State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. 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 Retirees in the Volunteer State will be singing "Rocky Top" all the way to the bank, thanks to a low overall tax burden in the state. Tennessee has no income tax. (It had a tax on stock dividends and interest income from bonds and other investments before 2021 - the rate was 1% in 2020.)Property taxes are well below average, too. The state also offers some property tax relief programs for income-qualified senior citizens.However, be prepared to fork over some substantial sales taxes in Tennessee. It has the highest combined state and local sales-tax rate in the nation, at an average of 9.55%. Income Tax Range Tennessee has no state income tax. But dividends and some interest were subject to the Hall Tax at a 1% rate in 2020. The first $1,250 in taxable income for individuals ($2,500 for joint filers) was exempt. 2020 was the last year for the tax, which was phased out. Also, the tax was waived if you're over 100. Taxation of Social Security Benefits Social Security benefits are not taxed by the state. Tax Breaks for Other Retirement Income Income from retirement plans is exempt from Tennessee's interest and dividends tax (the "Hall Tax").Railroad Retirement benefits are also exempt. Sales Tax 7% state levy. There's also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.55%, according to the Tax Foundation. Local taxes are limited, though: Only the first $1,600 of any single item is taxable.Groceries: Taxable (4% state rate; additional local taxes may apply)Clothing: TaxableMotor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)Prescription Drugs: Exempt Real Property Taxes In Tennessee, the median property tax rate is $636 per $100,000 of assessed home value. Tennessee does not have a homestead exemption. However, there is a property tax relief program to reimburse income-eligible seniors age 65 or older (and others) for taxes paid on their primary residence. For 2020, property tax relief applies to the first $29,000 of market value, and the combined income for eligible owners is limited to $30,700.There's also a property tax freeze program available for homeowners 65 and older. A senior's income cannot exceed income limits set by his or her county to qualify. Annual Car Taxes and Fees An annual vehicle registration fee is imposed. Additional local fees may apply. Estate and Inheritance Taxes No estate or inheritance tax.