Tennessee‘s tax system ranks 8th overall on the 2025 State Tax Competitiveness Index. Tennessee forgoes an individual income tax, having phased out a narrow tax on interest and dividend income, known as the Hall Tax. However, Tennessee is 1 of 15 states that still has a capital stock tax on the books, despite making structural improvements to it during the 2024 legislative session. Tennessee businesses also face an additional layer of tax on their gross receipts, and not just their net income (profits).
Tennessee excludes most, but not all, global intangible low-taxed income (GILTI) from its tax base, and caps net operating loss carryforwards at 15 years, whereas most states have 20-year or unlimited carryforwards. The state recently conformed to the federal treatment of first-year expensing under Section 168(k) but missed an opportunity to make the treatment permanent at 100 percent.
Tennessee is perpetually tied with Louisiana for the highest combined state and local sales taxes in the nation. The largest portion of the sales tax burden comes from the seven percent state-level sales tax rate, which is second only to California’s 7.25 percent. Because income taxes have a greater impact on economic growth than sales taxes, however, Tennessee’s decision to rely on high sales taxes in lieu of income taxes is an economically advantageous one.
| Category | Rank | Score |
|---|---|---|
| Overall | 8 | 5.94 |
| Corporate Taxes | 48 | 3.57 |
| Individual Income Taxes | 1 | 10.00 |
| Sales Taxes | 47 | 3.66 |
| Property Taxes | 33 | 4.83 |
| Unemployment Insurance Taxes | 17 | 5.39 |
Get facts about taxes in your state and around the U.S.
The State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.
115 min read
States that tax GILTI increase filing complexity, drive up the cost of tax compliance, and introduce unnecessary economic uncertainty and legal risk. 21 states and DC continue to tax GILTI despite these challenges.
6 min read
Sports stadium subsidies are salient political gimmicks designed to appear as if politicians are providing tangible benefits to taxpayers. The empirical evidence shows repeatedly that stadium subsidies fail to generate new tax revenue and new jobs or attract new businesses.
6 min read