California vs Tennessee Taxes 2026: Full Breakdown

Q: Does Tennessee have a state income tax in 2026?

No. Tennessee has no personal income tax in 2026. The state eliminated the Hall Income Tax — which had applied to investment income (dividends and interest) for individuals — effective January 1, 2022. Before 2022, the Hall Tax taxed certain investment income at 1–6% depending on the year. Since its elimination, Tennessee residents pay zero state income tax on wages, self-employment income, S-Corp distributions, capital gains, retirement income, and Social Security. Tennessee is one of nine states with no personal income tax. Source: Tennessee Code Annotated § 67-2-101 (repealed 2022); Tennessee Department of Revenue.

Q: How much do you save moving from California to Tennessee?

Annual tax savings when moving from California to Tennessee range from $3,323 (retiree, $60K income) to $16,359 (S-Corp owner, $150K). A freelancer at $100K saves approximately $7,882/year; a W-2 employee at $100K saves roughly $9,639. The savings come from eliminating California's state income tax (up to 13.3%) and from significantly lower property taxes in Tennessee (0.67% effective rate vs CA's 0.71%, but Tennessee homes cost roughly 60% less than California homes). These savings are partially offset by Tennessee's higher combined sales tax (9.55%) which is actually higher than California's average (8.85%). Sources: TaxStackHub State Tax Stack 2026; California FTB; Tennessee DOR.

Q: Does Tennessee have lower property taxes than California?

In absolute dollar terms, yes — primarily because Tennessee home values are much lower. Tennessee's effective property tax rate (0.67%) is slightly lower than California's (0.71%), but the larger difference is home prices: Nashville-area median homes run $280,000–$350,000 versus $700,000–$1,000,000 in major California metros. A $300,000 Tennessee home at 0.67% = $2,010/year. A $750,000 California home at 0.71% = $5,325/year. California's Proposition 13 limits annual assessment increases to 2%, so long-time homeowners often pay lower effective rates than the published 0.71% average. First-time buyers pay the current assessed value. Sources: Tennessee Comptroller of the Treasury; California Board of Equalization.

Q: Is Tennessee a good state for retirees from a tax perspective?

Tennessee is competitive for retirees on income taxes — there is zero state tax on pension income, Social Security, IRA distributions, and investment income (Hall Tax eliminated 2022). Property taxes are low in absolute terms. However, Tennessee's 9.55% combined sales tax (highest in the US) adds more sales tax burden than most states, including California. Tennessee also taxes groceries at a reduced rate (4% state rate) but does not fully exempt them, unlike some other states. Compared to Florida, Tennessee's higher sales tax makes it slightly less favorable for retirees on fixed incomes who spend a higher percentage of income on consumption. Sources: Tennessee Department of Revenue; AARP State Tax Guides 2026.

Q: What happened to Tennessee's Hall Tax?

Tennessee's Hall Income Tax was a narrow investment income tax that applied to interest and dividend income earned by Tennessee residents. It was gradually phased out over several years: the rate was 4% in 2018, 3% in 2019, 2% in 2020, 1% in 2021, and fully eliminated effective January 1, 2022. It never applied to wages, salaries, or self-employment income — only to passive investment income above certain thresholds. Its elimination in 2022 made Tennessee a complete no-income-tax state. This is particularly relevant for retirees and investors who previously had to report dividend and interest income to Tennessee. Sources: Tennessee Code § 67-2-101 (repealed); Tennessee Department of Revenue Notice 2021-17.

Q: How does the cost of living compare between California and Tennessee?

Tennessee's cost of living is significantly lower than California's. Nashville's cost of living index is approximately 97 (near national average); California's major metros range from 160 (Sacramento) to 200+ (San Francisco, Los Angeles). The biggest drivers are housing (California median home prices are 2.5–4x Tennessee's), and insurance costs. Healthcare costs are roughly comparable. Food, utilities, and transportation costs are moderately lower in Tennessee. The combined effect means a household earning $150,000 in California can maintain a comparable lifestyle in Tennessee on roughly $100,000–$115,000 — meaning Tennessee's tax savings stack on top of a broader cost-of-living reduction. Source: Council for Community and Economic Research C2ER; Bureau of Economic Analysis Regional Price Parities.

