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Drinkers Face Complicated Task of Sorting Out Tennessee Sales Tax Differences

  • Jan 27, 2016 | Stephanie Faris

Liquor laws have evolved over the years in a way that has created huge discrepancies from one state to the next. In some states, liquor sales are only allowed in state-run stores, while in others, liquor, wine, and beer can be sold everywhere from grocery stores to specialty shops.

Many states restrict the hours alcohol can be sold, especially on Sundays and holidays. In every state, stores and employees will be required to follow local laws when serving alcohol.

Tennessee is among the states that have revised those laws slowly over the years, with wine only recently gaining approval for sale in grocery stores. As liquor laws have loosened over the years, legislators have found ways to boost the state’s budget from alcoholic beverage sales. Those sales taxes mean residents and visitors now pay almost 25 percent tax on liquor, wine, and some types of beer in bars and restaurants.

Tennessee Tax on Liquor-by-the-Drink

As one of the few states with no income tax, Tennessee has a higher-than-average combined sales tax rate at seven percent, plus local taxes that average 2.45 percent. The state’s average per-purchase sales tax statewide is 9.45 percent, putting it among the highest sales tax rates in the nation. With high tourist traffic in areas like Nashville, Memphis, and the Smoky Mountains, the state takes advantage of heavy transient sales, making just under 10 percent tax on each purchase.

However, due to the 15 percent tax on liquor-by-the-drink statewide, anyone drinking in a bar or restaurant in the state can pay more than 24 percent on wine and spirits. This includes beer, but only when the amount of alcohol in the beverage exceeds 5 percent. This further complicates the already complex issue of separating sales tax on bills in restaurants and bars.

Retail Sales of Alcohol

Drinking at home has always been a less expensive alternative to bellying up to the bar, and sales tax rules only increase that discount. When a customer purchases alcoholic beverages from a retail establishment in Tennessee, that customer will pay only the sales tax that applies to that area. In Tennessee, sellers pay tax on liquor and beer before it is presented to the customer through taxes they are required to pay to the state each month, with the extra cost passed on in high price tags.

In addition to the barrelage tax beer manufacturers and wholesalers pay to the state each month, there is also a required annual registration fee to sell in the state. Other wholesaler and retailer taxes include $1.21 per gallon of wine and $4.40 per gallon of spirits. This tax is required of any wholesaler that imports alcoholic beverages into the state or receives alcoholic beverages from a manufacturer located in the state. If the beverages are manufactured in the state and shipped outside the state, Tennessee taxes will not apply.

Each state’s alcoholic beverage laws bring their own complications. This is especially true in states like Tennessee, where sales tax rates differ depending on whether the beverage is sold in a restaurant, in a liquor store, or by a wholesaler. By understanding the laws, the state’s alcoholic beverage retailers can have the peace of mind of knowing they’re calculating the right tax for each item they sell.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Stephanie Faris
Avalara Author Stephanie Faris