Tennessee Business Taxes at a Glance
Tennessee does not tax wages, and since 2021 it no longer taxes interest and dividends either. For business owners, the main state taxes are entity-level taxes: the franchise and excise tax, the business tax on gross receipts, and one of the higher combined sales tax rates in the country. BOMCAS helps Tennessee businesses and their owners plan for these taxes and file them on time.
No Individual Income Tax
Tennessee residents do not file a state income tax return on wages, salaries, or investment income. The Hall income tax, which once applied to certain interest and dividends, was fully repealed for tax years beginning in 2021. Individuals focus on federal returns, and on returns in other states if they earn income there.
That simplicity does not carry over to businesses. Because most LLCs and partnerships are subject to entity-level tax in Tennessee, an owner's choice of entity has direct state tax consequences.
The Franchise and Excise Tax
The franchise and excise tax is Tennessee's main business tax. It applies to corporations, LLCs, limited partnerships, limited liability partnerships, and business trusts doing business in the state. Sole proprietorships and general partnerships are generally not subject to it. Some family-owned noncorporate entities whose income is mostly passive investment income can qualify for an exemption, but they must apply for it.
The tax has two parts:
- Excise tax on net earnings from business done in Tennessee
- Franchise tax based on net worth apportioned to Tennessee, with a minimum tax
The franchise tax used to be the larger of net worth or the value of real and tangible property in Tennessee. For tax years ending on or after January 1, 2024, the property measure was repealed, so the franchise tax is now based on net worth. For many property-heavy businesses, this lowered the tax.
Because LLCs that are pass-throughs for federal purposes still pay excise tax at the entity level, Tennessee owners should consider state tax when deciding how to structure a business. We prepare the return, calculate apportionment for multistate entities, and plan quarterly estimated payments.
State and Municipal Business Tax
Tennessee also imposes a business tax on gross receipts. It has a state part and a municipal or county part, depending on where the business operates, and both are filed with the Department of Revenue. The rate depends on the business's classification, such as retail, wholesale, or services, and there are minimum taxes and filing thresholds. Businesses also need local business licenses.
The business tax is often missed by out-of-state companies and new businesses. Since it is based on gross receipts, it applies even when a business is unprofitable. We register businesses correctly and coordinate the two taxes.
Sales and Use Tax
Tennessee's state sales tax rate is high, and local governments add their own taxes. Local tax applies only up to a cap on a single item, and a further state tax applies to part of the price of some higher-value items. Food and food ingredients are taxed at a reduced state rate. These features mean the tax on large purchases is calculated differently from the tax on small ones.
We register businesses, prepare returns, handle the single-article calculations, and review use tax on equipment and supplies purchased without Tennessee tax.
Professional Privilege Tax
Certain licensed professionals in Tennessee pay an annual professional privilege tax for the right to practice, regardless of whether they live in the state. The list of professions covered has been reduced over time. Professionals who remain subject to it, or their employers, need to pay it each year by the due date. We include it in the compliance calendar for individual clients who are affected.
Payroll Without State Withholding
Tennessee employers do not withhold state income tax. They register with the Department of Labor and Workforce Development for unemployment insurance and pay quarterly premiums based on wages. Federal payroll obligations apply in full. We run payroll, file quarterly reports, and reconcile payroll to the books.
Music, Health Care Management, Logistics, and Auto Plants
- Music, entertainment, and creative work: royalties, touring income in other states, and entity structures for artists and producers
- Health care: physician practices, management companies, and the professional privilege tax where it applies
- Logistics and distribution: apportionment for multistate carriers, sales tax on equipment, and high transaction volume
- Automotive and manufacturing: inventory accounting, fixed assets, and suppliers' multistate filings
- Real estate and hospitality: short-term rental taxes, property-holding LLCs, and franchise and excise tax on rental entities
Owners Moving From Higher-Tax States
Business owners who move to Nashville, Knoxville, or Chattanooga often expect no state tax at all. Tennessee does not tax wages or investment income, but LLCs and corporations doing business in the state still pay franchise and excise tax, and the former state may tax income sourced there or question an incomplete move. We review the entity, the timing of the move, and the final returns in the state you left.
Books Supporting the Franchise and Excise Return
A Tennessee business's books need to support three different tax bases: net earnings for the excise tax, net worth for the franchise tax, and gross receipts by classification and location for the business tax. We set up the chart of accounts and close process to produce each one, and we reconcile them with sales tax filings.
Reaching BOMCAS From Tennessee
LLCs filing franchise and excise tax, businesses registering for state and city business tax, and owners arriving from income-tax states can contact BOMCAS for a remote review. Pages for individual Tennessee cities and services will follow under this section. Return to the BOMCAS home page or see our United States services. This page gives general information only and does not apply the rules to your facts.
Talk to BOMCAS About Your Tennessee Taxes
Have a question about your Tennessee filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.