State tax rates and rules for income, sales, gas, property, cigarette, and other taxes that impact middle-class families. Go to the Kiplinger 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Bottom Line Most Tax-Friendly There's no income tax in the Volunteer State — and the tax on interest and dividends was repealed starting in 2021 (it was 1% in 2020). Property taxes in Tennessee are reasonable, too. But Tennessee sticks it to you when you're shopping. It starts with a 7% state sales tax rate (plus 2.75% on part of the price from $1,600 to $3,200 of single items), but then local governments can tack on up to 2.75% more in taxes on each sale. At 9.547%, Tennessee's average combined state and local sales tax rate is the second-highest in the nation, according to the Tax Foundation. 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. 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 9.547%, 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. Motor Fuel Taxes Gasoline: 27.4¢ per gallon. Diesel: 28.4¢ per gallon. Sin Taxes Cigarettes: $0.62 per packOther tobacco products: 6.6% of the wholesale priceBeer: $1.29 per gallonWine: $1.21 per gallonLiquor: $4.40 per gallonThere's also an additional $0.15 tax on each case of alcoholic beverage sold in Tennessee. 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.