Last Updated: April 2026
Tennessee achieved a milestone in 2021 that few states accomplish: it fully eliminated its state income tax. The Hall Income Tax — Tennessee's longstanding 6% tax on investment income (dividends and interest) that had survived since 1929 — was phased out over several years and finally eliminated entirely for tax years beginning January 1, 2021. Tennessee was already exempt from taxing wages and salaries; now it is completely income-tax-free across all income categories. This makes Tennessee one of nine true zero-income-tax states in the US.
Nashville, the state capital and economic engine of Tennessee, has become one of America's fastest-growing cities, attracting professionals, musicians, healthcare executives, and high earners from the Northeast, California, and the Midwest. Davidson County's property tax effective rate of approximately 0.98% is moderate — lower than Texas or Illinois but slightly above Florida's statewide average. The offsetting factor is Tennessee's 9.75% combined sales tax in Nashville, one of the highest in the country — a deliberate design choice by Tennessee to fund state and local government without income tax.
Tennessee's Hall Income Tax was established in 1929 and originally taxed dividends and interest income at 6%. For nearly a century it was Tennessee's only income tax — wages and salaries were never subject to Tennessee state income tax, making Tennessee already favorable for workers. The Hall Tax was primarily a burden on retirees living off investment income, dividend-paying stocks, and bond interest — exactly the population states like Florida compete for.
The Tennessee legislature voted to phase out the Hall Tax over a period from 2016 to 2020, reducing the rate by 1 percentage point per year: 5% in 2017, 4% in 2018, 3% in 2019, 2% in 2020, and 0% starting January 1, 2021. The final elimination was signed by Governor Bill Lee in 2016 as part of the multi-year phasedown. For Tennessee retirees with $200,000 in investment income, the elimination saved approximately $12,000 per year in state tax. The Hall Tax elimination accelerated Tennessee's appeal as a retirement and relocation destination, with Nashville and the surrounding suburbs seeing accelerated migration from high-tax states.
Davidson County (Nashville) property taxes are set by the Metropolitan Government of Nashville and Davidson County. The 2024-2025 tax rate is $2.922 per $100 of assessed value. In Tennessee, residential property is assessed at 25% of appraised (market) value. This assessment ratio is the key to understanding Tennessee's seemingly low effective rate.
For a $500,000 Nashville home: Assessed value = $500,000 × 25% = $125,000. Property tax = $125,000 × $2.922 / 100 = $3,653 per year. The effective rate as a percentage of market value is approximately 0.73% — lower than the nominal rate suggests. Adding state property tax (Tennessee has a small state property tax of $0.25 per $100 assessed) brings the effective total to approximately 0.78-0.98% depending on specific location and any special district levies. This is significantly lower than Harris County, Texas (~2.1-2.5%), Cook County, Illinois (~1.8-2.2%), or even the US national average (~1.07%). Tennessee's low property taxes are one of the strongest arguments for the state's overall tax competitiveness.
Tennessee's 7% state sales tax rate is among the highest state rates in the US. Davidson County adds a 2.75% local sales tax, bringing Nashville's combined rate to 9.75% — one of the highest combined rates in any major US city. This is deliberate: Tennessee has chosen to fund government primarily through consumption taxes rather than income taxes, accepting a regressive structure in exchange for eliminating income tax entirely.
| Component | Rate |
|---|---|
| Tennessee state | 7.0% |
| Davidson County local | 2.75% |
| Total | 9.75% |
Tennessee exempts groceries from the 7% state rate — applying only 4% state rate plus local rate on food — providing partial relief on the most essential spending category. This means a Nashville family's grocery bill is taxed at approximately 6.75% instead of the full 9.75%. At $40,000 in total taxable spending, a Nashville household pays approximately $3,900 in sales tax. This is a meaningful annual cost, though it is typically far outweighed by the income tax saving for households with above-average earnings.
Nashville's migration story parallels Miami's — high earners in high-tax states discovering that eliminating state income tax is financially transformative. But Nashville offers a distinct value proposition: lower cost of living than Miami, a strong healthcare and tech ecosystem (HCA Healthcare, Vanderbilt University Medical Center, Amazon's Operations Center of Excellence), a vibrant music and entertainment culture, and no state income tax on any income.
The financial case is clear: a New York City professional earning $300,000 who moves to Nashville saves approximately $28,000 per year in state + city income tax (NY state + NYC city combined). Over 20 years, compounded at 7%, that's over $1.1 million in additional wealth. Nashville's median home price (approximately $400,000-$500,000) is significantly lower than comparable NYC neighborhoods, freeing additional capital. The combination of no income tax, lower housing costs, growing professional opportunity, and a dynamic city culture has made Nashville one of the fastest-growing metros in America, with over 100 people per day moving to the Nashville metro area in recent years.
