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. 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
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Get StartedTennessee 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- Investment income (dividends, capital gains, interest — Hall Tax repealed 2021)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 The Hall Tax on investment income was fully repealed in 2021.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
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Get StartedDoes 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.