Tennessee sales tax on restaurant food and drinks: what to charge

Tennessee has no state income tax on wages, which draws many new restaurateurs, but it leans heavily on sales tax, and restaurants collect it every day. The combined rate is one of the higher ones in the country once local tax is added, and the rules for prepared food differ from groceries. This guide explains the structure, how to find your rate and how to keep your register correct. It is general information, not tax advice. The Tennessee Department of Revenue, which publishes a tax manual for bars and restaurants, is the authority.

What is the state sales tax rate for restaurants?

According to the Tennessee Department of Revenue's tax manual for bars and restaurants, dated September 2025, the state sales tax rate is 7 percent, and prepared food sold by restaurants falls under that state rate. Groceries are taxed at a reduced state rate, but that lower rate does not apply to restaurant meals, so do not apply the grocery rate to prepared food. If you sell both, such as a restaurant with a retail corner, treat each category separately.

What about local sales tax?

Counties and cities add a local sales tax, up to a limit set by state law. The rate depends on where your business sits, so two restaurants in the same state can charge different totals. Look up the local rate for your exact address on the Department of Revenue's tools, record the date you checked it, and recheck whenever a local government announces a change. If you open a second location in another county or city, or cater at an event outside your own area, expect a different rate and check it before the first sale.

What is the single-article limit?

A single-article rule limits how local sales tax applies to a very large single sale, and a separate state tax applies to part of the price above that limit. The Department of Revenue publishes the current limits. This matters mainly for large sales such as high-value catering or event packages. Ask your accountant how to treat a single large order, and itemize the invoice so each charge is clear. A catering quote that separates food, drinks, staff and rentals is easier to defend if the state asks questions, and easier for the client to understand.

How should the tax appear on the check?

Menu prices in the United States are usually shown before tax, and tax is added at the register. Your receipt should show the subtotal, the tax and the total as separate lines, and guests who ask should be able to see how the tax was figured. If you add a service charge, a delivery fee or a mandatory gratuity, check how each is treated for tax before you add it, since the treatment depends on how the charge is described and what it covers.

How do you set up the register?

Set the tax rate by item category in your point-of-sale system. Prepared food and drinks carry the restaurant rate. Retail items such as bottled sauces or merchandise may carry a different rate. Test a sample receipt with a meal, a drink and a retail item before you open, and test again after any system update. Compare the monthly tax report with your sales report.

What are common mistakes?

Four mistakes appear again and again.

• Using the grocery rate for prepared food.
• Forgetting a local rate change.
• Not tracking the single-article limit on large catering orders.
• Mixing taxable and non-taxable items in one register category.

Each is easy to prevent with a monthly review. Put the review in a calendar, with a named person, and keep a one-page note of what you checked. If the state ever sends a question, that note shows you took care.

What about alcohol, gift cards and merchandise?

Alcohol sold in a restaurant is part of the sale and carries tax, and other state rules cover alcohol licenses and taxes on beer, wine and spirits, so ask the Department of Revenue and the alcohol regulator for the rules that apply to your license. Gift cards are generally not taxed when sold, and the food bought with them is taxed when the card is used. Merchandise has its own treatment. Keep all of these in separate categories in your point-of-sale system from the first day, so that your reports stay clean.

How do you register and file?

Register with the Department of Revenue for a sales and use tax account before you open, collect tax at the register and file returns on the schedule the Department sets for your volume. Mark due dates in a shared calendar. Keep sales reports, receipts and returns for the period the state requires, and ask your bookkeeper to compare each return with the register report.

Is your register ringing often enough?

Tax is a cost of every sale, so the number of sales is the part you can change. Mosey is a food-first app where diners search by dish and mood, rate what they ate and keep lists of places they want to try, and where independent restaurants and cafes get tools for their own page, menu and regular guests. If you want more guests to find your cooking by what is on the plate, discovery by dish and rating is what Mosey is built around.

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• How Cape Cod restaurants can stretch the season and staff it

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