Lease tax by state
How is a car lease taxed in Tennessee?
Tax is added to each monthly payment. The Tennessee state-level rate is 7.00%.
- Method
- Tax on each monthly payment
- State base rate
- 7.00% (excludes local add-ons)
- Down payment taxed?
- Yes — cap-cost reduction is taxed
- As of
- 2026-06-20
What this means for your lease
In plain English: tax is added to each monthly payment. Tennessee's state-level lease sales-tax rate is 7.00% (before any local add-on).
Your cap-cost reduction (cash down, trade equity, or rebates applied as a down payment) IS taxed in Tennessee, so putting more cash down does not escape the tax.
The detail
TN taxes leases on the billing basis stated in the contract — typically 7% state tax on each monthly/periodic lease payment, OR on a lump sum at lease execution if the contract bills that way (per DOR notice SUT-43). Upfront amounts including cap-cost reduction / down payment are subject to tax at signing. Local single-article tax limitations can cap the local portion on the equipment value.
Local add-ons
Local option sales tax (typically 2.25%-2.75%) applies, but local tax on a single article is capped (single-article local tax cap). State single-article tax considerations also apply. Combined rates commonly ~9.25%-9.75%.
See what this does to your true monthly cost
Tennessee's tax method changes the real cost of a lease — sometimes more than the headline payment does. Drop your numbers into the calculator (we preselect Tennessee) to fold the tax into one honest, comparable effective monthly figure.
Estimate my Tennessee lease cost →Source: revenue.support.tn.gov · High confidence · Reviewed 2026-06-20. Tax method is researched and cited per state; rates are state-level and exclude local add-ons. This is an estimate — verify with your dealer or the Tennessee Department of Revenue before you sign.