Businesses that qualify for Nexus in Tennessee collect and remit sales and use tax on the sales, lease, or rental of tangible personal property (an item you can touch, smell, or taste), recreational activities, and digital products. Digital products are subject to a special local rate unless the products are also available as tangible product. For example, an eBook version of a book in print. In cases like that, the digital products are taxed at the normal rate.
While most services are exempt from tax in Tennessee, some have specific laws making them taxable. Taxable services include lodging services and rooms, short-term rental space for making sales, cleaning/repairing/installation of tangible personal property including animal bathing or computer software installation, parking or storage of motor vehicles, telecommunication & ancillary telecommunication services, and enriching of uranium materials.
Any business with physical Nexus in Tennessee (brick and mortar locations or employees working in the state) are required to register for sales and use tax if their gross sales exceed $4,800/year or if their taxable services exceed $1,200/year. Out of state businesses with no physical presence in Tennessee must register if they achieve economic Nexus. Companies can assume they meet economic Nexus if they exceed $100,000 of sales in Tennessee. This determination is made by destination delivery of sales, but it does not include sales for resale.
Taxpayers should register, file, and pay their Tennessee sales tax return through Tennessee’s online portal TNTAP. Most businesses will be required to file monthly, which is the default filing frequency. After 1 year of filing, any business that averages more than $1000/month can choose to file quarterly or annually instead.
Two Common Confusions on a Tennessee Sales Tax Return
While filing on TNTAP is generally self-explanatory, we wanted to highlight two common confusions:
- Many businesses find the concept of a “single article” (reported in schedules B and C of your TN sales tax return) to be cryptic. If an item sold is sold as one, assembled entity, that item is considered a single article even if component parts may have been sold for different charges. The best example of this is a car. While you may have paid for the upgraded leather interior and a subwoofer as separate trim options, the final item is sold as a single article. However, a set of separate items sold as one unit do not count as a single article. For instance, if you buy a furniture set consisting of a loveseat and a sofa, they would be considered two items for your Tennessee sales tax return because, despite being invoiced as a set, they’re separate items.
- While food sales are taxed at a lower rate of 4%, prepared food is taxed at the full 7% state rate. The easiest way to think about this difference is where the food is purchased. Most prepackaged food or meal ingredients sold at a grocery store will be taxed the lower rate, while food that is sold at something akin to a restaurant is taxed at the full rate.
Have a question? Contact Aaron Giles a Agile Consulting.
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