For a single professional earning $150,000 and renting in Nashville:
| Tax Type | Nashville, TN | New York City | Los Angeles, CA | Chicago, IL |
|---|---|---|---|---|
| State income tax | $0 | ~$10,800 | ~$12,800 | $7,425 |
| City income tax | $0 | ~$5,628 | $0 | $0 |
| Federal income tax | ~$29,900 | ~$29,900 | ~$29,900 | ~$29,900 |
| Sales tax ($35K spend) | ~$3,413 | ~$3,115 | ~$3,500 | ~$3,588 |
| Total (approx) | ~$33,313 | ~$49,443 | ~$46,200 | ~$40,913 |
Nashville's total burden is approximately $16,130 less than NYC, $12,887 less than LA, and $7,600 less than Chicago at $150,000 income. The sales tax disadvantage (Nashville 9.75% vs NYC 8.875%) is minor in absolute terms compared to the income tax saving. For homeowners, Nashville's lower property tax rates compared to these cities provide an additional advantage.
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Get Matched with a Local CPA →Yes. Since January 1, 2021, Tennessee imposes no state income tax whatsoever — no tax on wages, salaries, bonuses, investment income, dividends, interest, capital gains, retirement income, or any other form of personal income. Tennessee was already exempt from taxing wages before 2021; the Hall Tax elimination removed the last remaining income tax on investment income. Tennessee is one of nine states (along with Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, and New Hampshire) with no state income tax.
Tennessee applies a reduced state rate of 4% (rather than the standard 7%) to food and food ingredients — essentially groceries purchased for home consumption. Counties add their local rate on top, so Nashville's combined grocery rate is 4% state + 2.75% Davidson County = 6.75%. This is still relatively high compared to states that fully exempt groceries (like Texas and Florida), but better than paying the full 9.75% on food. Prepared foods from restaurants or hot deli counters are generally subject to the full 9.75% rate, not the reduced grocery rate.
Tennessee assesses residential property at 25% of appraised (market) value — this assessment ratio is applied before the tax rate is calculated. This means that even when the nominal tax rate seems high (e.g., Davidson County's $2.922 per $100), the effective rate on market value is much lower. At 25% assessment ratio and $2.922 per $100, the effective rate is 0.73% of market value. This makes Tennessee's effective property tax burden lower than the nominal rates suggest and significantly lower than states like Texas (which assess at full market value with higher rates).
No. Nashville (which is part of the Metropolitan Government of Nashville and Davidson County — a merged city-county government) does not levy any city income tax or wage tax. Tennessee state law does not permit municipalities to levy income taxes. The only income-related tax Tennessee residents pay is federal income tax. There is no Nashville-specific income tax, Davidson County income tax, or any other local income levy. This is consistent across all Tennessee cities and counties.
There are no pending proposals to reinstate any Tennessee income tax. The Tennessee Constitution does not expressly prohibit an income tax, but the political environment in Tennessee — where the Republican supermajority in the legislature strongly favors low taxes — makes any income tax proposal extremely unlikely. The Hall Tax elimination was itself a Republican-driven initiative to improve Tennessee's tax competitiveness. A state constitutional amendment to permanently prohibit any income tax has been discussed but not advanced. For practical planning purposes, Tennessee's no-income-tax status is considered highly stable.
Nashville's cost of living has risen significantly with its rapid growth but remains considerably lower than NYC or San Francisco. The median Nashville home price (approximately $400,000-$500,000) compares to $750,000+ in comparable NYC-area suburbs. Groceries, dining, healthcare, and everyday expenses are also generally 10-25% lower than NYC. A professional earning $150,000 in Nashville has far higher purchasing power than the same salary in Manhattan — the combination of no income tax AND lower cost of living creates a multiplier effect on lifestyle and savings capacity.
Music industry professionals working in Nashville — songwriters, artists, producers, session musicians — benefit from the same no-income-tax environment as all Tennessee residents. Royalty income, performance fees, and music licensing revenue are all exempt from Tennessee state income tax. For artists who previously lived in California or New York, where these income streams were subject to rates up to 13.3%, the Tennessee advantage can be enormous. A Nashville-based songwriter earning $500,000 in royalties pays zero Tennessee income tax versus approximately $47,000 in California state income tax — making Tennessee a compelling home for the creative industries as well as finance and healthcare.