Q: Does Tennessee have a business income tax for S-Corps?

Tennessee's business taxation is more complex than just 'no income tax.' The state's Franchise and Excise Tax system applies to many businesses. The franchise tax (assessed on net worth) was largely eliminated through 2024 legislation (Tennessee House Bill 1893). The excise tax (6.5% on net income) applies to corporations and some pass-through entities at the entity level. However, for S-Corporations whose income flows to individual shareholders, the practical application varies. California's S-Corp taxes are clearer and higher: 1.5% of net income plus $800 minimum franchise tax. Tennessee S-Corp owners should consult a Tennessee CPA to determine entity-level excise tax exposure. Sources: Tennessee Code § 67-4-2006 (Excise Tax); Tennessee HB 1893 (2024 franchise tax elimination).

TaxStackHub Research Team

✦ State Tax Analysis · 2026

California vs Tennessee
Taxes 2026

No income tax vs 13.3% — but Tennessee has the highest combined sales tax in the US at 9.55%. Here's the full breakdown across four taxpayer profiles. All data from TaxStackHub's State Tax Stack.

Published: May 3, 2026 · Data source: CA FTB, TN DOR, TaxStackHub State Tax Stack · Updated for 2026 OBBBA rates

CA Top Income Tax

13.3%

Highest in the US

TN Income Tax

$0

Hall Tax eliminated 2022

CA Sales Tax Avg

8.85%

State + local combined

TN Sales Tax Avg

9.55%

Highest in the US ⚠

CA Property Tax

0.71%

Effective avg (Prop 13)

TN Property Tax

0.67%

Low rate + low home values

Head-to-Head: State Tax Overview

Tennessee's trade-off is unique: zero income tax saves thousands, but the highest combined sales tax in the country partially offsets those savings — especially for lower earners and retirees who spend a higher share of income on consumption.

Tax Category	California	Tennessee
Personal income tax (top rate)	13.3%	0%
Income tax type	Graduated (10 brackets)	None (Hall Tax eliminated 2022)
Investment income tax	Taxed as ordinary income (up to 13.3%)	0% (Hall Tax repealed Jan 1, 2022)
S-Corp additional tax	1.5% net income + $800 min. franchise tax	Excise tax may apply at entity level (consult CPA)
State sales tax rate	7.25%	7.00%
Combined avg sales tax (incl. local)	8.85%	9.55% ← Highest in the US
Groceries sales tax	Exempt (most food)	4% state rate + local (not fully exempt)
Effective property tax rate (avg)	0.71%	0.67%
Median home value (typical)	~$750,000 (major metros)	~$300,000 (Nashville area)
Estate tax	None	None
SDI (disability insurance — employees)	~1.1% on wages (no cap)	None
Capital gains (state)	Taxed as ordinary income (up to 13.3%)	0%

⚠ The TN sales tax offset — read this first

Tennessee's 9.55% combined sales tax is higher than California's 8.85%. For someone spending $35,000/year on taxable goods, Tennessee costs approximately $245 more per year in sales taxes than California ($3,343 TN vs. $3,098 CA). This is unusual and counterintuitive for a no-income-tax state. The income tax elimination still produces large net savings — but the sales tax "offsets" the benefit more in TN than in any other no-income-tax state.

4 Taxpayer Profiles: Side-by-Side

Federal taxes are identical in both states — only state-level taxes change. Assumptions: single filer, standard deduction, taxable consumption spending as noted per profile. Home values: CA $750,000 (major metro median) · TN $300,000 (Nashville area median).

