Sales Tax Guide for Tennessee

With varying tax rates, exemptions, and compliance requirements, navigating the sales tax in the Volunteer State can feel like feel like climbing Mount LeConte.

Luckily, our comprehensive sales tax guide for Tennessee simplifies everything you need to know about exemptions and rates, filing requirements, and new legislation updates.

Looking to ensure compliance or simply curious about how sales tax impacts your wallet?

We’ve got you covered with doola’s Sales Tax & Reseller Certificate service, which offers built-in sales tax registration, reseller certificates, and calculation tools.

Let’s understand the ins and outs of Tennessee’s sales tax system and make sense of those cents together!

Tennessee Sales Tax at a Glance

Tennessee’s sales tax system may seem straightforward at first, but for e-commerce sellers, the real challenge lies in understanding the finer details that affect tax collection and compliance.

In Tennessee, the Department of Revenue (TNDOR) imposes a base sales tax rate of 7%, with additional local taxes ranging from 0% to 3%.

This brings the combined total to anywhere between 7% and 10%, depending on the location of the transaction.

Those with sales tax obligations must remit collections to TNDOR, whose website and tax assistance line serve as primary resources for compliance.

Therefore, you are responsible for remaining in compliance with state and local laws, which require you to collect tax from your customers and pass it on to the TNDOR.

Sales Tax 101: The Basics for Tennessee Businesses

Navigating Tennessee’s sales tax system isn’t just about knowing the applicable rates. You must also understand the nuances of your business’s compliance.

Let’s cover all the fundamentals of sales tax in Tennessee, from how it’s applied to the differences between sales tax and use tax.

What Is Sales Tax?

Tennessee’s sales tax history dates back to the early 20th century when the Tennessee General Assembly enacted the Sales and Use Tax Act in 1947.

It is a consumption-based tax that is imposed on the sale or lease of tangible personal property and certain services.

While the state sales tax rate remains consistent at 7%, the total sales tax rate can vary depending on where the transaction takes place.

Most cities, counties, and special districts may impose additional local sales taxes to establish a reliable funding source for essential public services.

What Is Your Role as a Seller?

As a seller in Tennessee, you are responsible for registering for sales tax and obtaining a reseller certificate before conducting business in Tennessee.

This allows you to collect and remit sales taxes every time you sell or lease taxable goods or services within or from the state.

For example, if a customer purchases a $100 sweater from your Tennessee-based business, you must collect a 10% sales tax on the sales price for a total of $110.

Then, you are responsible for reporting and remitting the collected tax from the customer to TNDOR.

Difference Between Sales Tax and Use Tax

While both types of taxes serve similar purposes, there are some key differences between sales tax and use tax.

Use tax is imposed when goods are purchased from outside the state of Tennessee and brought or shipped into the state, and the seller does not collect sales tax on the purchase.

According to the Tennessee Taxpayer Access Point (TNTAP), even businesses and individuals who haven’t registered for sales and use tax are required to pay the applicable use tax.

Do You Need to Collect Tennessee Sales Tax?

One of the most common questions that business owners have is whether they need to collect Tennessee sales tax in the first place.

To determine this, you need to ask yourself 3 critical questions:

• Does your business have a physical or economic nexus in Tennessee?

• Do you sell goods or services that are subject to sales tax in the state of Tennessee?

• Does your out-of-state business sell to customers residing in Tennessee?

If the answer to all the above questions is yes, then you must collect and remit Tennessee sales tax. Or else, the state and local authorities could impose interest and additional penalties on uncollected amounts.

For example, if a business neglects to collect $5,000 in tax at a 9.25% rate, it could owe over $460 in interest and face additional penalties.

Tennessee Sales Tax Nexus for E-Commerce Businesses

Nexus means that a business has a substantial enough connection to Tennessee to be required to collect and remit any applicable sales and use tax.

Let’s check out the different triggers for sales tax nexus in Tennessee, especially for e-commerce businesses.

1. Physical Nexus

In Tennessee, physical nexus can be established through various activities such as owning or leasing property, employing independent contractors within the state, or having inventory stored in warehouses or fulfillment centers.

For e-commerce businesses, inventory stored in Tennessee, such as in an Amazon FBA warehouse, may create a physical nexus even if the business itself does not have a physical presence in Tennessee.

2. Economic Nexus (enforcement delayed as of 2025)

Economic nexus is triggered when a business surpasses $100,000 in Tennessee sales within a 12-month period.

As of 2025, enforcement of this rule is temporarily paused. While this means businesses exceeding the threshold are not currently required to collect Tennessee sales tax, this policy may change.

Therefore, we recommend continuing to track your sales to ensure compliance in case the rule is reinstated.

