The Tax Foundation

Research Areas

Tennessee

The Facts on Tennessee’s Tax Climate

Here are some basic facts on Tennessee’s tax system and how it compares to other states:

Tax Freedom Day Arrives on April 11 in Tennessee
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2008, Tennessee taxpayers had to work until April 11th to pay their total tax bill, ranking it 44th highest in the nation. This is 12 days before national Tax Freedom Day (April 23). The Tax Freedom Days of neighboring states were: Kentucky, April 10 (ranked 45th nationally); Virginia, April 25 (ranked 12th nationally); North Carolina, April 17 (ranked 27th nationally); Georgia, April 19 (ranked 23rd nationally); Alabama, April 9 (ranked 46th nationally); Mississippi, April 7 (ranked 49th nationally); Arkansas, April 17 (ranked 30th nationally) and Missouri, April 14 (ranked 36th nationally).

Tax Freedom Day has been projected using the most up-to-date economic and budget projections from official government agencies. However, Tax Foundation estimates of average state and local tax rates for 2008 will not be released until later this spring as we await more up-to-date data from various government agencies.
Full study of Tax Freedom Day, nationwide and in each state

Tennessee's State/Local Tax Burden Among Nation's Lowest
During the past three decades Tennessee's state and local tax burden has consistently ranked among the nation's lowest. Estimated at 8.3% of income, Tennessee's state/local tax burden percentage ranks 44th highest nationally, well below the national average of 9.7%. Tennessee taxpayers pay $3,160 per capita in state and local taxes.
Tennessee's State-Local Tax Burden, 1977-Present
Other States' State/Local Tax Burdens
Historical Chart Comparing All States' State/Local Tax Burdens from 1977 to 2008

Tennessee's 2008 Business Tax Climate Ranks 16th
Tennessee ranks 16th in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states ranked as follows: Kentucky (36th), Virginia (14th), North Carolina (40th), Georgia (20th), Alabama (21st), Mississippi (18th), Arkansas (35th) and Missouri (15th).
50-State Comparison of Business Tax Climates (data only)
2008 State Business Tax Climate Index, Fifth Edition (full study)

Tennessee's Individual Income Tax System
Tennessee's personal income tax system consists of a flat 6% rate on exclusively dividend and interest income. All other personal income is not subject to state taxation. Tennessee's 2005 individual income tax collections were $26 per person, which ranked 43rd among states levying personal income taxes.
50-State Table of Individual Income Tax Rates
50-State Table of State Individual Income Tax Collections
50-State Table of State and Local Individual Income Tax Collections Per Capita

Tennessee's Corporate Income Tax System
Tennessee's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Tennessee's rate ranks 30th highest nationally. In 2006, state-level corporate tax collections (excluding local taxes) were $153.73 per capita, which ranked 20th highest nationally.
50-State Table of Corporate Income Tax Rates, 2000-2008
50-State Table of State and Local Corporate Income Tax Collections Per Capita and Per Household, 2005
50-State Table of State Corporate Income Tax Collections Per Capita, 2006

Tennessee Levies Second-Highest Sales Tax; Cigarette Tax among the Lowest in the Nation
Tennessee levies a 7% general sales or use tax on consumers, well above the national median of 5.4%. State and local governments combined collected $1,566 per capita in general sales taxes in 2005, which ranks 3rd highest nationally. Tennessee's gasoline tax stands at 21.4 cents per gallon, ranking 34th highest nationally. Tennessee's cigarette tax stands at 62 cents per pack of twenty and ranks 35th highest nationally. The sales tax was adopted in 1947, the gasoline tax in 1923 and the cigarette tax in 1925.
50-State Table of Sales and Excise Tax Rates
50-State Table of State and Local General Sales and Gross Receipts Tax Collections Per Household and Per Capita, Fiscal Year 2005

Tennessee Property Taxes Low
Tennessee's local governments collected $3,585,440,000 in property taxes during fiscal year 2004, which is the latest year the Census Bureau published state-by-state property tax collections. Tennessee is one of the 13 states that collect no state-level property taxes, meaning its per capita property tax collections equaled $608 for all levels of government in FY2004, ranking it 41st nationally.
State property tax collections per capita by state

Federal Tax Burdens and Expenditures: Tennessee is a Beneficiary State:
Tennessee taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of Federal tax collected in 2005, Tennessee citizens received approximately $1.27 in the way of federal spending. This ranks the state 19th highest nationally and represents a rise from 1995 when Tennessee received $1.07 per dollar of taxes in federal spending (25th highest). Neighboring states and the amount of federal spending per dollar of federal taxes collected were: Kentucky ($1.51), Virginia ($1.51), North Carolina ($1.08), Georgia ($1.01), Alabama ($1.66), Mississippi ($2.02), Arkansas ($1.41) and Missouri ($1.32).
Comparing the amount of federal taxes sent to Washington with the amount of federal spending coming back to the state

Articles from the Tax Foundation