1

Freelancer / Sole Proprietor

$100,000 net profit · Single · Self-employed

Tax Component	California	Tennessee	Notes
SE Tax (federal)	$14,130	$14,130	15.3% on 92.35% of net profit. Same everywhere.
Federal Income Tax	$7,358	$7,358	After SE deduction + 23% QBI (OBBBA). Same everywhere.
State Income Tax	$4,812	$0	CA brackets up to 9.3% on $87,733 taxable income. TN: none.
Sales Tax (est. $35K spend)	$3,098	$3,343	CA 8.85% vs TN 9.55% — TN is $245 more per year. ⚠
Property Tax (est.)	$5,325	$2,010	CA $750K @ 0.71%; TN $300K @ 0.67%. Lower home values drive TN savings.
Total Annual Tax Burden	$34,723	$26,841	Save ~$7,882/yr in TN
Effective Rate (% of $100K)	34.7%	26.8%	7.9 percentage points

✦ Bottom Line — Freelancer

Tennessee saves ~$7,882 per year on $100K self-employment income.

California's $4,812 income tax elimination is the main driver. TN's property tax savings ($3,315) add substantially. TN's higher sales tax actually costs $245 more than CA — a partial offset, but minor relative to income tax savings. Net 10-year saving: ~$78,820.

2

S-Corp Owner

$150,000 net profit · 60% salary / 40% distributions · Single

Salary: $90,000 W-2 · Distributions: $60,000. California adds 1.5% S-Corp net income tax plus $800 minimum franchise tax — $3,050 in CA entity-level taxes alone with no TN equivalent. Note: Tennessee's franchise/excise tax at entity level may apply; see FAQ below.

Tax Component	California	Tennessee	Notes
Federal Income Tax	$21,936	$21,936	Salary + distributions, std ded, 23% QBI on distributions.
FICA Payroll Taxes (both sides)	$13,770	$13,770	7.65% × $90K × 2. Same everywhere.
CA State Income Tax	$10,119	$0	CA brackets on $144,798 taxable income. TN: none.
CA S-Corp Net Income Tax (1.5%)	$2,250	$0	CA entity-level S-Corp tax. TN: no equivalent. (TN excise tax: see note)
CA SDI (W-2 salary)	$990	$0	~1.1% on $90K W-2 salary. TN has no SDI equivalent.
Sales Tax (est. $45K spend)	$3,983	$4,298	CA 8.85% vs TN 9.55% — TN costs $315 more per year. ⚠
Property Tax (est.)	$5,325	$2,010	CA $750K @ 0.71%; TN $300K @ 0.67%.
Total Annual Tax Burden	$58,373	$42,014	Save ~$16,359/yr in TN
Effective Rate (% of $150K)	38.9%	28.0%	10.9 percentage points

ℹ Tennessee Business Entity Tax Note

Tennessee's franchise tax was largely eliminated by 2024 legislation. The excise tax (6.5% on net income) may still apply to S-Corporations at the entity level, depending on structure. This analysis includes zero TN entity-level tax to show the personal income tax comparison cleanly. Tennessee S-Corp owners should consult a Tennessee CPA to evaluate excise tax exposure.

✦ Bottom Line — S-Corp Owner

Tennessee saves ~$16,359 per year on $150K S-Corp income — before any TN entity-level excise tax.

California's triple tax on S-Corps (personal income tax + 1.5% S-Corp tax + SDI) creates the largest gap. Tennessee's higher sales tax ($315/year more than CA) is a minor offset. The $3,315 in lower property taxes (driven by home price differences) is an additional real benefit.

3

W-2 Employee

$100,000 salary · Single · Standard deduction

Tax Component	California	Tennessee	Notes
Federal Income Tax	$13,615	$13,615	W-2, standard deduction, no QBI. Same everywhere.
Employee FICA	$7,650	$7,650	7.65% of $100K. Same everywhere.
State Income Tax	$5,469	$0	CA brackets on $94,798 taxable income. TN: none.
CA SDI	$1,100	$0	~1.1% CA State Disability Insurance (no cap since 2024). TN: none.
Sales Tax (est. $35K spend)	$3,098	$3,343	CA 8.85% vs TN 9.55% — TN costs $245 more. ⚠
Property Tax (est.)	$5,325	$2,010	CA $750K @ 0.71%; TN $300K @ 0.67%.
Total Annual Tax Burden	$36,257	$26,618	Save ~$9,639/yr in TN
Effective Rate (% of $100K)	36.3%	26.6%	9.7 percentage points

✦ Bottom Line — W-2 Employee

Tennessee saves ~$9,639 per year on a $100K salary.

