TN
Tennessee Small Business Tax Guide
Understand TN taxes, common filings, and recordkeeping—educational overview, not tax advice.
Disclaimer: This page is educational content only. Tax laws change, and your situation may differ. It is not legal, tax, or financial advice. Consult a qualified professional licensed in Tennessee before making filing or planning decisions.
Tax landscape for small businesses
Tennessee small business taxes feature no state income tax on wages, salaries, or other earned income, making it one of the most attractive states for entrepreneurs and self-employed professionals. The previous Hall Tax on interest and dividend income was fully repealed in 2021, eliminating the last form of personal income taxation. However, Tennessee imposes a 6.5% excise tax on net earnings for most business entities, which functions as an effective corporate income tax. The state also levies a franchise tax of 0.25% on the greater of net worth or the book value of real and tangible personal property in Tennessee, with a minimum payment of $100.
The state sales tax rate is 7%, one of the highest base rates nationally, with local additions bringing combined rates to 9%–10% in many areas. Tennessee consistently ranks among the states with the highest combined sales tax burdens in the country. Groceries are taxed at a reduced state rate of 4%, providing some relief on essential purchases.
The Tennessee Department of Revenue administers all state tax obligations, including franchise and excise taxes, sales tax, and business tax. The state's economy is diverse, with major sectors including healthcare, music and entertainment, automotive manufacturing, logistics, and technology. Nashville, Memphis, Knoxville, and Chattanooga serve as thriving commercial hubs with growing startup ecosystems.
Tennessee's franchise and excise taxes apply to most LLCs, corporations, and partnerships doing business in the state, creating entity-level obligations even for pass-through businesses. Recent legislative reforms have focused on refining the franchise tax base. Business owners should consult a qualified tax professional to evaluate entity structure and minimize their combined state and federal tax burden.
Tax overview
Approximate categories many small businesses review with an advisor. Rates and rules vary by year, industry, and entity—verify with official sources.
| Tax type | Typical rate / basis | Notes |
|---|---|---|
| Income Tax | None | No tax on wages, salaries, or earned income. The Hall Tax on investment income was repealed in 2021. |
| Sales Tax | 7% state + local | Combined rates 9%–10% in many areas; one of the highest combined sales tax burdens nationally. |
| Excise Tax | 6.5% | Effectively a corporate income tax on net earnings for most business entities. |
| Franchise Tax | 0.25% of net worth | Based on the greater of net worth or property in Tennessee; minimum $100. |
Filing requirements
Common themes—not a complete checklist for your business.
No individual income tax filing
Tennessee does not require individual income tax returns since there is no tax on earned income. The Hall Tax repeal in 2021 eliminated the last personal income reporting obligation at the state level.
Franchise and excise tax return
Most business entities file a combined franchise and excise tax return with the Tennessee Department of Revenue. The 6.5% excise tax applies to net earnings and the 0.25% franchise tax applies to the greater of net worth or tangible property value in Tennessee.
Sales and use tax registration
Register with the Department of Revenue for a sales tax account before making taxable sales. File monthly or quarterly based on your collection volume. The 7% state rate plus local additions create combined rates of 9%–10% in most areas.
Federal estimated tax payments
Self-employed individuals still owe federal income and self-employment taxes quarterly. Tennessee's zero income tax rate only eliminates the state obligation — federal planning remains critical for managing cash flow.
Business tax filing
Tennessee imposes a state business tax on gross receipts for most businesses, separate from the franchise and excise taxes. Rates vary by business classification, and businesses must register with both the state and their local municipality.
Annual report filing
LLCs, corporations, and other entities must file an annual report with the Tennessee Secretary of State to maintain good standing. The report confirms current registered agent and principal office information.
Common deductions & write-offs
Often discussed at the federal level; state conformity differs.
- Federal deductions only for individual income (no state income tax to claim deductions against)
- Business expenses that reduce net earnings subject to the 6.5% excise tax, including ordinary and necessary operating costs
- Self-employed health insurance premiums on federal returns, including medical, dental, and long-term care coverage
- Retirement plan contributions (SEP-IRA, SIMPLE IRA, or solo 401(k)) to reduce federal taxable income
- Tennessee job tax credits for qualifying businesses creating new positions in eligible industries
- Vehicle expenses for business use, calculated using actual costs or the IRS standard mileage rate on federal returns
- Depreciation on business equipment and assets that reduces net earnings for excise tax purposes
- Qualified business income (QBI) deduction of up to 20% on qualifying pass-through income at the federal level
Practical tips
- While there is no personal income tax, the 6.5% excise tax on business net earnings plus the franchise tax creates a meaningful entity-level obligation that requires careful planning.
- Tennessee's combined sales tax rates of 9%–10% are among the highest in the nation — factor this into your pricing strategy and customer communications.
- The franchise tax on net worth can be significant for asset-heavy businesses — plan your balance sheet and entity structure accordingly.
- Maximize federal retirement contributions to reduce your federal tax burden since Tennessee provides no additional state-level income tax savings.
- Groceries are taxed at a reduced 4% state rate instead of the full 7% — apply the correct rate if your business sells food items.
- The separate business tax on gross receipts applies in addition to franchise and excise taxes — register with both the state and your local municipality.
- Tennessee's lack of income tax combined with a diverse economy makes it popular for business relocation — evaluate the total tax package including franchise, excise, and sales taxes.
- Review recent franchise tax reforms carefully, as the legislature has been actively modifying the tax base and calculation methods.
Related Resources
Frequently asked questions
Explore More State Tax Guides
Get Started with Billed in Tennessee
Invoicing and expense tracking help you stay organized for Tennessee and federal obligations. Start free—then talk to your CPA about filings.
No credit card required. Cancel anytime.