3. Click-Through Nexus

In addition to physical and economic nexus triggers, Tennessee also has a click-through nexus provision. It applies when a seller’s in-state affiliates or referrals generate more than $10,000 in gross receipts.

This includes affiliate marketing programs where an out-of-state business pays a commission to an in-state resident for referring customers.

For example, if a blogger in Tennessee promotes your online store through affiliate links, and their referrals generate over $10,000 in sales, your business would be required to register and collect Tennessee sales tax.

4. Inventory in Tennessee

As previously mentioned, if your e-commerce business has inventory stored in a fulfillment center or warehouse located in Tennessee, even temporarily, it will trigger a nexus as well.

This is common for Amazon FBA sellers and other businesses using third-party fulfillment centers located in Tennessee.

Check Amazon’s Inventory Event Detail Report to determine whether you should register for a sales tax permit and collect tax on sales.

5. Trailing Nexus

Another key factor for e-commerce sellers is trailing nexus, which refers to the obligation to collect tax even after ceasing business activities in the state.

While Tennessee does not have a clear policy on this, businesses should assume that tax obligations do not immediately disappear when they stop selling in the state.

Trailing nexus can occur when a business exits the state but still has ongoing sales tax obligations due to prior activities that created nexus.

So, to ensure compliance, it’s best to continue monitoring your tax obligations or work with a professional before discontinuing tax collection.

Tennessee Sales Tax Rates and Sourcing for Online Sellers

If your business triggers any sales tax nexus, you must collect and remit sales and use tax according to the tax laws enforced by the TN Department of Revenue.

However, this requires a thorough understanding of Tennessee’s current and future sales tax rates, sourcing rules, and marketplace facilitator regulations.

1. 2025 Sales Tax Rates

As of 2025, Tennessee’s base sales tax rate is 7%, with local rates adding up to 3%, resulting in a total combined rate of 7% to 10%.

However, some items, like groceries, are taxed at a base rate of 4% at the state level, with local taxes potentially increasing the total rate slightly.

For example, if an e-commerce seller in Nashville sells a product for $100 to a customer in Tennessee, they would have to collect State Sales Tax (7%) and Local Sales Tax (2.25%).

The calculations would be:

State Sales Tax: $100 × 0.07 = $7.00

Local Sales Tax: $100 × 0.0225 = $2.25

Total Sales Tax: $7.00 + $2.25 = $9.25

Total Price: $100 + $9.25 = $109.25

2. Origin-Based Sourcing

Tennessee follows an origin-based sourcing system, meaning that sales tax is based on the seller’s location rather than the buyer’s.

For example, if your e-commerce business ships products from Memphis, which has a tax rate of 9.75%, you must collect sales tax as per the Tennessee rate of 7%.

3. Marketplace Rules

Marketplace facilitators are now responsible for collecting and remitting sales tax on behalf of all their third-party sellers who generate more than $500,000 in annual Tennessee sales.

This means that sellers who qualify for this threshold will not need to collect and remit sales tax, but they must verify that their platform settings align with Tennessee’s tax laws.

What’s Taxable in Tennessee for E-Commerce Sellers?

If you are an e-commerce business selling or operating in Tennessee, you must know what items are subject to sales tax, which ones may be exempted, and who qualifies as a tax-exempt customer.

1. Taxable Items

In Tennessee, the general rule is that all tangible items sold by an e-commerce seller are subject to sales tax. This includes items such as clothing, electronics, and household goods.

Additionally, services provided by e-commerce sellers are also taxable if they are not specifically exempted by law.

2. Exempt Items

While most tangible personal property sold online is subject to sales tax in Tennessee, there are some exemptions that may apply to certain items:

• Industrial machinery used in manufacturing

• Agricultural equipment for qualifying farms

• Medical supplies and prescription drugs

• Certain grocery items are taxed at a reduced state rate of 4% plus applicable local taxes

3. Tax-Exempt Customers

Some customers are eligible for tax exemption when purchasing from an e-commerce seller in Tennessee.

These include government entities and non-profit organizations with valid exemption certificates or numbers issued by the state of Tennessee.

📌 E-Commerce Tip: Keep digital copies of any exemption forms and records of tax-exempt customers’ information and maintain accurate documentation of their purchases.

These documents serve as evidence that the sale was made to a tax-exempt entity and can be used as proof during audits or other compliance checks.

Registering for a Tennessee Seller’s Permit as an E-Commerce Seller

After determining you have a sales tax nexus in Tennessee, you need to register for a Tennessee Seller’s Permit.

This process may seem daunting, as most e-commerce sellers recognize it as the most difficult hurdle they face.

