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
• This means:
  • The state tax rate of 7% applies to the full amount
  • A local tax rate between 2.25%  and 2.75% apples to the amount between $0 and $1,600 for each item (for a maximum taxable amount of $1,600 per item)
    • For a $500 item, the local tax rate applies to $500
    • For a $1,700 item, the local tax rate applies to $1,600
  •  The state single article tax rate of 2.75% is applies to the amount between $1,600 and $3,200 for each item (for a maximum taxable amount of $1,600 per item)
    • For a $500 item, the single article tax rate doesn't apply
    • For a $1,700 item, the single article tax rate applies to $100
    • For a $3,300 item, the single article tax rate applies to $1,600