Does Tennessee have a franchise tax?

Tennessee levies a franchise tax (0.25% of net worth or 0.0025 per dollar of book value of property in Tennessee, whichever is higher, with a minimum of $100) and an excise tax (6.5% of net income) on businesses. Sole proprietors and pass-through entities are generally not subject to these. This primarily affects C-corps and some LLCs.

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No Income TaxTennessee (TN)

Tennessee Has No Income Tax: The Full 2026 Breakdown

Q: Does Tennessee have a state income tax?

No. Tennessee has no state income tax on wages, salary, self-employment income, Social Security, or retirement income. Tennessee's former Hall Tax on interest and dividends was fully repealed effective January 1, 2021. Tennessee voters approved a constitutional amendment in 2014 (Amendment 3) that prohibits any future income tax on wages or salaries.

Q: What is the Hall Tax in Tennessee?

The Hall Income Tax was a Tennessee tax on interest and dividend income only (it never applied to wages or salary). It was phased down from 6% in 2016 and fully repealed as of January 1, 2021. Tennessee now has zero income tax on any form of income. The repeal was a deliberate policy choice to attract retirees and investors.

Q: What is the sales tax rate in Tennessee?

Tennessee has a 7% state sales tax rate. Local governments add up to 2.75%, bringing the average combined rate to 9.55%, the second-highest in the nation behind Louisiana (which raised its state rate to 5% in 2025, pushing its combined average above 10%). Groceries are taxed at a reduced rate of 4% state plus applicable local tax (the local grocery exemption varies by county). Prescription drugs are exempt.

Q: Does Tennessee tax Social Security?

No. Tennessee has no state income tax, so Social Security benefits are completely exempt from state taxation. Federal income tax on Social Security still applies based on your total combined income.

Tennessee fully repealed its Hall Tax on investment income in 2021. Today there is truly zero income tax in Tennessee on any type of income. But Tennessee has the second-highest combined sales tax rate in the nation at 9.55%, behind only Louisiana since its 2025 state-rate increase. Here is the complete picture.

Last reviewed June 2026. Sources: Tennessee Department of Revenue, Tax Foundation (State and Local Sales Tax Rates, 2026), BEA.

Quick Facts: Tennessee Taxes 2026

Income Tax

Hall Tax fully repealed Jan 2021

Avg Property Tax

0.64%

$2,560/yr on $400K home

State Sales Tax

7.0%

9.55% combined avg (2nd highest in US)

Grocery Sales Tax

4%+local

Groceries taxed at reduced rate

Social Security

Not taxed

No income tax of any kind

Cost of Living

8% below national average

Median Home

$330K

Nashville much higher

Constitutional ban

Yes

Amendment 3 (2014)

The Hall Tax: What It Was and Why It Is Gone

The Hall Income Tax was Tennessee's tax on interest and dividends only. It never applied to wages or salary; Tennessee wage earners paid no state income tax even before the repeal. The Hall Tax peaked at 6% and was phased down starting in 2016: 5% in 2017, 4% in 2018, 3% in 2019, 2% in 2020, then fully eliminated January 1, 2021.

Why does this matter now? Because some older sources and articles still mention Tennessee taxing investment income. That is no longer true. Retirees with $100,000 of dividend income pay zero Tennessee state tax on it. This is a significant post-2021 development that makes Tennessee considerably more attractive for investors and retirees than it was before.

The Sales Tax Squeeze

Tennessee's combined state and local sales tax rate averages 9.55%, the second-highest in the nation. Louisiana moved ahead of it in 2025 after raising its state rate to 5% (lifting Louisiana's combined average above 10%); for most of the prior decade Tennessee held the top spot. Either way, this is where Tennessee makes up for its missing income tax revenue. The state rate is 7%; local governments can add up to 2.75%.

Critically, Tennessee taxes groceries at a reduced 4% state rate plus applicable local additions. This makes the cost of living impact regressive: lower-income households spend a higher percentage of income on food and taxable goods, so they feel the sales tax burden more than high earners.

