California vs Tennessee: Taxes & Take-Home Pay 2026

California vs Tennessee: no income tax, high sales tax

Tennessee taxes no wages and, since the Hall tax on interest and dividends was repealed for 2021 and later years, no investment income either. California taxes both at up to 13.3%. Tennessee balances its budget with one of the highest sales taxes in the country: an average combined 9.61%, against 9.03% in California.

For Californians weighing Nashville, Knoxville or Chattanooga, the question is how much of the income tax saving the sales tax gives back. For nearly everyone the answer is “very little”.

Income tax saved vs sales tax paid: single filer on $110,000

Even after the higher sales tax, this worker is $7,068 better off in Tennessee. The sales tax gap on $35,000 of purchases is only $203; the income tax and SDI gap is $7,271.

How Tennessee’s sales tax works differently

Sales tax is charged on what you buy, so its weight depends on spending habits rather than salary:

• The highest combined rate in Tennessee is 9.75%. California’s highest-rate cities are higher still: Los Angeles is at 10.25% and San Jose at 10.0%, while San Diego, at 7.75%, is well below any Tennessee city.
• California does not tax most groceries; Tennessee does, at its reduced food rate plus local tax. A family that spends heavily on food therefore pays more extra sales tax in Tennessee than the general-merchandise comparison suggests.
• Break-even point: the extra Tennessee sales tax only cancels the $7,271 income tax and SDI saving at $110,000 if you spend about $1,253,596 a year on taxable goods at the average rates, far more than the salary itself.

Property tax and the rest of the bill

Tennessee property taxes are set by counties and cities, so check the county assessor for the rate and current appraisal of a specific home. California’s Proposition 13 limits the general levy to 1% of assessed value, with assessed value rising by no more than 2% a year until a sale resets it to market value. A long-time California owner who sells and buys in Tennessee gives up a low Prop 13 base, while a recent California buyer usually sees a much smaller change.

Tennessee has no employee-paid disability or family leave premium, so California’s 1.3% SDI disappears entirely. At $110,000 that alone is worth $1,430 a year.

Retirement income in Tennessee

Tennessee does not tax Social Security, pensions, 401(k) or IRA withdrawals, interest or dividends. California exempts Social Security but taxes the rest at ordinary rates. A California retiree living on a pension and a brokerage account typically sees the largest percentage saving of any group from a move to Tennessee, provided the move happens before large withdrawals or sales.

Leaving California for Tennessee: practical steps

California decides residency from the facts of where you live and why, so documentation matters.

• File California Form 540NR for the move year; Tennessee has no individual income tax return.
• Realize large capital gains after the move date, not before, if the timing is flexible.
• Keep proof of the move: Tennessee driver’s license, voter and vehicle registration, a Tennessee home and evidence that most of your time is spent there.
• Remote workers: days worked in Tennessee are not California-source, but business trips to California are.