Should you collect sales tax in Tennessee?
Sales tax is levied on the retail sale of tangible personal property to your customers, including leasing or renting tangible property. However, you will collect the sales tax if you determine the nexus in Tennessee. Nexus is the presence that may come physically or economically.
A physical nexus is typically created when your business has a Tennessee store, warehouse, or office. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Tennessee.
A physical nexus is integrated when your business is engaged in the following in Tennessee:
- Selling tangible personal property in Tennessee.
- Maintaining, occupying, or using a place of business or an office in Tennessee.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Having a stock of goods in Tennessee.
Click here (pg. 24) for more concise guidance on physical presence.
Is it constituting an Economic nexus in Tennessee?
You must comply and register under sales tax rules if you are a remote seller (i.e., don’t have a physical presence in the state) or a marketplace seller. Business sales in Tennessee exceed $100,000 during the current or previous calendar year.
You may also refer to the Tennessee Revenue Department (pg. 25) advisory to know more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Tennessee?
You need to apply online at the Tennessee Taxpayer Access Point (TNTAP) to get a sales tax permit in Tennessee.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Tennessee.
- Contact information.
- Nature of business.
Once you apply for the sales tax permit in Tennessee, you will receive a confirmation number and other registration details. Please note that if the business is purchased, you will need the name and address of the previous owner as well.
Is your product or services liable to Sales tax in Tennessee?
Tangible Property: Sales tax in Tennessee is imposed primarily on the retail sale of tangible personal property, e.g., furniture, giftware, toys, etc.
Services: Generally, services are exempt from sales tax. However, exceptions include communication services, fabrication, utilities, hotel stays, etc. Please read through the department sales tax guide for detailed guidance on what services are taxable (pg. 58).
Digital Product: Tennessee charges sales tax on digital products. So, you must collect sales tax if you sell digital products such as software, streaming services, e-books, etc. Please see the Tennessee Revenue Department advisory (pg. 164) on digital transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is taxable in Tennessee. Review the Tennessee Revenue Department advisory (pg.150).
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. Please click here to see what exemptions are covered (chapters 18 & 19).
You can also visit the Tennessee Department of Revenue website for more concise information about the taxability of products (pg. 79) in Tennessee.
How should you collect and calculate state taxes in Tennessee?
Collecting and computing accurate sales tax to be remitted to the state may not involve those boisterous efforts as the sales tax is origin-based in Tennessee, which means you must collect taxes at the rate where your business is located. However, if you are not based in Tennessee and create a business relationship through economic nexus in the state, you’ll have to collect and remit the sales tax.
Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden and you can focus on more important business aspects.
Tennessee has a base sales tax rate of 7%, followed by the local tax rates, which vary based on the cities and municipalities. You may visit the tax rate table page on the Tennessee Department of Revenue website.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (7% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such sale are not liable to sales tax. However, when the sale includes taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale. Accordingly, sales tax applies to the taxable portion of the sale. This link will take you to the sales tax guide issued by the state. Visit page 130 of this guide for delivery charges.
How should you file sales tax in Tennessee?
E-file: You can e-file your return using TNTAP.
Paper filing: You can complete the paper form and file it by mail. This form is issued by the department when asked.
Payment of sales tax is also required when filing. The state allows people to pay taxes via ACH, credit cards, and EFT.
Filing frequencies and due dates
You need to file the monthly sales tax due on the 20th day of the following month. However, when your monthly sales & use tax liability is $1,000 or less, you will get the quarterly filing status. In that case, file your sales tax by the 20th day of the month from the end of the relevant quarter.
Suppose your filing frequency is annual (assigned to manufacturers, wholesalers, and marketplace sellers). Then, please file your sales tax by 20th January of the following year. This link (pg. 31) will take you to the official Tennessee government advisory, where you can see what the state says about sales tax filing due dates.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a monthly penalty of 5% of sales tax if you file or pay after the due date. The maximum penalty imposed is 25% of the tax due.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines (pg. 38) the Tennessee Revenue Department issued for penalties and interest.
Sales tax holiday in Tennessee
The Tennessee sales tax holiday applies to Gun Safes, Gun Safety devices, Apparel, School Supplies, etc. The sales tax holiday would start from 26th July (12:01 a.m.) to 28th July (11:59 p.m.) for 2024. For detailed information, refer to the Tennessee Revenue Department advisory here.