Tennessee State Taxes
Tennessee State Tax ? Individual Income Tax
Tennessee’s individual income tax is imposed on interest and dividend income only. It applies to individuals and entities receiving interest from bonds/notes and dividends from stock ? it is not imposed on the individual wages or salaries of TN residents.
The individual income tax has a flat rate of 6%. All taxable income that exceeds Tennessee’s $1,250 single exemption or $2,500 joint exemption is subject to tax. Persons over age 65 with total income under $16,200 (single filers) or $27,000 (joint filers) are exempt from tax. Legally blind individuals are also exempt.
Approximately three-eighths (3/8 or 37.5%) of the revenue collected from Tennessee’s individual income tax is distributed to counties and cities within the state. Because of this, taxpayers must list their county/city on the return so that funds are distributed to the appropriate localities.
Income that is subject to Tennessee’s individual income tax includes the following:
- Dividends from stock in corporations, holding companies, insurance companies not licensed to do business in TN, and state-chartered banks outside TN not doing business in TN
- Income from investment trusts and mutual funds (whether in cash or additional stock)
- Market value of stock in a corporation (given by another corporation as a dividend in the regular course of business)
- Distributions based on stock ownership to shareholders of an S corporation
- Interest from bonds of states, counties and municipalities outside TN
- Interest from bonds, mortgages, deeds of trust, personal notes, promissory notes, installment notes, bonds of foreign governments, church bonds, commercial paper, or other written instruments (issued by any person, firm, corporation, joint-stock company, business, trust, or partnership)
- Dividends and interest received by a beneficiary of an estate or trust located outside TN
- Interest or dividends from shares/units in money market funds
- Interest or dividends from the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and Government National Mortgage Association (Ginnie Mae)
- Distributions paid or credited to a limited partner (if the partner has a certificate verifying transferable interest in the partnership)
Income is considered taxable when it is’
- Received in cash
- Paid by check (or other negotiable instrument or equivalent) that is mailed to the taxpayer, regardless of the date received
- Credited on the books of a bank, banking institution, broker, or other agent of the taxpayer
- Received in merchandise or other commodities of intrinsic value
The following persons/entities must file a Tennessee individual income tax return:
- A person whose legal domicile (i.e. permanent home) is in Tennessee and whose taxable interest and dividend income exceeds $1,250/$2,500 for the tax year
- A person who moved into or out of Tennessee during the year, and whose taxable interest and dividend income exceeds $1,250/$2,500 during their period of Tennessee residency
- A person whose legal domicile is in another state but who maintained a residence in Tennessee for more than 6 months of the year, and whose taxable interest and dividend income exceeds $1,250/$2,500
- A Tennessee administrator, guardian, trustee, or other fiduciary who received over $1,250 in taxable interest and dividend income for the benefit of Tennessee residents
- A Tennessee partnership whose taxable interest and dividend income exceeds $1,250
- An executor or administrator of a Tennessee estate must pay tax on income received by the estate until the stocks/bonds have been transferred to beneficiaries (note: an estate is entitled to one $1,250 exemption)
Tennessee tax returns are due annually by April 15th following the end of the tax year (for calendar year filers). For fiscal year filers, returns are due by the 15th day of the 4th month following the end of the tax year.
If a taxpayer cannot file on time, a 6-month extension may be granted by submitting Form INC 251 (Application for Extension of Time to File Individual Income Tax Return) or a copy of the taxpayer’s federal extension request by the original due date (April 15th).
Tennessee State Tax ? Corporate Tax
Tennessee imposes 2 taxes on the privilege of doing business in the state: the franchise tax and the excise tax. While these are two separate state taxes, they are part of the same taxing scheme ? a corporation that is liable for one tax is generally liable for both. These taxes apply to all corporations, limited partnerships, limited liability companies, and business trusts that are chartered/organized in Tennessee or conduct business in the state.
The franchise tax is based on a corporation’s net worth or the value of real or tangible personal property owned/used in Tennessee, whichever is greater. The tax rate is $0.25 for every $100 (or 0.25%), with a minimum tax of $100.
The excise tax is based on a corporation’s net earnings or income for the tax year. It has a rate of 6.5% on Tennessee taxable income. The term ‘net earnings’ refers to federal taxable income before federal deductions, plus or minus certain state adjustments. Note that general partnerships, sole proprietorships, and qualified nonprofit organizations are not subject to this tax.
Multi-state corporations may apportion their net earnings or net worth for Tennessee tax purposes. There are 3 major factors of the apportionment formula: property, payroll, and receipts.
Corporate tax returns are due annually by the 15th day of the 4th month following the close of the taxable year. A 6-month extension may be requested by taxpayers who cannot file on time.
Tennessee State Tax ? Sales & Use Tax
The sales and use tax has 2 components: the sales tax and the use tax. These taxes are complementary (the use tax is imposed only when sales tax was not) and they apply to the gross sales of any business/person engaged in retail sales. Retail sales include the selling, renting, or leasing of tangible personal property and certain services.
The state sales/use tax rate is 7%. An additional Local Option Tax is imposed by most city and county governments, with rates that vary from 1% to 2.75%. Furthermore, there is a state Single Article Tax of 2.75%.