Let’s simplify the process of obtaining a Tennessee Seller’s Permit and break down specific situations such as out-of-state sellers, streamlined sales tax, and acquiring a business.

1. Step-by-Step Registration

Once you have confirmed that you need to register, you can do so by visiting the official website and completing the online application form.

During the registration process, you will be asked to provide information about your business, including but not limited to:

• Business name, address, and contact information

• EIN number

• Date business activities began or will begin

• Projected monthly sales

• Projected monthly taxable sales

• Products to be sold

You will also need to provide personal information about yourself as the owner or responsible party.

Once all required information has been submitted, TNDOR typically reviews and approves applications in 10 to 15 days.

After approval, you will receive your seller’s permit via mail to your registered business address.

2. Out-of-State Sellers

If you are an out-of-state seller but have a nexus in Tennessee, then you are also required to obtain a seller’s permit.

This could include having employees work remotely in Tennessee, storing inventory at a warehouse within state borders, or exceeding $10,000 in click-through sales in Tennessee.

Even if economic nexus enforcement is paused, registering in advance ensures compliance readiness if enforcement resumes.

3. Streamlined Sales Tax (SST)

Tennessee is a member of the Streamlined Sales Tax (SST) program, which allows businesses to register for multiple states at once. This enables them to collect sales tax at a single rate rather than individual rates for each jurisdiction.

Thus, reducing the administrative burden, especially for e-commerce sellers managing multi-state tax obligations.

Additionally, SST provides Certified Service Providers (CSPs) that help automate tax calculation, filing, and remittance, ensuring compliance while minimizing errors.

4. Acquiring a Business

If you are purchasing an existing e-commerce business that operates in Tennessee, you must update the Tennessee Department of Revenue (TNDOR) with the new ownership details.

Also, if there are outstanding tax liabilities, you may be held accountable unless due diligence is performed before the acquisition.

As the new owner, you are responsible for verifying whether the previous owner properly collected and remitted sales tax.

If the business structure is changing (e.g., from a sole proprietorship to an LLC), you may need to apply for a new permit instead of transferring the existing one.

Collecting Sales Tax: E-Commerce Best Practices

Once registered, businesses must apply the correct rate to all taxable sales, remit sales tax, file timely returns with the TNDOR, and keep excellent records.

However, the way you collect Tennessee sales tax is determined by how you sell your goods.

This means that if you sell your products on e-commerce platforms, you can use their built-in tools to ensure accurate taxation and keep clear records.

Amazon offers sellers a feature called “Amazon Tax Central,” which automatically calculates and collects the appropriate amount of sales tax based on the customer’s location.

This tool also takes care of filing and remitting taxes to the state on behalf of the seller.

Shopify has a built-in “Tax Settings” feature that allows sellers to set up automatic sales tax calculations based on where they have nexus (a significant physical presence) in Tennessee.

Etsy also has a similar feature called “Sales Tax Toolbox,” which automatically calculates and collects taxes from buyers at checkout.

Square’s mobile point-of-sale system has a built-in method for calculating and collecting sales tax while processing transactions through its app or card reader device.

This makes it easy for small businesses with physical stores or pop-up shops to collect taxes accurately without having to calculate them manually.

Filing and Remitting Tennessee Sales Tax for Online Sellers

Once you have begun collecting sales tax, the next crucial step is filing and remitting the collected taxes to the Tennessee Department of Revenue (TNDOR).

You must file sales tax filings regularly, or else you may face late filing and payment penalties that can eat into your profit margins.

However, the frequency of your filings depends on the volume of your sales in the state, which is assigned upon registration.

You can file your sales tax returns electronically through the Tennessee Taxpayer Access Point (TNTAP). This includes your total sales, taxable sales, and the amount of tax collected from buyers.

All of this can typically be done automatically if you are using doola’s Sales Tax and Reseller Certificate Services, which offers built-in sales tax calculation tools.

Special E-Commerce Considerations: Holidays and Shipping

If you are an online retailer doing business in Tennessee, you must be aware of any special considerations imposed by the local and state authorities.

2025 Sales Tax Holiday

Tennessee offers an annual sales tax holiday to provide temporary tax relief, leading to increased sales for e-commerce businesses and more revenue for the state.

The 2025 Sales Tax Holiday is expected to take place from July 25–27, during which specific items will be exempt from sales tax.

Eligible items include clothing and footwear priced at $100 or less, school supplies, and personal computers costing up to $1,500.

📌 E-Commerce Tip: Make sure to adjust your marketplace platform settings and configure tax rules based on specific dates to disable automated tax collection for qualifying purchases during this period.

Shipping and Handling

The general rule is that if a sale is taxable under state law, then so are any associated shipping or handling charges.

