This month, we travel east to Tennessee, the Volunteer State. It is the 36th largest state by area and the 16th most populous state. Nashville is home to the Grand Old Opry. Memphis, in the far southwest portion of the state, is home to Elvis Presley’s Graceland and the blues clubs of Beale Street. Sun Records resides in Memphis, which is where Elvis Presley, Johnny Cash, Roy Orbison, Carl Perkins, Jerry Lee Lewis and Charlie Rick began their recording careers.
Tennessee is home to the Great Smoky Mountains National Park, located in the eastern part of the state. It is the most visited national park in the country. Furthermore, the state is considered to be the most biologically diverse state without a coastline, boasting seven of the eight most ecologically rich rivers in North America. It has more than 325 species of fish, ranking the state first among all states in freshwater fish diversity. The state also has a diverse population of salamanders.
Business Climate
Ranked among the top ten destinations in the U.S., tourism plays a major role in the state’s economy. Domestic, as well as international travel, contributes to tourism in the state. Tourist attractions that people flock to are the Great Smoky Mountains National Park, Graceland, the Ryman Auditorium, the Gaylord Opryland Resort, Lookout Mountain and the Tennessee Aquarium.
Other major industries that contribute to the economy of Tennessee include agriculture and manufacturing. The state has over 82,000 farms, 59% of which supply cattle. Soybeans are heavily planted in the western portion of the state. Major corporations based in Tennessee include FedEx, AutoZone and International Paper. The U.S. Volkswagon manufacturing plant is also located in the state.
Tennessee ranks ninth among states where people retire. The state has a low cost of living. In 2014, 3,368 people over the age of 60 migrated to Tennessee. People who move from the north down to Florida, then decide that they do not like it, are called half-backers because the move halfway back to the north. Tennessee retirement laws make it desirable and worthwhile to live in the state.
Tax Climate
The top individual income tax rate is 1% and the top corporate income tax rate is 6.5%.
Apportionment: Tennessee taxpayers apportion income using the triple weighted sales formula.
Tennessee uses the market-based method for the sourcing of intangibles. The state sources sales of services to the location where the service was performed.
Sales Tax Structure
The state sales tax rate is 7%. However, like many states, Tennessee’s counties and cities also add on to the sales tax rate. As such, the rate can be as high as 9.55%.
Sellers who lack physical presence in Tennessee and have sales into the state that exceed $100,000 in the previous 12-month period must register and remit sales tax to the state. The state has a threshold that applies only to sales and not the number of transactions. Sales for resale are not included in the threshold. Exempt sales and exempt services are included in the threshold calculation. Sales made through an online marketplace are excluded from the threshold.
A marketplace facilitator that made or facilitated more than $100,000 in total sales to customers in Tennessee during the previous 12-month period is required to collect and remit Tennessee sales tax on behalf of its third-party sellers. This legislation went into effect on October 1, 2020.
Tennessee imposes sales and use tax on the sale, lease, or use of specified digital products transferred to or accessed by a customer within the state. Prewritten software which is electronically downloaded is taxable and it is also taxable if sold in a tangible medium. Custom computer software is subject to sales and use tax when delivered electronically. However, an entity’s use of computer software internally developed by an affiliate is exempt from tax. The state imposes sales and use tax on cloud computing in the form of SaaS. How products are produced, sold and delivered is critical to determining the tax status.
Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. Tennessee had a sales tax holiday that took place from Friday, July 30 to Sunday, August 1, 2021. During this weekend, clothing priced under $100, school supplies priced under $100, and computers priced under $1,500 were exempt from sales tax. Online purchases were included as well.
Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Tennessee or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
Random Facts
- When the constitutional convention met in 1796 to organize a new state out of the Southwest Territory, it adopted “Tennessee” as the name of the state.
- Tennessee is nicknamed the Volunteer State, which came about after the War of 1812 due to the imminent role of volunteers supplied by the state in the war effort.
- Tennessee is bordered by eight states and one river.
- The 1982 World’s fair was held in Knoxville.
- Tennessee leads the nation in the percentage of total tornadoes with fatalities.
- The Gulf of Mexico is the main driving force in determining the climate of the state.
- The state flag has three stars representing the three grand divisions of the state: West, Middle and East Tennessee.
- The official state fruit is the tomato. As of 2013, it was the largest fruit crop in Tennessee.
