If you’re thinking about moving to Nashville or just trying to figure out why your receipt at a Memphis Kroger looks a little steep, you’ve probably heard the rumors. People love to brag that Tennessee is a "tax-free" paradise.
Well, kinda.
It is true that your paycheck feels a lot fatter here because the state doesn't take a cut of your salary. But the government has to keep the lights on somehow. Instead of hitting your income, Tennessee leans heavily on what you buy. Honestly, it’s a bit of a trade-off. You get to keep more of what you earn, but you’ll pay a premium every time you head to the mall or grab a burger.
What is the tax rate for Tennessee on everyday stuff?
The first thing you’ll notice at the cash register is that the Tennessee sales tax rate is among the highest in the country. The state starts with a base rate of 7%. That’s already high, but it’s not the whole story.
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Local cities and counties are allowed to add their own "local option" tax on top of that. Most of them do. In fact, almost every populated area in the state adds another 2.25% to 2.75%.
When you do the math, the combined state and local sales tax rate in places like Nashville, Knoxville, and Memphis usually hits 9.75%.
For 2026, the average combined rate across the state sits right around 9.61%. If you’re buying a $1,000 laptop, you’re basically handing over an extra $97.50 to the government. It’s a bit of a gut punch if you’re coming from a state with a 4% or 5% rate.
The grocery store surprise
There is a tiny bit of mercy when it comes to food. While most things are taxed at that high 9% plus range, "prepared food" (like a restaurant meal) and "food ingredients" (groceries) are treated differently.
The state sales tax on groceries is 4%.
Keep in mind, local taxes still apply to those groceries. So, while you aren’t paying 9.75% on a gallon of milk, you’re still likely paying around 6.25% to 6.75% total. Better, but still not "cheap."
Is there really no income tax?
This is the big draw. As of January 2026, Tennessee remains one of the few states with zero personal income tax.
Whether you make $30,000 or $300,000, the state doesn't touch your wages. You won't even find a state income tax return form to fill out in April. This used to be more complicated because of something called the Hall Income Tax, which taxed interest and dividends. However, that was fully repealed years ago.
Now, your investments, 401(k) withdrawals, and regular paychecks are all state-tax-free.
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What about businesses?
If you’re running a company, the vibe changes. Tennessee might be nice to individuals, but it has a 6.5% corporate excise tax on net earnings. There’s also a Franchise Tax which is $0.25 per $100 of a business's net worth.
Basically, the state wants a piece of the action if you’re making a profit within its borders.
Property taxes and the $1,600 rule
Property taxes are where Tennessee actually shines. Compared to the Northeast or the Midwest, the property tax rates here are incredibly low.
The average effective property tax rate in Tennessee is roughly 0.49% to 0.55%.
To put that in perspective, if you own a home worth $300,000, you might pay around $1,500 to $1,800 a year in property taxes. In a state like New Jersey or Illinois, that same house could cost you $7,000 a year in taxes. This is a massive reason why the "no income tax" thing works—the low cost of holding real estate offsets the high cost of buying clothes and electronics.
The "Single Article" Tax quirk
There is a weird rule you should know about if you’re buying something expensive, like a car or a high-end diamond ring.
Tennessee has a cap on local sales tax.
Local sales tax only applies to the first $1,600 of a single item's price. If you buy a $30,000 truck, you only pay that extra 2.75% local tax on the first $1,600.
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However, the state adds an additional 2.75% "single article" tax on the portion of the price between $1,600 and $3,200. Anything over $3,200 is only subject to the base 7% state tax.
It’s confusing as heck, but it actually makes buying big-ticket items in Tennessee cheaper than in states with a flat 8% or 9% rate and no cap.
Actionable steps for your wallet
If you're living in or moving to the Volunteer State, here is how you handle these rates without overpaying:
- Audit your paycheck: Make sure your employer isn't accidentally withholding state income tax (it happens more than you'd think with out-of-state HR departments).
- Time your big buys: Tennessee occasionally does "Sales Tax Holidays" (usually in late July) where clothes and school supplies are tax-free. Save your shopping for those windows.
- Check the county line: If you live on the edge of a county, check the rates next door. A 0.5% difference in local tax adds up on a new set of appliances.
- Understand your assessment: Tennessee reappraises property every 4 to 6 years. If your property tax bill suddenly spikes, you can appeal the "appraised value" if it doesn't match the actual market value of your home.
The bottom line is simple: Tennessee is a "pay-as-you-go" state. You aren't taxed for existing or earning; you're taxed for spending. If you're a big saver, you'll win big here. If you're a big spender, that 9.75% will definitely start to sting.