The Top 10 Taxes You Can Expect in Tennessee Despite No State Income Tax

While Tennessee boasts the absence of a state income tax, residents still encounter various taxes that contribute to the state's revenue and fund essential services. Understanding these taxes is crucial for effective financial planning. Here's a comprehensive list of the top 10 taxes you can expect to pay in Tennessee:

1. Sales Tax: Tennessee imposes a statewide sales tax on the purchase of tangible goods, with a base rate of 7%. Local jurisdictions may levy additional sales taxes, making the total rate vary by location. Common goods subject to sales tax include retail items, clothing, and non-food items.

2. Use Tax: Use tax applies to items purchased out-of-state but used or consumed within Tennessee. This tax ensures that residents pay a fair share on items bought online or in neighboring states where the sales tax might be lower.

3. Property Tax: Property owners in Tennessee are subject to property taxes levied by local governments. These taxes fund schools, infrastructure, and public services. Rates vary by county, and assessments are based on property values.

4. Business Tax: Businesses in Tennessee are required to pay various taxes, including the Business Tax, commonly known as the "privilege tax." The tax is based on a company's gross receipts and is assessed at different rates depending on the industry.

5. Excise Tax: The excise tax applies to specific goods, including gasoline, diesel fuel, and tobacco products. These taxes contribute to funding transportation infrastructure and public health initiatives.

6. Hall Income Tax (on Dividends and Interest): While Tennessee phased out its Hall Income Tax on dividends and interest, a 1% tax still applies for tax years beginning before 2021. However, the tax is set to be fully repealed in the near future.

7. Professional Privilege Tax: Certain professionals, such as doctors, lawyers, and accountants, are subject to the Professional Privilege Tax. This tax is an occupational tax on individuals licensed by the state and varies based on the profession.

8. Mixed Drink Tax: Businesses serving alcoholic beverages are subject to a mixed drink tax in Tennessee. This tax is applied to the sale of mixed drinks and contributes to state and local revenues.

9. Inheritance Tax (phased out): While Tennessee phased out its inheritance tax, it's important to note that the tax was in effect for certain estates until 2016. Currently, there is no inheritance tax in the state.

10. Federal Income Tax: While not a state tax, residents of Tennessee are still subject to federal income tax imposed by the U.S. government. Understanding federal tax obligations remains crucial for comprehensive financial planning.

In conclusion, although Tennessee proudly stands as a state without a state income tax, residents and businesses still encounter various taxes that contribute to the state's revenue. Familiarizing yourself with these taxes is essential for navigating the financial landscape and ensuring compliance with state and local regulations. Contact us today to learn more about proper, state compliant tax reduction strategies.