Tennessee Franchise Tax and Excise Tax

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Tennessee franchise and excise taxes apply to corporations, LLCs, limited partnerships, and business trusts registered in or operating in Tennessee.

What is the TN franchise tax?

A franchise tax is a tax for having the right to do business in Tennessee. Unlike other taxes, a business does not need to have a profit or sales to owe a franchise tax.

The franchise tax rate is 0.25% times the greater of a business’s net worth or real and tangible property. The minimum tax is $100. There is no maximum.

What is the TN excise tax?

The excise tax is like an income tax. Even though Tennessee doesn’t have a personal income tax, businesses have to pay an excise tax.

The excise tax rate is 6.5% of a business’s Tennessee taxable income. The tax does not apply to a business’s income that’s attributable to other states.

The excise tax is in addition to sales tax.

Who do the franchise and excise taxes apply to?

The following businesses generally need to pay franchise tax and excise tax:

  • C-Corporations
  • S-Corporations
  • Limited Liability Companies (LLCs)
  • Limited Partnerships
  • Business Trusts

Sole proprietorships and general partnerships general don’t need to pay franchise and excise taxes.

In this context, sole proprietorship means a business with one owner that is not a corporation or LLC. Single-owner corporations and LLCs generally do need to pay franchise tax and excise tax.

In addition, non-business entities are also often exempt from excise and franchise taxes. These typically include things like certain farming operations or holding your home in an LLC for estate planning purposes.

When are excise and franchise taxes due?

If your business uses a calendar tax year, your taxes are due on April 15th. Otherwise, they’re due on the 15th day of the fourth month of your tax year.

If your tax liability will be $5,000 or more in both the current and prior tax years, you must pay your taxes in quarterly installments. Your estimated taxes are due on the 15th of the 4th, 6th, and 9th months of the current tax year and the 15th day of the 1st month of the next succeeding tax year.

How do you file excise and franchise taxes?

You can find the tax return forms and additional instructions on the State of Tennessee website.

Frequently Asked Questions

Does Tennessee have a business income tax?

Tennessee doesn’t have a tax called a business income tax but the excise tax effectively functions as an income tax.

Are single-member LLCs exempt from the franchise tax?

The single-member LLC exception applies when the single member is a corporation. That’s because the corporation would be paying the tax.

If you operate your business as a single-member LLC where you are the owner, your single-member LLC is generally not exempt.

Does the franchise tax replace income taxes for pass-through entities?

Even pass-through entities, such as S-corporations or LLCs, generally need to pay the franchise tax. Each owner is then responsible for personal income taxes.

Tennessee does not have a personal income tax. For federal taxes, the franchise tax is a business expense and will reduce the taxable profit share attributed to each owner.

Does Tennessee have an annual fee for LLCs?

In addition to the annual franchise tax, LLCs must file an annual report with the Secretary of State. The fee for the annual report starts at $300 in most situations.

Does Tennessee require business licenses?

Most businesses will need to obtain some sort of state and/or local business license(s). 

Licenses are separate from the franchise and excise tax. Forming a corporation or LLC does not include or exempt licensing requirements.

Does your business have to be a franchise to pay franchise tax?

Franchise for tax purposes doesn’t mean the same thing as owning something like a McDonald’s franchise. The state franchise tax applies to virtually all businesses.

Whether you are a franchise owner or an independent business generally won’t affect what taxes you have to pay.

Related: Using an LLC to Avoid Taxes

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