee.Have a subsidiary with physicalpresence in Tennessee act as anagent to conduct in-state activitieson behalf of the out-of-state retailer.Have any other physical presence inTennessee.A business having a physical presence inTennessee must collect and remit sales oruse tax on all sales whether orders aretaken in person, by phone, or by mail.Effective July 1, 2015, sales or use tax lawcreates a rebuttable presumption thatout-of-state dealers have nexus and mustcollect Tennessee sales and use tax fromTennessee customers if the dealer paysan in-

This sales and use tax guide is intended as an informal reference for taxpayers who wish to gain a better understanding of Tennessee sales and use tax requirements. It is not an all-inclusive document or a substitute for Tennessee sales or use tax statutes or rules and regulations. The information in this guide is current as of the date of .