How do I collect sales tax legally?

How to Collect Sales Tax Legally in Tennessee

Collecting sales tax in Tennessee requires following specific operational steps to ensure compliance with state regulations. Proper sales tax collection helps avoid penalties and supports accurate bookkeeping and reporting.

Register for a Sales Tax Permit

• Register with the Tennessee Department of Revenue (TDOR): Before collecting sales tax, obtain a sales tax permit by registering your business online through the TDOR website.
• Provide necessary business information: Include your federal EIN, business structure, and contact details during registration.

Understand Taxable Sales and Rates

• Identify taxable goods and services: Tennessee generally taxes tangible personal property and certain services. Verify which products or services you sell are taxable.
• Apply the correct tax rate: Tennessee has a state sales tax rate of 7%, plus additional local taxes that vary by county and city. Use the combined rate applicable to your business location.

Collect Sales Tax at the Point of Sale

• Include sales tax in customer transactions: Add the appropriate sales tax amount to the sale price during checkout or invoicing.
• Use automation tools: Implement point-of-sale systems or accounting software that automatically calculates and tracks sales tax based on location.

Maintain Accurate Records

• Keep detailed sales and tax records: Document all taxable sales, exemptions, and collected taxes for bookkeeping and audit purposes.
• Track exemption certificates: Retain valid exemption certificates from customers who qualify for tax-exempt purchases.

File and Remit Sales Tax on Time

• File periodic sales tax returns: Submit returns monthly, quarterly, or annually as required by the TDOR based on your sales volume.
• Remit collected taxes: Pay the total sales tax collected to the TDOR by the due date to maintain compliance.

As of 2026, staying current with Tennessee sales tax rules and using automation tools can streamline compliance and reduce operational risks.