Tennessee Sales Tax and Invoicing Rules for 2026

TL;DR: Tennessee has a 7% state sales tax — one of the highest in the country — with local taxes adding 1.5%–2.75%, bringing combined rates to 8.5%–9.75%. Groceries are taxed at a reduced 4% state rate. Economic nexus applies at $100,000 in sales.

State sales tax rate

Tennessee imposes a 7% state sales tax on most tangible personal property and select services. Local jurisdictions add between 1.5% and 2.75%, pushing combined rates to 8.5%–9.75%.

Nashville (Davidson County) has a combined rate of 9.25%. Memphis (Shelby County) reaches 9.75%. Knoxville sits at 9.25%.

Tennessee has no state income tax, making sales tax the primary revenue source — rates reflect this dependency. Tennessee uses destination-based sourcing for sales tax purposes.

Nexus rules

Physical nexus is established by offices, employees, inventory, or property in Tennessee.

Economic nexus triggers at $100,000 in sales to Tennessee buyers in the preceding 12-month period. There is no transaction count threshold.

Tennessee was an early advocate for economic nexus and actively enforces the provision. Marketplace facilitators must collect and remit on behalf of third-party sellers.

Invoice requirements

The Tennessee Department of Revenue requires sellers to maintain records supporting all transactions. Invoices should include:

• Seller's name, address, and account number
• Date of sale
• Buyer details
• Description of items sold
• Sale price per item
• Applicable tax rate
• Tax amount (stated separately)
• Total

Items taxed at different rates (groceries at 4% state vs. general merchandise at 7%) should be clearly separated on the invoice. For exempt sales, retain the appropriate exemption certificate. Records must be kept for at least three years from the date the return was filed.

Exemptions and special cases

Groceries (food for human consumption) are taxed at a reduced 4% state rate (plus local taxes at the full local rate). Prescription drugs are exempt.

Manufacturing machinery and industrial equipment are exempt. Agricultural supplies and farm equipment are exempt for qualifying farmers. Clothing is fully taxable at the standard 7% state rate.

SaaS is taxable in Tennessee — the state taxes software, including remotely accessed software. Digital products (downloads, streaming) are also taxable.

Tennessee holds a sales tax holiday for back-to-school clothing and school supplies each year. Professional services are generally not taxable unless specifically enumerated.

Filing frequency and deadlines

Filing frequency is assigned based on liability:

• Monthly — most businesses with regular activity
• Quarterly — smaller sellers
• Annually — very low liability

Monthly returns are due the 20th of the following month. Quarterly returns are due the 20th of the month following the quarter. Annual returns are due January 20.

Tennessee requires electronic filing for businesses with annual tax liability of $200 or more. The state offers a vendor discount of 2% of the first $2,500 in monthly tax collected for timely filers.

Penalties for non-compliance

Late filing incurs a penalty of 5% per month on unpaid tax (up to 25%). A minimum penalty of $15 applies even for late zero returns.

Interest accrues at a rate set by the Commissioner. Failure to register when required results in back-assessments and penalties. Tennessee's Department of Revenue focuses on e-commerce compliance given the state's dependence on sales tax revenue.

FAQ

Why is the grocery tax different from the regular rate?

Tennessee taxes groceries at a reduced 4% state rate (down from the standard 7%) to lessen the burden on essentials. However, local taxes still apply at the full local rate, so the combined rate on groceries is typically 5.5%–6.75% depending on the jurisdiction.

Is SaaS taxable in Tennessee?

Yes. Tennessee taxes software including SaaS, cloud-based applications, and remotely accessed software. Digital products like streaming, downloads, and e-books are also taxable.

What is the vendor discount?

Tennessee allows timely filers to retain 2% of the first $2,500 in tax collected per month as compensation for collecting and remitting. The maximum discount is $50 per month. You must file and pay by the due date to qualify.

Find the combined rate for any Tennessee address with InvoiceQuickly's tax rate lookup.