Taxes in Tennessee: State Tax Guide 2026
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
Taxes in Tennessee: State Tax Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Tennessee is one of nine states with no income tax on wages and salaries. The state’s former Hall Income Tax on interest and dividend income was fully phased out in 2021, making Tennessee a true zero-income-tax state. To compensate, Tennessee relies heavily on its sales tax — which has one of the highest combined rates in the country — along with moderate property taxes and excise levies.
Tennessee Income Tax Rates (2026)
Tennessee has no state income tax. This includes:
- Wages and salaries — Not taxed
- Self-employment income — Not taxed at the state level
- Interest and dividends — Not taxed (Hall Tax fully repealed as of 2021)
- Capital gains — Not taxed
- Retirement income — Not taxed
- Social Security benefits — Not taxed
Tennessee’s constitution was amended in 2014 to permanently prohibit a state income tax on wages and salaries.
Sales Tax
| Component | Rate |
|---|---|
| State base rate | 7.00% |
| Average combined (state + local) | ~9.55% |
| Maximum combined rate | ~9.75% |
Tennessee has the highest average combined sales tax rate in the nation. Most counties and cities add the maximum 2.75% local option, bringing the total to 9.75% in the majority of the state.
Groceries: Tennessee taxes groceries at a reduced state rate of 4.00% (down from the full 7.00%), plus local taxes, for a combined grocery rate of typically ~6.75%.
Exempt from sales tax: Prescription medications. Tennessee holds an annual sales tax holiday in late July/early August for back-to-school clothing, school supplies, and computers.
Property Tax
| Metric | Amount |
|---|---|
| Average effective rate | ~0.56% |
| National average | 0.99% |
Tennessee property taxes are well below the national average. The state mandates reappraisals every four to six years depending on the county. Residential property is assessed at 25% of appraised value, with tax rates set by county and city governments.
Example: A home appraised at $300,000 has an assessed value of $75,000. At a typical combined rate of ~$2.25 per $100 of assessed value, the annual property tax is approximately ~$1,688.
Tax relief for seniors: The state’s tax relief program provides up to ~$198 in reimbursement for property taxes paid by homeowners aged 65+ with household income under ~$33,460, and for disabled homeowners and disabled veterans.
Other Taxes
- Estate and inheritance tax: Tennessee repealed its inheritance tax effective 2016. There is no state estate tax.
- Capital gains: Not taxed at the state level.
- Franchise and excise tax (businesses): Tennessee imposes a 6.50% excise tax on net earnings of businesses and a 0.25% franchise tax on net worth or real/tangible property (whichever is greater), with a minimum of ~$100.
- Fuel tax: ~$0.27 per gallon of gasoline (increased by the IMPROVE Act of 2017).
- Cigarette tax: ~$0.62 per pack, one of the lowest in the nation.
- Alcohol tax: Liquor-by-the-drink tax of 15%. Beer is taxed at ~$1.29 per gallon at wholesale.
- Hotel/motel occupancy tax: State rate of 5%, plus varying local rates.
- No local income taxes: Tennessee does not permit any local income taxes.
Tax Breaks and Credits
- No income tax filing required: Tennessee residents do not need to file a state income tax return for individual income.
- Property tax relief program: State reimbursement for qualifying seniors (65+), disabled persons, and disabled veterans, subject to income limits.
- Sales tax holiday: Annual back-to-school weekend with no sales tax on clothing under ~$100, school supplies under ~$100, and computers under ~$1,500.
- Greenbelt law: Agricultural, forest, and open-space land can be assessed at its use value rather than market value, significantly reducing property tax for qualifying landowners.
- Veterans’ benefits: Tennessee does not tax military retirement pay (no income tax), and disabled veterans may qualify for property tax exemption on the first ~$175,000 of their primary residence.
- Industrial development incentives: Various tax credits and exemptions are available for businesses creating jobs in Tennessee, including the Enhanced Job Tax Credit and FastTrack program.
Key Takeaways
- Tennessee has no state income tax on any form of personal income, including wages, investments, and retirement
- Sales tax is the trade-off: the combined rate of ~9.55% average (up to 9.75%) is the highest in the nation
- Groceries are taxed at a reduced but still significant combined rate of ~6.75%
- Property taxes are low at ~0.56% effective rate, roughly half the national average
- No state estate or inheritance tax, making Tennessee attractive for wealth preservation
Next Steps
- Compare Tennessee to other states at State Income Tax Comparison: All 50 States Ranked
- Understand your federal obligation with the Federal Income Tax Guide 2026
- Explore deductions you may be missing — Tax Deductions You’re Probably Missing
- Ready to file your federal return? See How to File Your Taxes Step by Step
Tax information is for educational purposes only. Consult a licensed tax professional.