Tennessee tax expert explains sales tax rates and exemptions for businesses

Tennessee businesses will soon benefit from enhanced clarity on sales tax regulations following a recent New Business Workshop hosted by the state’s Revenue Department. The workshop, held on July 10, 2025, focused on critical aspects of sales tax compliance, including local rates, exemptions, and the proper use of resale certificates.

A key takeaway from the meeting was the importance of understanding local sales tax rates. The general state rate for tangible personal property and taxable services in Tennessee is set at 7%, with local jurisdictions permitted to levy an additional tax of up to 2.75%. This means businesses must ensure their point-of-sale systems reflect accurate local rates to avoid discrepancies, as highlighted by a recent case where a business owner discovered an incorrect local rate on her sales software.

The workshop also clarified the tax implications for food and food ingredients, which are taxed at a reduced state rate of 4%, contrasting with the standard rate applied to prepared foods. Additionally, the session introduced the concept of specified digital products, which are subject to a flat state rate of 7% and a local rate of 2.5%.

Participants learned about the single article tax, applicable to high-value items priced over $1,600, such as jewelry and vehicles. This specialized tax structure aims to streamline the taxation process for significant purchases.

Exemptions were another focal point, with the workshop detailing various categories, including government purchases, nonprofit organizations, and agricultural exemptions. Businesses were advised on the necessity of obtaining and maintaining exemption certificates to validate tax-exempt purchases.

The session concluded with guidance on filing sales tax returns, emphasizing the importance of timely submissions even when sales are nonexistent. Businesses are required to file returns by the 20th of the month following the reporting period, and failure to do so can lead to penalties.

Overall, the workshop provided essential insights for Tennessee businesses, equipping them with the knowledge needed to navigate the complexities of sales tax compliance effectively. As the state continues to support its business community, these educational initiatives are crucial for fostering a transparent and efficient economic environment.