Tennessee No State Income Tax Guide: Tax Advantages and Best Cities

Tennessee is one of nine states with no state income tax — and unlike some, it now taxes *no* income at all, having fully phased out its old tax on interest and dividends (the "Hall tax") in 2021. That makes Tennessee a magnet for high earners, retirees, and remote workers. The trade-off is one of the highest combined sales-tax rates in the country. Here's the full picture and how to keep the sales-tax bite small.

Tax Overview

• Income tax: 0% — no tax on wages, salaries, interest, dividends, capital gains, Social Security, pensions, or 401(k)/IRA withdrawals.
• Sales tax: up to ~9.75% combined (7% state base + local option up to 2.75%) — among the highest in the US.
• Property tax: ~0.66% effective — below the national average.
• No estate or inheritance tax.

Tennessee funds itself largely through sales tax instead of income tax, which is why the sales rate is high while your paycheck and investments stay untouched by the state.

Who Benefits Most

• High earners — keeping 100% of wages from state tax can save $20,000+/year versus California or New York.
• Retirees — zero tax on Social Security, pensions, and retirement-account withdrawals; no estate tax.
• Investors — no state tax on capital gains or dividends (the Hall tax is gone).
• Remote workers — a 0% income-tax base with a low cost of living.

Best Cities

| City | Known for | Combined sales tax |

|---|---|---|

| Nashville | Music, healthcare, fast growth | ~9.25% |

| Memphis | Affordable, logistics hub | ~9.75% |

| Knoxville | College town, outdoors | ~9.25% |

| Chattanooga | Scenic, growing tech scene | ~9.25% |

How to Save on Sales Tax

The one weak spot is that ~9.75% sales tax. Offset it:

1. Use a Delaware billing address for online shopping — Delaware's 0% sales tax removes TN's ~9.75% on most online orders. On $5,000/year of taxable goods that's about $488 saved. Generate a valid address with our tax-free address tool.

2. Buy big-ticket items online with a tax-free billing address rather than in-store.

3. Watch for grocery-tax relief — Tennessee taxes food at a reduced rate and has run temporary grocery-tax holidays.

Worked Example

A single filer earning $180,000:

• In California: loses roughly $13,000+ to state income tax.
• In Tennessee: $0 state income tax.
• Annual income-tax saving: ~$13,000+ — even after TN's higher sales tax, high earners come out far ahead.

The Trade-Off, Honestly

If you spend a very large share of income on taxable goods locally, TN's high sales tax eats into the income-tax win. But for most high earners and retirees, the 0% income tax dwarfs the sales-tax cost — especially when online purchases are routed through a tax-free billing address.

Summary

Tennessee offers a true 0% income tax on wages *and* investments, no estate tax, and below-average property tax — offset by a high ~9.75% sales tax. For high earners and retirees the math is overwhelmingly favorable, and a Delaware billing address neutralizes the sales-tax downside on online spending.