Mark Wilhelm - The Recovering Accountant

Wish that I was on ole Rocky Top
Down in the Tennessee Hills
Ain’t no smoggy smoke on Rocky Top
Ain’t no telephone bills

Maybe there still aren’t any telephone bills to be paid up on ole Rocky Top, but when it comes to sales tax, it sure ain’t simple.  Not to be outdone by the Yanks up in the Northeast (see my New York and Massachusetts blog entries), our friends in the Volunteer State have concocted their own style of sales tax complexity.

In the state of Tennessee, any article of tangible personal property (TPP) that is considered taxable by the state is governed by a tiered sales tax program. Tennessee applies a set of single item sales tax rules that don’t leverage a single rate, or even apply the applicable local tax rate on the entire purchase. The state sales tax component and the local sales tax that is applied to the purchase depends on the single item price.

The Volunteer State has crafted a tiered sales tax scheme that triggers at $1,600.00 and at $3,200.00 for any single item purchase of taxable product.  For purchases up to $1,600.00, a state tax rate of 7.00% applies to the transaction, and the applicable local sales tax rate applies to the transaction.  Once a single item product purchase exceeds the $1,600.00 tier, then any amount exceeding that tier receives an additional state tax rate of 2.75%, making the effective state sales tax rate 9.75%.  However, any applicable local sales tax rate is capped at the $1,600.00 amount.

This middle tier applies to a purchase until the amount reaches $3,200.00.  At that tier, any amount exceeding $3,200.00 has the incremental state tax rate of 2.75% removed, reducing the effective Tennessee tax rate back to 7.00%.  Any applicable local sales tax rate remains capped at $1,600.00.  I guess the state of Tennessee has decided the local jurisdictions just don’t need any of that extra revenue on purchases above $1,600.00.

Now once you’ve just finished your visit to Thunderhead Mountain, home of the legendary Rocky Top in the Great Smoky Mountains of Tennessee, you decide to purchase the Smoky Mountains DVD, priced at $10.95. Sales tax calculated is as follows:

Purchase price = $10.95

  • State of Tennessee tax @ 7.00% on a taxable amount of $10.95 = $0.77.
  • Blount County tax @ 2.25% on a taxable amount of $10.95 = $0.25.

Let’s say in order to see the panoramic vistas recorded on the DVD in all their glory and grandeur, you purchase a new 59” plasma HDTV, priced at $1,699.99. Sales tax is calculated as follows:

Purchase price = $1,699.99

  • State of Tennessee tax @7.00% on a taxable amount of $1,699,99 = $119.00.
  • State of Tennessee tax @2.75% on a taxable amount of $99.99 = $2.75.
  • Blount County tax @ 2.25% on a taxable amount of $1,600.00 = $36.00.

Now maybe you found the “moonshine still,” made famous in the Rocky Top song during your visit, and instead of the plasma TV, you’re going all-in on a state-of-the-art HDTV, price tag of $7,999.98 at the local appliance store in Townsend, Tennessee. Sales tax calculated is as follows:

Purchase price = $7,999.98

  • State of Tennessee tax @7.00% on a taxable amount of $7,999.98 = $560.00.
  • State of Tennessee tax @2.75% on a taxable amount of $1,600.00 = $44.00.
  • Blount County tax @ 2.25% on a taxable amount of $1,600.00 = $36.00.

Perhaps the Tennessee bureaucrats took their inspiration from the last line of Rocky Top when designing their sales tax policies:

I’ve had years of cramped up city life
Trapped like a duck in a pen
All I know is it’s a pity life
Can’t be simple again

It might not be a simple sales tax to calculate, but sales tax automation can make it easy to manage.

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