Moving from Canada to Tennessee: No Income Tax, High Sales Tax, and Cross-Border Planning

By Yarik Yarosh, CPA ·August 30, 2026 ·5 min read

Written by Yarik Yarosh, CPA (US & Canada) August 30, 2026 · FL CPA license AC61704 · CPA Ontario

Tennessee has no state income tax on any type of income, including wages, investment income, retirement distributions, and business profits. It repealed the Hall income tax (which had taxed interest and dividend income) effective January 1, 2021, making it a fully no-income-tax state. Nashville’s growth as a tech, healthcare, and entertainment hub has made it an increasingly common destination for Canadian professionals and entrepreneurs. The federal cross-border obligations (departure tax, RRSP/TFSA, FBAR, treaty elections) are the same as any Canada-to-US move. This page covers what changes because the destination is Tennessee.

✓Key takeaway

Tennessee has zero state income tax on any income type. No state return is required. The state relies on sales tax (7% state plus up to 2.75% local, for a combined rate as high as 9.75%), property tax, and franchise and excise taxes on businesses. The RRSP/TFSA treatment follows the federal rules only, with no state layer. The Canadian departure tax and exit filings apply regardless of the destination.

What taxes does Tennessee actually charge?

Tax	Rate	What it hits
Income tax	0%	Nothing. No state return filed
Sales tax	7% state + up to 2.75% local (9.75% combined in most of Nashville)	Retail purchases, including groceries (groceries taxed at reduced 4% state rate)
Property tax	Varies by county, residential assessment at 25% of appraised value	Davidson County (Nashville) rate is about $3.254 per $100 of assessed value, effective rate roughly 0.8% of market value
Franchise and excise tax	0.25% on net worth (franchise) + 6.5% on net earnings (excise)	Businesses with nexus in Tennessee, not individuals
Estate/inheritance tax	None	Tennessee repealed both

The sales tax is the trade-off. At 9.75% combined in Nashville, it’s among the highest in the country, and unlike most states, Tennessee taxes groceries (at a reduced rate). Compared to Ontario’s 13% HST, the sales tax base differs (Tennessee exempts most services, while Ontario’s HST covers many services), but the rate on goods is comparable.

How does the absence of state income tax affect the move?

For employment income, it’s straightforward: no state withholding, no state return, no state estimated payments. Your W-2 will show zero state wages and zero state withholding. The entire state-level tax picture disappears.

For RRSP withdrawals, the effect is the same as in Florida, Texas, or Washington (before Washington’s capital gains tax): the federal treaty deferral is the only layer, and when you withdraw, only federal income tax and Canadian Part XIII withholding apply. No state tax on the distribution.

For TFSA, the foreign trust income is taxable federally but there’s no state layer. The recommendation to close the TFSA before leaving Canada still applies for the reporting burden, not for the state tax.

For capital gains, Tennessee imposes nothing. Unlike Washington, which added a 7% capital gains tax, Tennessee has no capital gains tax of any kind. RSU sales, stock option exercises, and investment liquidations are taxed only at the federal level.

What happens on the Canadian side when I leave?

The standard departure sequence:

Deemed disposition at fair market value of worldwide assets
Final Canadian return from January 1 to the departure date
Provincial tax at the rates of your province of residence on departure day
T1161 and T1243 if applicable
CRA non-resident notification
RRSP left open (treaty deferral applies), TFSA closed

What about the franchise and excise tax?

If you’re starting or moving a business to Tennessee, the franchise and excise tax is the state’s primary business tax. It applies to all entities (LLCs, corporations, partnerships, S-corps) doing business in Tennessee, with limited exceptions for certain small businesses.

Excise tax: 6.5% of net earnings apportioned to Tennessee
Franchise tax: 0.25% of the greater of net worth or the book value of real/tangible personal property in Tennessee (minimum $100)

For a Canadian moving a business or starting a new one, this replaces the state income tax layer that would exist in most other states. If you’re keeping a Canadian corporation while living in Tennessee, the Canadian corporation generally isn’t subject to the franchise and excise tax unless it has nexus in Tennessee (employees, property, or significant sales into the state).

Hypothetical example

Invented numbers. A healthcare executive moves from Toronto to Nashville in March 2026, accepting a position paying $225,000 USD. Ontario final return covers January to February: roughly $37,500 CAD of employment income, plus departure tax on $80,000 CAD in unrealized gains. On the Tennessee side: no state return required. Federal tax on the US employment income ($187,500 for the 10-month period) applies at the standard graduated rates. No state tax on any of it. Compare this to the same move to New York, where the state plus city tax on $187,500 would be roughly $12,000 to $15,000. The Tennessee move saves that entire amount at the state level, offset partly by higher sales tax on daily purchases (roughly $2,000 to $3,000 more annually on $30,000 to $40,000 of taxable spending, depending on habits).

Illustrative numbers only, not a real client and not advice for your facts.

What should I do next?

The Canadian exit follows the standard departure checklist. On the Tennessee side, the planning is minimal because there’s no state return, but the franchise and excise tax applies if you’re bringing or starting a business, and the sales tax rate is worth factoring into the cost-of-living comparison.

Departure tax checklist, the full Canadian exit sequence
RRSP and TFSA on a US move, federal treatment and reporting
Ontario to Florida, another no-income-tax corridor for comparison
Alberta to Texas, the Western no-income-tax corridor
State income tax for cross-border filers, how Tennessee compares

Planning a move to Tennessee?

The Cross-Border Assessment is a fixed $250. You get a written, CPA-reviewed plan covering your departure tax exposure, RRSP/TFSA decisions, and the FBAR/FATCA reporting that starts on arrival.

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Cite this page

Yarik Yarosh, CPA. "Moving from Canada to Tennessee: No Income Tax, High Sales Tax, and Cross-Border Planning." Blue Cloud CPA, August 30, 2026. https://bluecloudcpa.com/guides/moving-from-canada-to-tennessee-taxes

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.