Exceptions to the 7% general state sales/use tax include:
- Food and food ingredients (taxed at a state rate of 5.5%)
- Aviation fuel used in the operation of aircraft motors (taxed at a rate of 4.5%)
- Sales of property to common carriers for use outside Tennessee (taxed at a rate of 3.75%)
- Gas, electricity, fuel oil, and other energy fuels sold to or used by manufacturers (taxed at a rate of 1.5%); Water sold to or used by manufacturers (taxed at a rate of 1%)
- Interstate telecommunications services sold to businesses (taxed at a rate of 7.5%)
- Cable and wireless cable television services ? charges of $15 or less are exempt from tax; charges of $15.01 – $27.50 are taxed at a rate of 8.25%; charges of $27.51 or higher are taxed at the regular state (7%) and local sales/use tax rates
- Sales of direct-to-home satellite television programming or television services (taxed at a state rate of 8.25%)
- Electricity sold to or used by a qualified data center (taxed at a rate of 1.5%)
Sales tax is imposed on the sales price of an item of tangible personal property or taxable services and amusements. The ‘sales price’ is the total amount (including costs, expenses, property, etc.) for which property/services are sold. In Tennessee, vendors are responsible for collecting sales tax from customers and remitting the tax to the state each month.
The ‘use tax’ is the counterpart of the sales tax. It is imposed only when Tennessee sales tax has not been properly collected ? this often applies to goods purchased from outside the state and brought into Tennessee for use/consumption. The use tax is a combination of the state (7%) and local rates (1% to 2.75%). Unlike the sales tax, which is a liability of the vendor, the use tax is the personal responsibility of the consumer. Form SLS 452 (Tennessee Consumer Use Tax Return) must be filed on a monthly, quarterly, semiannual, or annual basis, depending on the frequency of purchases.
Single Article Tax
A ‘single article’ is defined as a separate unit, apart from any accessories or extra parts, which can be sold as an independent item or common unit of measure. This includes motor vehicles, boats and manufactured homes. The single article tax is an additional state tax with a rate of 2.75% on a portion (the second $1,600) of the sales price of any single article sold. In other words, the first $1,600 of an item’s sales price is exempt and the amount from $1,600.01 up to (and including) $3,200 is subject to this tax.
Note that the full sales price of a single article is also subject to the state tax rate of 7%. In general, only the first $1,600 of the sales price of a single article is subject to the local option tax rate (which cannot exceed 2.75%).
Tennessee State Tax ? Property Tax
Property taxes in Tennessee are administered by local governments ? county officials assess property values, determine local rates, and collect taxes. The State Board of Equalization ensures that proper rules/procedures are followed and reviews appeals beyond the county level.
There are 2 main types of property: real property and personal property.
- Real Property (or real estate) is generally land and anything built, installed, or growing on that land, including buildings and other affixed structures.
- Personal Property is generally any property that is not real estate. Personal property can be tangible or intangible. Tangible personal property includes moveable items such as equipment, furniture, supplies, art, clothing, and jewelry. Intangible personal property includes stocks, bonds, securities, and other ‘intangible’ assets.
The types of property subject to tax are real property (commercial and residential) and tangible personal property used/held for business purposes. In general, tangible personal property intended for private use (e.g., household goods and clothing) is exempt from tax. Interest and dividends earned from intangible personal property, such as stocks or bonds, is taxable under Tennessee’s individual income tax.
There are 4 major components for calculating property taxes in Tennessee:
- Appraised Value
- Assessment Ratio
- Assessed Value
- Tax Rate
Appraised Value ? The appraised value for each taxable property in a county is determined by the county assessor, based on the property’s fair market value as of January 1st each year.
Assessment Ratio ? Each class of property is assigned an assessment ratio, which represents a percentage of fair market value. The percentage varies based on actual/potential use for that type of property. The classifications and ratios are as follows:
- Residential/Farm (real property) ? 25%
- Commercial/Industrial (real property) ? 40%
- Public Utility (real property) ? 55%
- Commercial/Industrial (tangible personal property) ? 30%
- Public Utility (tangible personal property) ? 55%
- All other tangible personal property (except household furnishings) ? 5%
Assessed Value ? A property’s assessed value is calculated by multiplying the appraised value by the applicable assessment ratio.
Tax Rate ? The tax rate for each county/municipality is determined by local officials (county commission or city council) based on local government budget needs. Tax rates are expressed as an amount per $100 of assessed value. To calculate the amount due on a property tax bill, the assessed value is multiplied by the tax rate.
Property owners who disagree with their property’s appraised value or classification may file an appeal with their local county board (during the board’s regular session).
Tennessee State Tax Forms
Form INC 250 (Tennessee Individual Income Tax Return)
Schedule A (Taxable Dividends and Interest)
Schedule B (Non-Taxable Dividends and Interest)
Form INC 251 (Application for Extension of Time to File Individual Income Tax Return)
Form FAE 170 (Franchise, Excise Tax Return)
Form FAE 173 (Application for Extension of Time to File Franchise, Excise Tax Return)
Tennessee State Tax Resources
Tennessee Department of Revenue: state.tn.us/revenue
Tennessee Tax Guides: state.tn.us/revenue/taxguides
TN Department of Revenue ‘Online Services’ center: state.tn.us/revenue/onlinefiling
TN Department of Revenue ‘ Individual Income Tax Online Filing: /www.tn.gov/
TN Department of Revenue ‘Online Tax Registration’ (for businesses): tn.gov/content/tn/revenue/taxes/business-tax/file-and-pay.html
TN Department of Revenue ‘ Franchise and Excise Tax Online Filing: htn.gov/revenue/taxes/franchise—excise-tax.html
TN Department of Revenue ‘ Sales and Use Tax Online Filing: tntap.tn.gov/eservices/_/
Tennessee State Board of Equalization: www.state.tn.us/comptroller/sb
Comptroller of the Treasury (Division of Property Assessments): www.state.tn.us/comptroller/pa
TN Comptroller of the Treasury ‘ Real Estate Assessment Data: www.assessment.state.tn.us
Contact the TN Department of Revenue: help.tn.gov/tn