Key figures
Tennessee payables
2026, with sources
An example
A Memphis startup pays a Tennessee designer $30,000 and an Ohio developer $80,000 during the year. For Tennessee it files nothing about either: no state 1099, no withholding and no contractor report to the new hire registry. Its Tennessee obligations on those payments are federal ones, plus making sure neither worker is really an employee for unemployment premium and workers’ comp purposes, where the count toward five employees would change.
The same startup’s software bills are where Tennessee shows up. Its $24,000 a year of SaaS subscriptions from vendors that do not collect Tennessee tax carry use tax at 7% plus the Shelby County local rate, accrued and reported to the Department of Revenue.
Nothing to file for contractors
With no tax on wages or nonemployee compensation, Tennessee has no state 1099 filing and no withholding on payments to contractors. Classification still matters for unemployment premiums and workers’ compensation, where the Department of Labor and the Bureau apply their own tests.
Use tax reaches the software stack
Tennessee taxes computer software, including software accessed remotely when it is used in the state. For a startup, that means the SaaS tools its team uses are taxable purchases, and if a vendor did not charge Tennessee tax, the company accrues use tax at 7% plus the local rate.
A company with users in several states can apply for a remotely accessed software direct pay permit and pay tax directly to the Department on the percentage of users located in Tennessee. A Knoxville startup with 40 seats of a design tool, 10 of them used in Tennessee, pays tax on a quarter of the price.
The federal baseline
This page covers what Tennessee adds. The federal rules underneath it apply here too.
Common questions
Do we file 1099s with Tennessee?
No. Tennessee has no personal income tax on compensation, so there is no state 1099 filing and no withholding on contractors, resident or not.
Do we owe Tennessee use tax on our software subscriptions?
Usually, if the vendor did not charge Tennessee tax. Remotely accessed software used in Tennessee is taxable, so a startup whose employees use software bought from a vendor that did not collect owes use tax at 7% plus the local rate. If most of the users are outside Tennessee, a remotely accessed software direct pay permit lets the company pay tax only on the Tennessee share.
Payables next door
- ALAlabama payablesAlabama’s payables issue is consumers use tax at state and local rates on untaxed purchases, filed with the Department of Revenue and any self-administered localities; a vendor’s 8% SSUT collection ends the buyer’s obligation.
- ARArkansas payablesArkansas wants state copies of 1099s with the ARW-3 by January 31. Use tax at 6.5% plus local reaches hardware and specified digital products, not hosted SaaS.
- GAGeorgia payablesGeorgia participates in the combined federal/state 1099 program; 1099s are filed directly with the DOR only when Georgia tax was withheld.
- KYKentucky payablesKentucky asks for 1099s only when Kentucky tax was withheld; on the payables side, the issue is a flat 6% use tax that reaches SaaS subscriptions bought from vendors that do not collect.
- MOMissouri payablesMissouri wants its own copy of 1099s for Missouri-source payments of $1,200 or more, by February 28, filed directly with the DOR.
- MSMississippi payablesMississippi takes 1099s for personal services only at $3,000 or more, due February 28, and since 2023 exempts software hosted outside the state from use tax, leaving use tax mainly for goods and downloads.
- NCNorth Carolina payablesNorth Carolina requires 4% withholding on some nonresident contractor payments, mostly speakers and performers over $1,500, and state 1099 filing only where tax was withheld.
- VAVirginia payablesVirginia presumes workers are employees, requires new independent contractors to be reported within 20 days, and wants 1099s only when Virginia tax was withheld. SaaS purchases carry no use tax.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Tennessee guide
- AccountingAccounting and state tax in TennesseeCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in TennesseeSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in TennesseeWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in TennesseeRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in TennesseeCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.