Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state. Go to Retiree Tax Map Tennessee View State Compare List (0) selected | Compare up to 5 The Bottom Line Tax-Friendly The Volunteer State has no broad-based income tax, though the state does levy a 6% tax on stock dividends and interest income from bonds and other investments. But be prepared to fork over some substantial sales taxes in Tennessee. It has one of the highest combined sales-tax rates in the nation, at an average of 9.45%, according to the Tax Foundation. There are some property tax relief programs for seniors. And starting in 2016, the state will no longer impose a death tax. State Sales Tax 7% on tangible property (prescription drugs are exempt); 5% on food and food ingredients. Prepared food, dietary supplements, candy, alcoholic beverages and tobacco are taxed at 7%. Counties and cities may add another 1.5% to 2.75% to either rate. Income Tax Range There's no state income tax, so salaries, wages, Social Security benefits, IRA distributions and pension income are not taxed. But Tennessee does tax dividends and interest at 6%. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Taxpayers older than 65 with total annual income of $37,000 or less ($68,000 for joint filers) are exempt from the tax on dividends and interest.IRAsRetirement income is not taxed.401(k)s and Other Defined-Contribution Employer Retirement PlansRetirement income is not taxed.Private PensionsRetirement income is not taxed.Public PensionsRetirement income is not taxed. Property Taxes Median property tax on Tennessee's median home value of $140,300 is $1,049, according to the Tax Foundation.Tax breaks for seniors: Tennessee does not have a homestead exemption. However, there is a property tax relief program to reimburse income-eligible seniors age 65 or older, the disabled and veterans for taxes paid on their primary residence. For tax year 2015, for eligible elderly and disabled homeowners, property tax relief applies to the first $23,000 of market value; the combined income for 2015 for all eligible owners is limited to $28,690. Qualified disabled veterans or widows of disabled veterans with a combined income of no more than $60,000 may receive property tax relief on the first $100,000 of market value.There is also a property tax freeze program available for homeowners 65 and older; seniors' income must not exceed income limits of their county to qualify. Inheritance andEstate Taxes Tennessee's estate tax (which the state calls an inheritance tax, but which actually taxes property instead of heirs) ranges from 5.5% to 9.5% based on the amount of the value of the property that exceeds the annual exemption. Spouses are exempt. Legislation passed in 2012 will phase out the inheritance tax as of January 1, 2016. The inheritance tax exemption is $5 million in 2015.