Tennessee Tax Calculator 2026

Tennessee Income Tax: Fully Eliminated

Tennessee has no state income tax on wages, salaries, or earned income. The state previously taxed investment income under the Hall Income Tax, which was a 1%-2% tax on dividends and interest income exceeding $1,250 per person ($2,500 for married couples). This tax was phased out over several years and was fully eliminated effective January 1, 2021.

With the Hall Tax gone, Tennessee joins the ranks of states with absolutely no personal income tax. This means Tennessee residents pay zero state tax on wages, self-employment income, business income, capital gains, dividends, interest, pension income, Social Security benefits, and all other forms of income. The elimination of the Hall Tax was a major legislative achievement that had been debated in Tennessee politics for decades.

Tennessee also has no corporate income tax on general business income, though it does levy a franchise and excise tax on businesses operating in the state. The excise tax rate is 6.5% on net earnings, and the franchise tax is 0.25% on the greater of net worth or real/tangible property in Tennessee.

Tennessee's Sales Tax: Highest Combined Rate in America

Tennessee's 7% state sales tax rate is tied with Mississippi for the highest state-level rate in the nation. When combined with local sales taxes (which can add up to 2.75%), the average combined rate across Tennessee is approximately 9.55%, making it the highest average combined sales tax rate of any state.

Tennessee Sales Tax by Area

• Nashville (Davidson County) — 9.25% combined rate
• Memphis (Shelby County) — 9.75% combined rate
• Knoxville (Knox County) — 9.25% combined rate
• Chattanooga (Hamilton County) — 9.25% combined rate
• Some rural areas — Up to 9.75% in certain jurisdictions

Grocery Tax

Tennessee taxes groceries at a reduced state rate of 4% (down from the standard 7%), but local taxes still apply. This means the combined grocery tax rate is approximately 6.55% in most areas. There has been significant political pressure to eliminate the grocery tax entirely, and recent legislative sessions have considered bills to reduce or eliminate it.

Sales Tax Exemptions

• Prescription medications — Exempt
• Manufacturing machinery — Exempt from state and local sales tax
• Farm equipment and supplies — Reduced rate of 1.5%
• Clothing — Taxable at full rate (no exemption)
• Sales Tax Holiday — Annual back-to-school weekend exempts clothing ($100 limit), school supplies ($100), and computers ($1,500)

Tennessee Property Tax

Tennessee has one of the lowest effective property tax rates in the nation at approximately 0.56%. This is well below the national average of about 1.07% and is the second-lowest in the Southeast (after Alabama). Property is assessed at 25% of appraised value for residential property, which contributes to the low effective rate.

Tennessee Tax Freeze Program

Tennessee offers a Tax Freeze Program for homeowners age 65 and older with a combined annual income (from all sources) of $44,900 or less. Under this program, the property tax amount is frozen at the current level and cannot increase, even if the property's assessed value rises. Many counties also offer a Tax Relief Program that reimburses a portion of property taxes for eligible elderly, disabled, and veteran homeowners.

Tennessee Franchise and Excise Tax (Business Tax)

While Tennessee has no personal income tax, businesses face the franchise and excise tax:

• Excise Tax — 6.5% on net earnings (effectively a corporate income tax)
• Franchise Tax — 0.25% on the greater of net worth or the book value of real and tangible personal property in Tennessee (minimum tax of $100)
• Business Tax (Gross Receipts) — A separate local tax based on gross receipts, rates vary by classification

Single-member LLCs and sole proprietorships with less than $100,000 in gross receipts may be exempt from the business tax. The franchise and excise tax applies to most business entities doing business in Tennessee.

Tennessee vs. Neighboring States

• North Carolina — 4.5% flat income tax, 4.75% sales tax + local (~6.99%), 0.80% property tax. NC has income tax but much lower sales tax.
• Georgia — Graduated 1%-5.49% income tax, 4% sales tax + local (~7.37%), 0.83% property tax. Georgia has income tax and lower sales tax but higher property tax.
• Virginia — Graduated 2%-5.75% income tax, 5.3% sales tax, 0.80% property tax. Virginia has income tax and a more moderate overall tax structure.
• Kentucky — 4% flat income tax, 6% sales tax, 0.80% property tax. Kentucky has a lower overall tax burden in many categories.
• Alabama — Graduated 2%-5% income tax, 4% sales tax + local (~9.24%), 0.37% property tax. Alabama has even lower property tax but adds income tax.
• Mississippi — 0%-5% income tax, 7% state sales tax + local, 0.63% property tax. Similar sales tax rate but with added income tax.

Use our state comparison calculator to see how Tennessee compares for your specific income level.