Tennessee LLC Tax Guide — Franchise & Excise, No Income Tax

Tennessee's tax structure is unique among states: zero personal income tax but a franchise & excise (F&E) tax at the entity level. Understanding this structure is critical after forming your Tennessee LLC — whether you filed it yourself or used our $199 formation service (taxes are billed and filed separately from formation either way). For compliance, see our after-formation guide.

Tennessee LLC Tax Summary

Tax	Rate/Amount	Applies To
Personal income tax	0% (none)	N/A — Tennessee has no income tax
Excise tax	6.5%	LLC's net income
Franchise tax	0.25%	Greater of net worth or tangible property in TN
Minimum F&E combined	$300	Even if no income/assets
Sales tax (state)	7%	Tangible goods
Sales tax (local)	Up to 2.75%	Varies by county/city
Sales tax (combined max)	9.75%	State + local maximum
Federal SE tax	15.3%	Net LLC earnings (pass-through)

How Tennessee Taxes LLCs

Tennessee does NOT tax individuals on income. Instead, it taxes the LLC entity itself:

• Excise tax (6.5%): Applied to the LLC's Tennessee net income (similar to corporate income tax, but assessed on all entities including LLCs)
• Franchise tax (0.25%): Applied to the greater of net worth or tangible property/real property in Tennessee
• Minimum: $300 combined (even if LLC has zero income and zero assets)
• Form: FAE 170 (filed with Tennessee Department of Revenue)
• Due: 15th day of the 4th month after fiscal year end (April 15 for calendar-year entities)

The Zero Income Tax Advantage

Tennessee members pay zero state income tax on:

• LLC pass-through distributions
• W-2 wages
• Investment income (dividends, capital gains, interest — Hall Tax repealed 2021)
• Rental income passed through from LLC
• Any other personal income

This means a Tennessee resident's effective state tax on LLC income is ONLY the entity-level F&E tax — there is no second layer of personal income tax like in states such as Colorado (4.4%) or California (up to 13.3%).

State-Level Taxes

Excise & Franchise Tax Details

The combined F&E tax is Tennessee's primary LLC tax obligation. 6.5% on net income + 0.25% on net worth/property. $300 minimum.

No Personal Income Tax

Tennessee has zero personal income tax. The Hall Tax on investment income was fully repealed in 2021.

Sales Tax — 7% State + Local

Tennessee's combined sales tax can reach 9.75% (7% state + up to 2.75% local). Food is taxed at a reduced rate (4% state).

Federal Taxes

Federal Tax Obligations

Tennessee LLCs still owe all federal taxes (income tax, self-employment tax). The F&E tax is deductible on your federal return.

Tax Elections

S-corp election works differently in Tennessee due to the F&E tax still applying at entity level regardless.

Quarterly Estimated Taxes

Federal quarterly estimates still required. Tennessee F&E has its own quarterly payment requirements for larger entities.

FAQ

Does Tennessee have an income tax?

No individual income tax. Zero. The "income tax" equivalent for businesses is the 6.5% excise tax (assessed on the entity, not individuals). Members pay nothing on pass-through income at the state level.

What's the minimum I'll owe annually?

$600: $300 Annual Report + $300 minimum franchise & excise tax. This applies even if your LLC earns nothing.

Is the F&E tax deductible?

Yes. The franchise & excise tax paid to Tennessee is deductible as a business expense on your federal return.

How does S-corp election interact with F&E tax?

Tennessee still assesses the F&E tax on S-corps at the entity level. The S-corp election reduces your federal self-employment tax but does NOT eliminate Tennessee's F&E tax. This is a key difference from states where S-corp election affects state-level taxes.