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 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 2021. 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 seniors. And as of 2016, the state no longer imposes a death tax. State Sales Tax 7% state levy. Localities can add up to 2.75%, with an average combined rate of 9.46%, according to the Tax Foundation. Groceries are taxed at 4% 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 4% (in 2017). The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. The rate is declining 1% a year and will be phased out entirely by 2021. Social Security Benefits are not taxed. Exemptions for Other Retirement Income Taxpayers older than 65 with total annual income of $37,000 or less ($68,000 for joint filers) are exempt from the tax on dividends and interest.IRAsRetirement income is not taxed.401(k)s and Other Defined-Contribution Employer Retirement PlansRetirement income is not taxed.Private PensionsRetirement income is not taxed.Public PensionsRetirement income is not taxed. Property Taxes The median property tax on Tennessee's median home value of $142,900 is $1,066.Tax breaks for seniors: Tennessee 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 2017, for eligible elderly and disabled homeowners, property tax relief applies to the first $27,000 of market value; the combined income for 2017 for all eligible owners is limited to $29,180. 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 As of January 1, 2016, Tennessee no longer imposes an inheritance tax. The state also does not have an estate tax.