Sales of water to Tennessee customers are subject to state and local tax unless an exemption applies. Water is subject to the general state tax rate of 7%, and the applicable local option sales tax rate.
A seller of water must collect the local option tax at the local rate for the location where the water is delivered to the customer. This means that the seller of the water should charge the customer the local sales tax rate of the county or city in which the customer is located.
Reference: Important Notice 15-22. Tenn. Code Ann. § 67-6-702(a)(4).