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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. 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.
  • 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

Examples

  • Example 1: A single item sold for $2,900 to Nashville
    • State tax applies to the full amount: $2,900 * .07 = $203
    • Local tax applies to the first $1,600: $1,600 * .0225 = $36
    • State single article tax applies to the amount between $1,600 and $3,200: $1,300 * .0275 = $35.75
    • Total tax: $274.75
  • Example 2: A single item sold for $4,000 to Nashville
    • State tax applies to the full amount: $4,000 * .07 = $280
    • Local tax applies to the first $1,600: $1,600 * .0225 = $36
    • State single article tax applies to the amount between $1,600 and $3,200: $1,600 * .0275 = $44
    • Total tax: $360
  • Example 3: Two items sold for $2,000 each to Nashville
    • State tax applies to the full amount: $2,000 * .07 = $140 for each item
    • Local tax applies to the first $1,600: $1,600 * .0225 = $36 for each item
    • State single article tax applies to the amount between $1,600 and $3,200: $400 * .0275 = $11 for each item
    • Total tax per item: $187
    • Total tax for both items: $374

 

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