Sales and Use Tax
The sales tax applies to any person or company who manufactures, distributes, or retails tangible personal property within the state. The sales tax law places the legal incidence of tax upon the seller. The Tennessee state sales tax is 7% and the local option sales tax ranges from 1% to 2.75%.
The basis for the sales and use tax is the sale price of each item or article of tangible personal property sold at retail; cost price of each article used, consumed or stored for use in Tennessee; lease price of tangible personal property including accounting equipment, cars, and trucks; hotel and motel room charges; parking lot or storage of motor vehicles; alcoholic beverages and tobacco products; telephone, telegraph, and electricity; repair and installation of personal property; and amusements and sporting events. Tennessee offers the following sales tax incentives and exemptions:
Industrial machinery and equipment are exempted.
Equipment associated with the required capital investment by a distribution or warehouse facility is exempted. To qualify, the taxpayer must invest in building and equipment in excess of $10 million over a period not exceeding three years.
A credit for state sales and use taxes over 0.5 percent paid on building materials, machinery and equipment for new or expanded international, national or regional corporate headquarters making a minimum $50 million investment in Tennessee.
Repairs to industrial machinery are exempt.
Air and water pollution equipment for manufacturers are exempted. Other air and water pollution equipment may be eligible for a sales tax credit.
Raw materials for processing are exempted.
The sales tax rates for a manufacturers' use of energy fuel and water are reduced. Both are taxed at 1.5%.
Other exemptions include: sales to religious, charitable, and educational institutions; prescription drugs; containers for property sold to consumers; sales for resale; and gasoline.
Every person or firm conducting any kind of business in the state is required to register with the Department of Revenue. Once a business is assigned an account number, the Department of Revenue mails a monthly, quarterly or annual tax or services tax return.
