Tennessee has no income tax but does have a "hall tax" -- that is, a 6% tax on interest and dividends, which is specifically allowed by the state constitution. Tennessee also has a 7% sales tax, but food, food ingredients, and prepared foods are exempt from sales tax. Additionally, Residents pay no sales taxes on social security benefits, pensions, or distributions from their retirement plans and the median annual property tax is about half the national average. The state has the third-lowest tax burden in the U.S.!