CA income tax ($5,469) and SDI ($1,100) elimination drive $6,569 in state tax savings. Lower property taxes add $3,315. TN's higher sales tax partially offsets with a $245 increase. Net: $9,639/year in Tennessee's favor.

4

Retiree

$60,000 income ($20K Social Security + $40K pension) · Single · Age 67

Two key insights: (1) California doesn't tax Social Security — making CA more competitive for SS-heavy retirees. (2) Tennessee's high sales tax (9.55%) erodes its advantage vs. CA for retirees on fixed incomes who consume a higher share of income. TN's low property taxes are the main savings driver.

Tax Component	California	Tennessee	Notes
Federal Income Tax	$4,562	$4,562	85% of SS taxable at federal level; 65+ std ded $17K. Same everywhere.
State Income Tax	$794	$0	CA taxes pension ($40K); excludes SS. TN: no income tax at all.
Sales Tax (est. $30K spend)	$2,655	$2,865	CA 8.85% vs TN 9.55% — TN costs $210 more/year. TN also taxes groceries. ⚠
Property Tax (est.)	$4,615	$1,876	CA $650K @ 0.71%; TN $280K @ 0.67%. Biggest advantage for TN retirees.
Total Annual Tax Burden	$12,626	$9,303	Save ~$3,323/yr in TN
Effective Rate (% of $60K)	21.0%	15.5%	5.5 percentage points

✦ Bottom Line — Retiree

Tennessee saves ~$3,323 per year on $60K retirement income — but TN's higher sales tax is noticeable.

Tennessee's advantage for retirees is primarily property tax savings ($2,739 less than CA), driven by lower home values. The income tax savings are modest ($794/year) because California doesn't tax Social Security. TN's higher sales tax actually costs retirees more than CA ($210/year extra). For heavy Social Security retirees, the comparison is closer than most people expect.

Summary: Annual Tax Savings by Moving CA → TN

All profiles, one table. Note the sales tax column — Tennessee is worse than California on this metric.

Profile	CA Total	TN Total	Annual Savings (TN)	CA Eff. Rate	TN Eff. Rate
Freelancer, $100K net profit	$34,723	$26,841	$7,882	34.7%	26.8%
S-Corp Owner, $150K net profit	$58,373	$42,014	$16,359	38.9%	28.0%
W-2 Employee, $100K salary	$36,257	$26,618	$9,639	36.3%	26.6%
Retiree, $60K (SS + pension)	$12,626	$9,303	$3,323	21.0%	15.5%

⚠ Tennessee's sales tax is higher than California's

TN 9.55% vs CA 8.85%. On $35K/year of spending, Tennessee costs $245 more in sales taxes. On $45K/year of spending, it's $315 more. This partially offsets the income tax savings — particularly for lower earners and retirees. Tennessee also taxes groceries (4% state rate + local), while California fully exempts most food. Factor this into your planning, especially if you plan to spend heavily in Tennessee.

ℹ Tennessee vs Florida comparison

Comparing the two no-income-tax states: Florida (7.01% avg sales tax) beats Tennessee (9.55%) on sales taxes. Florida's property tax rate (0.83%) is slightly higher than Tennessee's (0.67%), but Florida home prices (~$400K median) sit between CA and TN. For most income profiles, CA→FL savings and CA→TN savings are comparable, with TN slightly better on property taxes and FL slightly better on sales taxes.

The Bottom Line

Tennessee delivers large tax savings for income earners moving from California — but the unique counterintuitive dynamic is that Tennessee's 9.55% combined sales tax exceeds California's 8.85%. The net savings still strongly favor Tennessee for income-earners; the offset matters most for retirees on fixed income.

S-Corp $150K saves

$16,359/yr

$163,590 over 10 years

W-2 $100K saves

$9,639/yr

$96,390 over 10 years

Freelancer $100K saves

$7,882/yr

$78,820 over 10 years

Retiree $60K saves

$3,323/yr

$33,230 over 10 years

TN wins strongly on income tax (all profiles) and property taxes (driven by lower home values). TN loses on sales tax vs. California. The cost-of-living difference — Nashville area homes at ~$300K vs. California at $750K — creates additional indirect financial benefits not captured in the tax analysis above.

