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.
| 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) |
Tennessee does NOT tax individuals on income. Instead, it taxes the LLC entity itself:
Tennessee members pay zero state income tax on:
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%).
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.
Tennessee has zero personal income tax. The Hall Tax on investment income was fully repealed in 2021.
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).
Tennessee LLCs still owe all federal taxes (income tax, self-employment tax). The F&E tax is deductible on your federal return.
S-corp election works differently in Tennessee due to the F&E tax still applying at entity level regardless.
Federal quarterly estimates still required. Tennessee F&E has its own quarterly payment requirements for larger entities.
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.
$600: $300 Annual Report + $300 minimum franchise & excise tax. This applies even if your LLC earns nothing.
Yes. The franchise & excise tax paid to Tennessee is deductible as a business expense on your federal return.
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.