Tennessee sales tax on a $45,000 annual spending budget

At 9.55% combined average: approximately $4,298 per year in state and local sales tax. A family spending $60,000 on taxable goods pays about $5,730 in sales tax annually. This is the primary hidden cost of Tennessee residency for wage earners and retirees alike.

Property Tax in Tennessee

Tennessee's average effective property tax rate is 0.64%, well below the national average of 0.99%. On a $400,000 home, that is $2,560 per year. This is one of Tennessee's strongest advantages over Texas and New Hampshire. Property taxes are set by county and municipal governments.

County	Effective Rate	On $400K Home
Davidson (Nashville)	0.72%	$2,880
Shelby (Memphis)	1.13%	$4,520
Knox (Knoxville)	0.73%	$2,920
Hamilton (Chattanooga)	0.67%	$2,680
Williamson (Franklin)	0.60%	$2,400
Tennessee average	0.64%	$2,560

Retirement Implications

Tennessee is a strong retirement state post-Hall Tax repeal. All retirement income (Social Security, pension, 401(k), IRA, investment income) is now completely state-tax-free.

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Social Security: Not taxed

No state income tax at all. Federal SS rules still apply.

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Pension / 401(k) / IRA: Not taxed

All retirement income is state-tax-free since Hall Tax repeal in 2021.

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Investment income: Not taxed

Dividends, capital gains, and interest are no longer taxed after Hall Tax repeal.

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Estate tax: None

Tennessee has no state estate or inheritance tax.

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Low property tax: Advantage

0.64% average effective rate is well below national average. Major metro areas are similarly low.

High sales tax on food: Disadvantage

Groceries taxed at 4%+ is a meaningful cost for retirees on fixed incomes who spend heavily on food.

Who Tennessee Works Best For

Retirees with investment income

Excellent

Post-Hall Tax repeal: dividends, capital gains, and interest are completely state-tax-free. Low property tax. Low cost of living. Nashville's healthcare infrastructure is among the best in the South.

High-income earners

Very good

No state income tax on wages or investment income. Property tax is half of Texas's rate. Sales tax at 9.55% is the only material cost, and it is flat regardless of income level.

Remote workers

Good

No state income tax on remote earnings. Nashville offers a major airport, growing tech scene, and lower cost than Austin or Miami. Check your employer state for convenience-of-employer rule applicability.

Average earners

Mixed

Income tax savings are real but moderate. The 9.55% sales tax takes a meaningful bite on everyday spending. Groceries are taxed at 4%+. Overall cost of living is low, which partially compensates.

Tennessee Tax FAQ

Does Tennessee have a state income tax?

No. Tennessee has no state income tax on any type of income. The former Hall Tax on interest and dividends was fully repealed effective January 1, 2021. Tennessee voters also approved Amendment 3 in 2014, which constitutionally prohibits any future income tax on wages or salaries.

What is the Hall Tax in Tennessee?

The Hall Income Tax was Tennessee's tax on interest and dividend income only. It was phased down from 6% starting in 2016 and fully repealed January 1, 2021. It never applied to wages or salary. Today Tennessee has zero income tax on any form of income.

What is the sales tax rate in Tennessee?

State rate is 7%. Local governments add up to 2.75%. Average combined rate is 9.55%, the second-highest in the US behind Louisiana (which raised its state rate to 5% in 2025). Groceries are taxed at a reduced 4% state rate plus applicable local tax. Prescription drugs are exempt.

Does Tennessee tax Social Security?

No. Tennessee has no state income tax, so Social Security is completely exempt from state taxation. Federal income tax on Social Security still applies based on your total income.

Tennessee vs Florida

Full side-by-side breakdown

Texas vs Tennessee

High property vs high sales tax

Overall Rankings

Where Tennessee ranks by persona

Sources: Tennessee Department of Revenue (tn.gov/revenue), Tax Foundation (State and Local Sales Tax Rates, 2026), BEA. Last reviewed June 2026. Not tax advice.