Go to Retiree Tax Map Tennessee Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Most Tax-Friendly The Volunteer State has no broad-based income tax, though the state does levy a tax on stock dividends and interest income from bonds and other investments. But that tax is being phased out and will be gone by 2022. However, be prepared to fork over some substantial sales taxes in Tennessee. It has the highest combined sales-tax rate in the nation, at an average of 9.46%, according to the Tax Foundation. There are some property tax relief programs for income-qualified senior citizens. State Sales Tax 7% state levy. Localities can add up to 2.75%, with an average combined rate of 9.47%, according to the Tax Foundation. Groceries are taxed at 5% by the state, plus whatever local rate is in effect. Local taxes are limited, though: Only the first $1,600 of any item is taxable. 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 have the Hall Tax, which taxes dividends and some interest at 3% (in 2018). The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. The Hall Tax is being lowered by 1% a year (so in 2019, it’s 2%). By 2021, the Hall Tax will be phased out entirely. The tax is also waived if you’re over 100. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Income from retirement plans is exempt from Tennessee’s interest and dividends tax (the “Hall Tax”). Taxpayers age 65 and older also receive a $37,000 personal exemption ($68,000 for joint filers).Railroad Retirement benefits are also exempt. Property Taxes In Tennessee, residents pay an average of $768 in taxes per $100,000 of assessed home value.Tax breaks for seniors: TTennessee 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 2018, for eligible elderly and disabled homeowners, property tax relief applies to the first $28,300 of market value; the combined income for 2018 for all eligible owners is limited to $29,860. Qualified disabled veterans or widows may receive property tax relief on the first $175,000 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. Vehicle Taxes Sales tax is due on purchases. Inheritance and Estate Taxes None.