WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Tennessee is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Tennessee include physical property, like furniture, home appliances, and motor vehicles.
Prescription medicine and gasoline are both tax-exempt.
Some services in Tennessee are subject to sales tax. For a detailed list of taxable services view this page from the Tennessee Department of Revenue website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Tennessee requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR TENNESSEE SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- The name; address; and phone number of the business; all owners; officers; or partners; and the person making the application.
- The Social Security Number(s) of the owner(s); partners; or officers.
- The Federal Employer Identification Number (FEIN) issued by the U.S. Internal Revenue Service if you have one.
- A description of the business; the type of ownership; a brief explanation of the nature of the business; and; if the business is a corporation; the date of incorporation.
- If you have purchased your business; the name and address of the previous owner.
- The signature; on the application; of the sole proprietor; a partner; or an officer of a corporation.
- Estimated yearly gross sales (Must be at least $4800 per year or your sales tax license could be revoked).
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Chattanooga, Tennessee. Since books are taxable in the state of Tennessee, Mary charges her customers a flat-rate sales tax of 9.250% on all sales. This includes Tennessee’s state sales tax rate of 7.000%, Hamilton County’s sales tax rate of 2.250%.
The state of Tennessee follows what is known as an origin-based sales tax policy. This means that long-distance sales within Tennessee are taxed according to the address of the seller. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Memphis, Tennessee. A customer living in Clarksville finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 7.000% state tax rate for Tennessee, plus 2.250% for Shelby County’s tax rate. At a total sales tax rate of 9.250%, the total cost is $382.38 ($32.38 sales tax).
Tennessee businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Tennessee seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Tennessee requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
All Businesses in Tennessee must file their sales tax returns on a monthly basis.
Note: Tennessee requires you to file a sales tax return even if you have no sales tax to report.
All Tennessee sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
Penalties for Late Filing
Tennessee charges a late filing penalty of 5% per month or partial month up to a maximum of 30% of the tax that is reported on the tax return.
The state assesses the unpaid tax with a compounded interest rate of 7.50% per year.