Moving to Tennessee often feels like a giant financial exhale. You’ve probably heard the rumors: "No state income tax!" and "Keep more of your paycheck!" While those things are basically true, the reality of state tax for tn is a bit more layered than a Nashville hot chicken sandwich.
People move here expecting a tax-free utopia. Honestly, it’s not quite that simple. Tennessee has to pay for its roads, schools, and state troopers somehow. Since the state isn't taking a bite out of your salary, they make up for it elsewhere—mostly at the cash register.
The Big One: No Personal Income Tax
Let’s clear the air on the best news first. Since January 1, 2021, Tennessee is officially one of the few states with no personal income tax. Period.
You might remember something called the "Hall Income Tax." It used to tax interest and dividends from stocks and bonds. It was a pain for retirees especially. Well, that’s gone. It was phased out completely over several years, and now, your paycheck is yours to keep. Whether you’re a remote worker moving to Chattanooga or a musician in Memphis, the state doesn't touch your earned income.
This is the primary reason the 2026 State Tax Competitiveness Index ranks Tennessee 8th overall. It's a massive draw. But—and there's always a but—don't start spending that "saved" money just yet.
The "Sales Tax" Sticker Shock
If you’re coming from a state like Oregon with 0% sales tax, or even a moderate state like North Carolina, Tennessee's sales tax is going to hurt.
Basically, the state base rate is 7%. That sounds manageable until you add the local options. Most counties and cities tack on an extra 2.25% to 2.75%. In places like Nashville (Davidson County) or Memphis (Shelby County), you’re looking at a combined rate of 9.75%.
Think about that for a second. Nearly ten cents of every dollar you spend on a new TV, a pair of boots, or a couch goes to the government. It adds up fast.
The Grocery Tax Tug-of-War
One of the weirder things about Tennessee is that we still tax groceries. Most states view bread and milk as "essential" and leave them alone. Not here.
Currently, the state tax on food and food ingredients is 4%. When you add the local tax (up to 2.75%), you’re paying roughly 6.75% on your grocery bill.
There’s a lot of drama in the 2026 General Assembly right now about this. Lawmakers like Rep. Todd Warner have filed bills to finally kill the grocery tax. It’s a hot-button issue because while everyone wants cheaper eggs, the cities and counties rely on that money to keep the lights on. For now, expect to pay a premium for your home-cooked meals.
One quick tip: This lower rate doesn't apply to "prepared food." If you buy a cold rotisserie chicken, you pay the grocery rate. If they keep it under a heat lamp for you? That’s 9.75%. Life is full of little tax traps.
Owning a Home: The Property Tax Trade-off
If the sales tax is the "bad" news, property tax is the "okay" news. Tennessee’s property taxes are actually quite low compared to the national average.
The way it works is a little math-heavy, but here’s the gist:
- The state determines your Appraised Value.
- For residential property, you are only taxed on 25% of that value (the Assessed Value).
- You multiply that by the local tax rate.
For example, in Shelby County, the 2024-2026 tax rate has held steady around $3.39 per $100 of assessed value. In Bedford County, it’s even lower at $2.3252. If you have a $300,000 house, your annual tax bill might only be around $2,000 to $2,500. Try getting that deal in New Jersey or Illinois. You won’t.
Business Taxes: Franchise & Excise
If you’re moving a business here or starting one, the state tax for tn shifts from "simple" to "call an accountant."
Tennessee levies a Franchise and Excise (F&E) tax.
- Excise Tax: This is basically a corporate income tax of 6.5% on net earnings.
- Franchise Tax: This is based on the greater of your net worth or the value of real/tangible property owned in the state.
Recent changes in 2025 and 2026 have actually made this better for small shops. There's now a $50,000 standard excise tax deduction. Also, the state has moved toward a "single sales factor" apportionment. This is a fancy way of saying if you're a Tennessee-based company selling stuff to people in other states, you might pay less tax here than you used to.
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Those Random Taxes You Didn't See Coming
Then there are the "privilege" taxes.
- The Ligation Tax: As of January 1, 2026, there’s a new $2.00 tax on most civil and criminal court cases to fund clerk education.
- Hemp-Derived Products: If you’re into CBD or Delta-8, heads up. The state just revamped the tax structure here. As of 2026, the additional 6% sales tax on these items was repealed, but they replaced it with a stricter registration and directory system for brands.
- Hotel Occupancy: If you’re staying in an Airbnb in Nashville, you’re getting hit with a local occupancy tax—and it’s not cheap. Most cities are capped at 8% total.
Gas and "Sin" Taxes
Tennessee has a gas tax of about 27.4 cents per gallon. It’s middle-of-the-pack for the U.S.
If you smoke, the cigarette tax is $0.62 per pack. Honestly, compared to New York’s $5+ per pack, Tennessee is a smoker’s paradise, though your lungs might disagree.
What Most People Get Wrong
The biggest misconception is that Tennessee is "tax-free." It’s not. It’s just "differently taxed."
If you spend a lot of money—maybe you love buying cars, high-end clothes, and eating out—you might actually pay more in total taxes here than in a state with a 3% income tax and 0% sales tax. Tennessee rewards the "savers." If you earn $100k, keep it in the bank, and live frugally, you are winning the tax game. If you earn $100k and spend $90k on taxable goods, the state is getting its cut one way or another.
Practical Next Steps for Your Move or Filing
If you're trying to figure out your actual burden, don't just look at the 0% income tax.
First, use a local property tax calculator for the specific county you're eyeing. Montgomery County and Shelby County have great ones on their official "Trustee" websites.
Second, if you’re a business owner, check if you qualify for the $50,000 excise deduction. It’s a huge relief for "mom and pop" shops that used to get hammered by the 6.5% rate on every dollar.
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Third, keep an eye on the grocery tax legislation. If SB1367 or similar bills finally pass this session, your monthly cost of living will drop by about 6-7% overnight.
Finally, remember that Tennessee doesn't have an inheritance or estate tax. This makes it a premier spot for estate planning. If you’re sitting on a large nest egg, moving here isn't just about your monthly paycheck—it’s about what you leave behind for your kids.
Tennessee’s tax system is designed to be "pro-growth." It wants you to come here, work hard, and keep your salary. Just be ready for that 9.75% hit when you head to the mall.