Whether you buy a new or used car in Tennessee, you must pay sales tax on the purchase unless it is exempt. Vehicle sales are subject to the Tennessee state sales tax and an additional single-article tax depending on the sales price of the vehicle. Since the sales tax also includes county or city taxes, the overall rate varies depending on where in the state you buy your vehicle. Most counties have an online calculator to help you understand the taxes you owe on your purchase.
Calculating Vehicle Purchase Price
The Tennessee state sales tax applies to the entire purchase price of the vehicle before any rebates. For example, if you buy a car for $25,000 but get a manufacturer rebate of $5,000, you still owe state sales tax on $25,000. However, if you trade in your old car toward a newer one, you only pay sales tax on your new car's price after the dealer deducts the value of your trade-in.
State Sales Tax
Tennessee assesses a sales tax of 7 percent, at the time of publication, on the total purchase price of any car sold in the state. Thus, if you buy a car for $25,000, you owe state sales taxes of $1,750.
City and County Sales Tax
In addition to state sales tax, Tennessee law allows cities and counties the option of assessing a local sales tax of up to 2.75 percent on the first $1,600 of the purchase price. This rate varies depending on the city and county. For example, the Nashville-Davidson County Metro area has a local tax of 2.25 percent. Accordingly, if you buy that $25,000 vehicle in Music City, you owe an additional $36 in Metro local tax.
The state imposes an additional tax of 2.75 percent on the portion of the sales price from $1,600.01 to $3,200 of any single item sold, including motor vehicles. In the previous example, you would also owe a $44 single article tax on your $25,000 car.
Total Sales Tax
The total sales tax you pay for a car in Tennessee is a combination of state and local taxes, calculated by adding together:
- Total purchase price multiplied by the 7 percent state sales tax rate
- The first $1,600 multiplied by the sales tax of the city and county where you purchase the car
- The next $1,600 multiplied by the state single article tax rate of 2.75 percent
Thus, if you bought your car $25,000 in the Nashville-Davidson County Metro, you could calculate your total sales tax using the following equation: ($25,000 x .07) + ($1,600 x 0.0225) + ($1600 x 0.0275) = $1,830.
Tennessee exempts some automotive sales or transfers from state or local sales tax, including:
- Sales to nonresidents of the state who take the vehicle out of the state within three days of purchase
- Sales to members of the armed forces
- Sales to nonprofit organizations or government entities, if the vehicle is for organizational or governmental use
- Motor vehicles given as gifts
- Sales or transfers between spouses or close relatives such as siblings, parents, grandparents and children or grandchildren