Tennessee is a no-income-tax state — making it attractive for retirees, investors, remote workers, and high earners looking to minimize their tax burden.
Tennessee Income Tax: $0
| Income Type | Tennessee Tax |
|---|---|
| Wages and salaries | $0 |
| Self-employment income | $0 |
| Interest and dividends | $0 |
| Capital gains | $0 |
| Retirement income | $0 |
| Social Security | $0 |
Tennessee has NO state income tax on any personal income.
The Hall Tax (which previously taxed interest and dividends) was fully repealed in 2021, making Tennessee a true no-income-tax state.
Tax Savings: Tennessee vs. Other States
| Income | California Tax | New York Tax | Tennessee Tax | Annual Savings |
|---|---|---|---|---|
| $75,000 | $3,586 | $3,550 | $0 | $3,500+ |
| $100,000 | $5,911 | $5,100 | $0 | $5,000+ |
| $150,000 | $10,561 | $8,950 | $0 | $9,000+ |
| $200,000 | $15,211 | $12,500 | $0 | $12,000+ |
| $500,000 | $49,511 | $38,000 | $0 | $38,000+ |
Tennessee Sales Tax
Tennessee compensates for no income tax with one of the highest sales tax rates in the nation:
| Tax Component | Rate |
|---|---|
| State sales tax | 7% |
| Average local sales tax | 2.55% |
| Combined average | 9.55% |
| Maximum combined | 9.75% |
What’s Taxed
Most goods and services are taxed, including:
- Retail purchases
- Restaurant meals
- Electronics and appliances
- Clothing (no exemption)
Sales Tax Exemptions
- Groceries (reduced 4% state rate)
- Prescription drugs
- Manufacturing equipment
- Farm equipment
Tennessee Property Tax
| Metric | Amount |
|---|---|
| Average effective rate | 0.66% |
| Median home value | $280,000 |
| Median property tax | $1,848 |
Tennessee property taxes are below the national average — another tax advantage.
Property Assessment
Tennessee assesses property at:
- Residential: 25% of appraised value
- Commercial/Industrial: 40% of appraised value
- Farm: Special agricultural rate
Tennessee Retirement Benefits
Tennessee is one of the best states for retirees from a tax perspective:
| Benefit | Tax Treatment |
|---|---|
| Social Security | Not taxed |
| 401(k) withdrawals | Not taxed |
| IRA withdrawals | Not taxed |
| Pension income | Not taxed |
| Capital gains from investments | Not taxed |
| Interest and dividends | Not taxed |
No retirement income is taxed in Tennessee.
Tennessee Business Taxes
While individuals enjoy no income tax, businesses face:
| Tax | Rate | Who Pays |
|---|---|---|
| Franchise Tax | 0.25% of net worth or $0.25 per $100 of property | Most businesses |
| Excise Tax | 6.5% of net earnings | Most businesses |
| Business Tax | 0.3%-1.9% of gross receipts | Varies by classification |
LLC and S-Corp Considerations
Tennessee LLCs and S-Corps pass income to owners without state tax, but may owe franchise and excise taxes at the entity level.
Who Benefits Most from Tennessee’s Tax Structure
Great For:
- High earners — No tax on six-figure salaries
- Retirees — All retirement income untaxed
- Investors — No capital gains or dividend tax
- Remote workers — Work for CA/NY employers, pay $0 state tax
- Self-employed — No self-employment state tax
Less Advantageous For:
- Low-to-moderate earners — Sales tax is regressive
- Big spenders — 9.5%+ sales tax adds up
- Renters — Don’t benefit from low property tax
Tennessee vs. Other No-Income-Tax States
| State | Income Tax | Sales Tax | Property Tax | Notes |
|---|---|---|---|---|
| Tennessee | None | 9.55% avg | 0.66% | High sales, low property |
| Texas | None | 8.2% avg | 1.68% | High property tax |
| Florida | None | 7% avg | 0.89% | Balanced |
| Nevada | None | 8.2% avg | 0.55% | Very low property |
| Washington | None | 9.4% avg | 0.93% | High sales tax |
| Wyoming | None | 5.4% avg | 0.55% | Low all-around |
Cost of Living in Tennessee
| Category | Tennessee | National Average | Difference |
|---|---|---|---|
| Overall | 90 | 100 | -10% |
| Housing | 82 | 100 | -18% |
| Groceries | 94 | 100 | -6% |
| Healthcare | 91 | 100 | -9% |
| Utilities | 92 | 100 | -8% |
Index: 100 = national average
Combined with no income tax, Tennessee offers strong purchasing power.
Tennessee Major Cities Tax Comparison
| City | Combined Sales Tax | Property Tax Rate |
|---|---|---|
| Nashville | 9.25% | 0.86% |
| Memphis | 9.75% | 1.35% |
| Knoxville | 9.25% | 0.91% |
| Chattanooga | 9.25% | 0.75% |
| Murfreesboro | 9.75% | 0.54% |
Memphis has the highest combined burden; suburban areas often have lower rates.
Establishing Tennessee Residency
To benefit from Tennessee’s tax advantages, you need true residency:
- Physical presence — Spend most of the year in Tennessee
- Domicile intent — Register to vote, get TN driver’s license
- Documentation — Bank accounts, vehicle registration
- Cut ties — Avoid maintaining residency in other states
Warning: Simply buying property in Tennessee isn’t enough. Your former state may still claim you as a resident.
Remote Work and Tennessee
If you live in Tennessee and work remotely for an out-of-state employer:
- Tennessee won’t tax you — No matter where employer is located
- Some states may try to tax you — NY has aggressive sourcing rules
- Check employer withholding — Ensure they’re not withholding other state taxes
Key Takeaways
- Tennessee has NO income tax — Wages, investments, retirement all untaxed
- Sales tax is high — 9.5%+ combined rate
- Property taxes are low — Below national average
- Great for retirees — All retirement income exempt
- Great for investors — No capital gains tax
- Cost of living is low — 10% below national average
- Residency matters — Must establish genuine TN domicile