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. This generally includes physical goods, but also includes other items such as prewritten computer software and remotely-accessed software. Refer to the Tennessee Department of Revenue site for information on how the single article tax is applied to other types of products and services.
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.
  - Local Option Tax Limitation documentation
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