On the other hand, if the sale is exempt from taxes due to its nature (such as being part of the annual sales tax holiday), then any shipping or handling fees related to that purchase would also be exempt.

Tennessee follows an apportionment rule for mixed shipments containing both taxable and tax-exempt items. The taxable portion of the shipping fee is determined based on the proportion of the total sale that is subject to tax.

For example, if a customer purchases a $50 taxable item and a $50 tax-exempt item with a $10 shipping fee, only 50% of the shipping charge ($5) would be subject to sales tax.

Tennessee Excise Taxes for E-Commerce Sellers

Excise taxes can add an additional layer of tax compliance for e-commerce sellers, which requires a thorough understanding of tax policies and remittances.

Unlike sales tax, which applies broadly to most retail transactions, excise taxes typically apply to specific product categories, such as tobacco, alcohol, fuel, and certain digital services.

These taxes are often imposed at the state or federal level and may be included in the product’s price or collected as a separate charge at the point of sale.

Here are some of the key product categories that carry excise tax:

• Tobacco Tax ($0.62 per pack on cigarettes): If you sell tobacco products online and ship them to Tennessee customers, you must comply with state tobacco tax laws.

• Motor Fuels Tax ($0.274 per gallon for gasoline and $0.284 per gallon for diesel): If your e-commerce business deals with fuel additives, lubricants, or other related products, be sure to account for Tennessee’s excise tax on motor fuels.

• Cannabis Tax: While cannabis is not yet legal in Tennessee, there have been discussions around legalizing selling cannabis for recreational use, which would impose a Social Equity Fee or other excise tax measures.

• Alcoholic Beverages Tax ($0.04 per gallon for beer and $4.40 per gallon for liquor): If you sell alcoholic beverages, you must ensure proper excise tax collection and remittance with the state’s excise taxes on liquor and beer. This includes Online liquor stores, breweries, or wine subscription services shipping to Tennessee.

📌 E-Commerce Tip: Some e-commerce businesses assume that marketplace facilitators (like Amazon or eBay) automatically handle excise tax, but that is not always the case. Therefore, make sure to verify whether your niche products carry excise tax.

Avoiding Penalties: E-Commerce Compliance Tips

The convenience of e-commerce comes with the responsibility of complying with sales tax laws, which can vary from state to state.

However, there are some common pitfalls that e-commerce sellers must avoid to stay compliant and avoid unnecessary costs.

Here’s how e-commerce businesses can avoid penalties by staying compliant with Tennessee’s sales tax requirements.

1. Penalty Breakdown

Tennessee imposes a late filing penalty of up to 25% of the unpaid tax amount. Additionally, interest accrues on overdue balances, making delayed payments increasingly expensive. This not only adds up quickly but also reflects poorly on your business as it shows a lack of responsibility.

For example, if a seller owes $1,000 in sales tax and fails to remit it on time, penalties and interest could push the total liability beyond $1,250.

Another common penalty involves misplacing or losing your tax-exempt transaction certificates, which leaves you liable for uncollected sales tax.

If you fail to obtain or properly maintain exemption certificates from tax-exempt buyers, you may be held responsible for an unexpected tax bill, penalties, and interest.

2. E-Commerce Best Practices

To avoid hefty penalties and compliance issues, e-commerce sellers like you adopt proactive tax management strategies:

• Verify Marketplace Tax Collection: While platforms like Amazon, Etsy, and eBay collect sales tax on your behalf, you should routinely review their tax settings and confirm that tax is being correctly applied to Tennessee sales.

• Track Inventory Locations Monthly: Secondly, make sure to track inventory locations monthly. If you use Fulfillment by Amazon (FBA)., regularly check Amazon’s Inventory Event Detail Report to help sellers identify potential tax obligations.

• File Zero Returns During Off-Seasons: Even if a business has no sales in a given tax period, Tennessee still requires the seller to file a zero sales tax return**.** This ensures that the state knows you are still an active business and helps avoid any confusion or penalties for not filing returns.

How doola Helps E-Commerce Sellers With Tennessee Sales Tax

Without registering for a sales tax permit, you may face penalties and interest charges if found to be non-compliant.

At doola, our team of experts can help streamline the Sales Tax Registration process for you, ensuring that your business is registered correctly and on time.

This means no more struggling with paperwork or trying to decipher complicated instructions since our business administration solutions make the whole process hassle-free.

Additionally, our knowledgeable team ensures that your business is registered correctly from day one, avoiding any potential issues down the line.

With our reseller certificate service at doola, we ensure that you will receive your certificate as quickly as possible, allowing you to start enjoying savings right away.

Schedule a demo to make doola your partner in navigating Tennessee’s sales tax landscape.