Registration Requirements in Tennessee
All businesses in Tennessee are required to file th the Tennessee Secretary of State. Some businesses may be required to re-register annually. Businesses can register at the website below.
All businesses with nexus in Tennessee must register with the Tennessee Department of Revenue. You can register your business at the following link.
S-Corporation Income Tax
Tennessee is unusual in that it does not recognize the federal “S” election, and instead treats S corporations like traditional corporations, including requiring them to pay the same taxes as traditional corporations. In other words, like most other forms of business in Tennessee, S corporations are subject to both the excise tax and the franchise tax, explained further below. In addition, Tennessee views S corporation distributions to Tennessee shareholders as taxable dividend income subject to the state’s personal income tax. At the same time wages or salary an individual shareholder receives from an S corporation are not subject to personal state income tax.
LLC/Partnership Income Tax
Tennessee, is different when it comes to LLCs, Limited Partnerships and Limited Liability Partnerships: it does not treat those business types as pass-through entities, and instead requires them to pay both the excise tax and the franchise tax. An individual member, however, does not owe state tax on whatever portion of the company’s net income he or she ultimately receives.
General partnerships and sole proprietors in Tennessee are not subject to the excise or franchise tax.
If you conduct business in any county or incorporated municipality in Tennessee, you should register and pay business tax. Businesses that both have a physical location and performing certain activities must pay business tax.
All businesses tax returns and payments must be submitted electronically.
More information on this tax can be found in the business tax guide here.
State Excise/Franchise Tax
Tennessee has both an excise tax, which is a tax on net earnings, and a franchise tax, which is a tax on net worth. Both of these taxes apply to most Tennessee businesses other than general partnerships and sole proprietorships. Tennessee’s excise tax, which effectively is an income tax, is a flat 6.5% tax on net earnings from doing business in the state. All capital losses are claimed in the year incurred. Generally speaking, only general partnerships and sole proprietorships are exempt from the excise tax.
Tennessee’s franchise tax is based on the greater of a business’s:
net worth; or
Book value of real and tangible property owned or used in Tennessee.
The rate is 25 cents per $100, or fraction thereof, of the business’s net worth. There is a minimum franchise tax of $100. In many instances, net worth will be defined as a business’s total assets minus its total liabilities; for businesses whose accounts are not maintained in accordance with generally accepted accounting principles, net worth will be based on whatever method the business used on its federal tax return. As with the excise tax, only general partnerships and sole proprietorships generally are exempt from the franchise tax.
Both the excise tax and the franchise tax are computed and paid using a single form (FAE 170).
Individual Income Tax
Tennessee does not impose an individual income tax.
Excise and franchise tax returns are due on the 15th day of the fourth month after the end of a business’s tax year. For calendar year filers, the date is April 15th.
Business tax returns are also due on the 15th day of the fourth month following the end of your fiscal year.
Form FAE 173 can be used to request a six month extension to file Franchise and Excise Tax Returns. Taxpayers requesting an extension must pay at least 90% of the current tax year liability by the original due date.
Form FAE 173 can be found here.
Business Tax returns may be eligible, upon a showing of good cause, grant one extension of 30 days. To request a business tax extension, must be made in writing, and must be submitted before the due date of the return. More information can be found in the business tax guide above.
Any taxpayer having a combined franchise and excise tax liability of $5,000 or more for two consecutive tax years must make quarterly estimated payments. The payments should be equal to the lesser of one fourth of the previous years liability, or one fourth of 80% of the combined franchise and excise tax liability for the current tax year.
The quarterly payments are due on the 15th day of the fourth, sixth, and ninth months of the current tax year and the first month of the next tax year.
Payments should be made electronically.
Taxpayers can use the estimated payment worksheet here to calculate their payments.
Tennessee may impose a late filing fee at a rate of 5% per month, up to a maximum of 25% of the tax amount due.
If your business was formed or is located in another state, but generates income in Tennessee, it may be subject to Tennessee taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
Tennessee Department of Revenue:
Tennessee Secretary of State: