Every time gas stations or convenience stores in the state of Tennessee sell products to their customers, they are required to collect and remit the correct Tennessee sales tax amount on the right category of items. Like most states, in Tennessee, the sale of tangible property, which in this case includes food, beverages, and tobacco, is subject to state and local sales tax. In the state of Tennessee, the general sales tax rate is 7% plus the applicable local tax rate. However, not all items remain taxable, nor at the same rates.
This overview covers the categories of products largely sold at gas stations and convenience stores to ensure effective sales tax compliance. Gasoline, however, which is commonly found in either business establishments, has a separate gasoline tax at 27.4 cents for every gallon.
What Are the Taxable Items for Gas Stations and Convenience Stores?
It's important to note that the Tennessee Department of Revenue (TN DOR) applies two types of sales tax rates on food and beverage items—4% reduced rate and 7% full rate plus local tax.
Food and Food Ingredients
The sale of food and food ingredients typically charges at a 4% tax rate plus a local rate proceeding from July 1, 2017. However, items taxed at a 4% tax rate must meet the definition of things eaten for their taste or nutritional value, which can be in solid, liquid, frozen, concentrated, dehydrated, or dried form. Generally, these items make up most of the grocery items sold in convenience stores.
The list of such food and food ingredients, which includes both food and beverages eligible for the reduced rate of 4%, is:
- Baby food
- Bottled water (carbonated, flavored, sweetened, or unsweetened)
- Frozen meals
- Canned goods
- Uncooked pasta
- Ice cream
- Sugar and sugar substitutes
- Fish and meats
- Dairy products
- Vegetable juice
- Lastly, soft drinks
Note: Meal substitutes, while classified as food and food ingredients, remain 4 % state tax rate plus the applicable local rate. They usually come attached with a "Nutrition Facts" label. Some of the examples are unsweetened breakfast bars, unsweetened dried fruit snacks, soup mixes, and pop tarts.
Similarly, there are other food and food ingredient items that don't qualify for the 4% rate but the 7% state tax rate:
- Candy: This is anything that is not prepared using flour and doesn't need refrigeration. Examples are candy-coated items, candy bars, chewing gum, sweetened dried fruit or yogurt-covered nuts, or raisins.
- Dietary supplements: To qualify as a taxable item, they have to:
- Consist of ingredients such as vitamins, a mineral, herb, an amino acid, a dietary substance for human use for its dietary value, or a concentrate constituent, metabolite, extract, or a mix of all the above ingredients.
- Ingestable in the form of a tablet, liquid, capsule, powder, gelcap, or soft gel form.
- Have a "Supplements Facts" label on the packaging.
Non-Food and Food Ingredients
These are also subject to the state tax rate of 7%, including:
- Alcoholic beverages
- Breath mints
- Cigarettes and other tobacco items
- Baking chips
- Herbal supplements
- Cough drops and lozenges
This guide by the TN DOR provides a more detailed list of items and definitions of how gas stations and convenience store owners can accurately apply the sales tax rates.
Mitigation Measures to Avoid Sales Tax Audit Gas Stations and Convenience Stores
Being subjected to a Tennessee sales tax audit is a great possibility. However, you must deal in the sale of tangible property in either your gas station or convenience store. Fortunately, you can take some actions to ensure you're not vulnerable to such an audit.
Ask yourself these questions:
- Are you fully aware of taxability rules? From the guide, there seems a variability in how item taxes charge. As a business owner, it's key to be knowledgeable to avoid charging the wrong sales tax rate. This can lead to an audit. To ensure you're on the right footing, set up and maintain a reliable record system that helps track all your sales down to the calculation of sales taxes. However, even if your records are in a mess, you can make an appeal using the voluntary disclosure program offered by the state government as long as you've never been contacted first. The look-back period for back taxes is set at three years.
- Are your exemption and resale certificates in good order? You can verify the validity of sales and use certificates with the Tennessee Taxpayer Access Point (TNTAP).
What to Do if You're Due for an Audit
One of the first steps is to know how the entire audit process will carry on. When the auditor comes in, avoid providing the wrong documentation that could place your business in trouble. Have relevant and pre-audited documentation such as sales tax returns, POS receipts, and exemption certificates.
However long the audit goes on, always take additional steps to protect yourself, such as hiring a tax professional to handle everything and who can professionally interact with the auditor.
Learn More About Tennessee Sales Tax for Gas Stations and Convenience Stores
Knowing if what you're selling is taxable helps you stay ahead in collecting and remitting the correct sales taxes at all times. This is especially important as the TN DOR relies on third-party reporting to make sure sales tax rules are being followed by gas station and convenience store owners.