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The Hall Tax (which previously taxed interest and dividends) was fully repealed in 2021, making Tennessee a true no-income-tax state.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
For a side-by-side comparison of every state’s income tax rates, see state income tax rates by state 2026 and best and worst states for taxes 2026. Federal income tax applies on top of state taxes — see 2026 federal income tax brackets to calculate your combined liability.
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