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How is the Tennessee Tiered Tax applied?

Overview

You want to know how AvaTax applies the special tiered tax rate in Tennessee.

Environment

AvaTax

Resolution

  • Tennessee has a special tax applied when the value of a single physical item (Quantity of 1) has a value exceeding $1,600, up to the value of $3,200.
    • A single article of tangible personal property (TPP) is defined as any unit capable of being sold as an independent unit, or as a common unit of measure, a regular billing, or other obligation.
  • AvaTax determines if the invoice line item qualifies for the tiered tax based on the tax code you use, the amount, and the quantity.
    • For an invoice line with a quantity larger than 1, we use the value of the line amount, divided by the quantity, to determine the single unit value.
  • Generally, the maximum upon which the local option sales or use tax will apply is $1,600 dollars times the local tax rate.
    • For example, if the county has a 2.25% local option tax rate, the local tax calculation would be 2.25% * $1,600 = $36.00.
    • Some counties have different rates, and a few have lower maximum amounts. These rates can be found at the TN State Dept of Revenue.
  • Tennessee Tiered Taxing Example:
    • State tax rate of 7% is applicable to all amounts.
    • Local tax rate between 2.25%  and 2.75% is applicable between 0- $1,600 for all items.
    • State single article tax rate of 2.75% is applicable for all single items between $1,600-$3,200.
      • Example: Single item sold for $4000 to Nashville
        • State tax: $4000 * .07 = 280
        • Local tax: $1600 * .0225 = 36
        • Single Article tax: $1600 * .0275 = 44
        • Total tax: $360
      • Example: Two items sold for $2000 each to Nashville
        • State tax: 2 * ($2000 * .07) = 280
        • Local tax: 2 * ($1600 * .0225) = 72
        • Single Article tax: 2 * ($400 * .0275) = 22
        • Total tax: $374