Tennessee Contractor License Exam — All Questions

Which statement about Tennessee state income tax is correct as it affects a contractor's payroll?

• a.Tennessee has no state income tax on wages; the Hall income tax on certain investment income was fully repealed effective 2021✓
• b.Tennessee imposes a flat 6% tax on all wages
• c.Tennessee imposes a graduated income tax up to 9%
• d.Tennessee taxes only overtime wages

Tennessee does not tax wage income, and the Hall tax (which had applied to some interest and dividend income) was fully repealed effective January 1, 2021. So there is no Tennessee income-tax withholding on payroll, though federal withholding still applies.Tennessee has no state income tax on wages (Hall income tax repealed 2021)

When a Tennessee contractor buys materials that will be permanently installed into real property under a lump-sum contract, who generally owes sales or use tax on those materials?

• a.The owner pays sales tax on the full contract price
• b.Materials for real property are always exempt from tax
• c.The contractor, as the consumer of the materials✓
• d.The material supplier absorbs the tax and no one pays it

A lump-sum real-property contractor is treated as the consumer of the materials and owes sales or use tax on the cost of those materials, rather than collecting tax from the owner like a retailer. The tax is a cost the contractor builds into the bid.Tennessee sales and use tax (contractor as consumer of materials)