Sources: California FTB Schedule CA, Revenue and Taxation Code §§ 17041, 23802; Tennessee Code § 67-2-101; Tennessee Department of Revenue; IRS Rev. Proc. 2025-61; TaxStackHub State Tax Stack (2026 rates). Federal calculations use 2026 OBBBA rates (23% QBI, $184,500 SS wage base, $15,000 standard deduction single).

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Frequently Asked Questions

Does Tennessee have a state income tax in 2026?

No. Tennessee eliminated the Hall Income Tax — its only personal income tax, which applied to interest and dividend income — effective January 1, 2022. Since then, Tennessee residents owe zero state income tax on wages, self-employment income, S-Corp distributions, retirement income, or capital gains. Tennessee is one of nine states with no personal income tax.

What is Tennessee's combined sales tax rate?

Tennessee's combined state and local sales tax averages 9.55% in 2026 — the highest of any state in the US. The state rate is 7.00%; local rates average 2.55%. Tennessee taxes groceries at a reduced 4% state rate (plus local rates), unlike most states that exempt food entirely. This makes Tennessee's effective sales tax burden higher than California's 8.85% average.

How much do you save moving from California to Tennessee?

Annual savings range from $3,323 (retiree, $60K income) to $16,359 (S-Corp owner, $150K income). A $100K freelancer saves $7,882/year; a $100K W-2 employee saves $9,639/year. The primary savings driver is eliminating California's income tax. TN's low property taxes (driven by lower home values) add additional savings. TN's higher sales tax (9.55% vs CA's 8.85%) partially offsets the benefit.

Is Tennessee better for taxes than Florida when moving from California?

For most income-earning profiles (freelancers, W-2, S-Corp), TN and FL produce similar total savings. Tennessee edges ahead slightly because of lower property taxes (0.67% vs FL's 0.83%), but FL has significantly lower sales tax (7.01% vs TN's 9.55%). For retirees, Florida is generally more favorable because TN's high sales tax (including partial taxation of groceries) disproportionately affects fixed-income households. Neither state has income tax; the choice typically comes down to cost of living, career opportunities, and personal preferences.

What happened to Tennessee's Hall Tax?

Tennessee's Hall Income Tax was a narrow tax on investment income (interest and dividends). It was phased out gradually over 2017–2022 and fully eliminated effective January 1, 2022. It never taxed wages or self-employment income — only passive investment income above certain thresholds. Since 2022, Tennessee has had zero state personal income tax on any type of income.

Is Tennessee good for retirees moving from California?

Tennessee is competitive for retirees — no state tax on pension, Social Security, IRA withdrawals, or investment income; low property taxes; and significantly lower cost of living (particularly housing). However, Tennessee's 9.55% sales tax (with partial grocery taxation) is a meaningful ongoing cost for retirees on fixed incomes who spend a higher fraction of income on consumption. For a retiree primarily on Social Security, the comparison is tighter than expected: California doesn't tax SS income, so the income tax difference is only on pension/IRA amounts.

Does Tennessee have a business income tax for S-Corps?

Tennessee's franchise tax was largely eliminated by 2024 legislation. The excise tax (6.5% on net income) may still apply to some Tennessee businesses at the entity level, though S-Corporation pass-through status complicates its application. California's S-Corp taxes are clear and significant: 1.5% net income tax plus $800 annual minimum franchise tax. Tennessee S-Corp owners should consult a Tennessee-licensed CPA to understand their entity-level tax exposure.

How does cost of living compare between California and Tennessee?

Tennessee's cost of living is approximately 40–50% lower than California's major metros. Nashville-area homes average $280,000–$350,000; California metro medians range from $650,000 to $1.2M+. This means the tax savings described above stack on top of a substantial cost-of-living reduction — someone maintaining an equivalent lifestyle in Tennessee may achieve similar financial outcomes on meaningfully lower gross income.

California vs TennesseeTaxes 2026