Understanding Tennessee Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Tennessee.
In Tennessee, the retailers' sales and use tax is imposed on the privilege of selling tangible personal property at retail or storing such property for use or consumption in the state. It includes the renting and leasing of property.
The sales and use tax is imposed on every person who:
- engages in the business of selling tangible personal property at retail in the state
- uses or consumes in Tennessee any item or article of tangible personal property, irrespective of ownership
- receives property or services subject to the sales or use tax
- rents or furnishes any property or services subject to the sales or use tax
- stores for use or consumption in Tennessee any item or article of tangible personal property
- leases or rents tangible personal property, either as lessor or lessee, within Tennessee
- charges taxable admission, dues, or fees
- sells space to transient dealers or vendors
Tennessee Taxes Many Services
Tennessee imposes sales and use tax on the following services:
- sale, rental, or charges for accommodations furnished to transients
- garage and parking lot services
- repair services performed with respect to tangible personal property
- laundering, dry cleaning; bathing and grooming of animals
- installations of tangible personal property
- charges for warranty or service contracts
Different Tax Rates Apply to Specific Items
The Tennessee sales and use tax rate is generally 7 percent except for groceries taxed at 5.5 percent. In addition, make sure you contact your local governments in Tennessee because they are allowed to assess a local sales and use tax. The following rates are for the specific item types:
- 1 percent for water sold to or used by manufacturers
- 1.5 percent for energy fuels sold to or used by manufacturers
- 4.5 percent for aviation fuel
- 1.5 percent for electricity and liquefied gas, sold to or used by farmers and nurserymen, and coal, wood products, or fuel oil used as energy fuel in the production of nursery and greenhouse crops
- persons operating vending machines may register at a fee of $2, plus $1 per machine and pay 1.5 percent of gross receipts from the machines instead of privilege and sales taxes, except that the tax on gross receipts from tobacco-dispensing machines is 2.5 percent
Sellers Are Liable for Payment of Tax
In Tennessee, the sales tax is imposed on the privilege of engaging in the business of selling at retail or leasing tangible personal property in the state. Although sellers are liable for the tax, they are required, insofar as can be done, to collect the tax from the consumer. Sellers must indicate to their customers whether they are paying any sales tax by posting a sign or by a statement on the receipt.
Tax Permits Are Required
In Tennessee each place of business must obtain a certificate of registration from the Tennessee Commissioner. No fee is required for the certificate of registration.
Absorbing the tax is permitted. It is against Tennessee law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Many Items Are Exempt from Tax
Tennessee has many specific items that are exempt from sales tax. For example, certain prescription medications are exempt from Tennessee sales tax. You'll want to check and see if items that you purchase or sell are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Purchases Made for Resale Are Not Taxed
Sales made under a certificate of resale are not subject to the sales tax. Sellers must obtain a certificate of resale from the purchaser or they must collect the sales tax. The Commissioner may revoke the seller's registration certificate and assess the sales or use tax on the seller if the seller knew, or should have known, that the merchandise obtained with the certificate was not the sort the buyer normally sold in the usual course of business.
Resale exemption certificate requirements. You may use the Tennessee Blanket Certificate of Resale or the Multistate Tax Commission's uniform sales and use tax certificate. Buyers may claim the resale exemption by providing a seller with a resale certificate that includes:
- the purchaser's signature;
- the purchaser's name and address;
- the purchaser's sales tax license number
- a description of the types of tangible personal property and services being purchased for resale
Blanket Resale Certificates Are Allowed
Sellers may accept blanket certificates from a purchaser who repeatedly purchases the same type of property or service for processing or resale. However, blanket certificates may not be used to purchase property or services not covered by a blanket certificate. The Tennessee Blanket Certificate of Resale that includes the information noted above for a resale certificate is used by purchasers to claim the resale exemption.
Physical Presence Required for Tax Liability
You will be responsible for paying sales tax only if you have physical presence within Tennessee. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Tennessee? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Tennessee for purposes of taking and transmitting orders from Tennessee? If your employee or independent contractor goes into Tennessee to take or transmit orders, your business may have physical presence in Tennessee. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Tennessee for purposes of delivering property? Frequent deliveries in Tennessee by your trucks will give you physical presence in Tennessee.
Tennessee Requires Use of Sales Bracket System
Sellers are required to collect the 7 percent tax according to a bracket system. Under the system, no tax is collected on a sale of less than 11 cents. The state makes rate charts available for the rates that are in effect, which include various local taxes.
How to Recoup Excess Tax Payment
If your customer returns property after the sales or use tax has been paid, you may deduct the sale price from the gross proceeds shown on the report for the current month. If a mistake is made on the sales tax report The Commissioner of Revenue will refund a qualified claim up to three years from December 31 of the year in which the tax was paid.
Tennessee Imposes Use Tax on Out of State Purchases
Tennessee imposes a use tax is imposed on the privilege of using, consuming, distributing, or storing tangible personal property in Tennessee. When applied together, the sales and use taxes provide a uniform tax upon either the sale or use of taxable goods and services in Tennessee, regardless of where they are purchased. Property brought into Tennessee on which a sales or use tax has been paid in another state equal to or in excess of the Tennessee tax is not subject to tax in Tennessee.