Tennessee LLC Taxes

Tennessee’s strong economy and lower cost of living make it a popular spot for new businesses. But with more business owners choosing to start their ventures in the state, many may find it challenging to understand the business taxes involved. 

Regardless of the size of your business, if you operate a limited liability company (LLC) in Tennessee, you will need to ensure you stay up to date on your finances and pay federal, state, and local taxes. Our guide will help you understand which taxes you will need to pay for your Tennessee LLC.

Recommended: Schedule a free consultation with an accountant to stay on top of your taxes. 

Tennessee Franchise and Excise Tax

LLCs, corporations, limited partnerships, and other forms of business must pay an annual Franchise Tax and Excise Tax to the Tennessee Department of Revenue. How much you pay is determined by the net worth and value of assets your business has in the state. 

The Franchise Tax is based on the net worth or book value of the real or tangible property the LLC has in the state of Tennessee. The rate is $0.25 per $100 or 0.25% of the taxpayer’s net worth at the end of their tax year. $100 is the minimum amount an LLC will pay for their Franchise Tax.

The Excise Tax is a 6.5% tax levied on the fiscal year net earnings of most business entities — including LLCs — that do business in Tennessee.

To learn more about the Tennessee Franchise and Excise Tax, you can visit the Tennessee Department of Revenue’s website.

Tennessee LLC Taxes Owed

LLCs benefit from pass-through taxation, meaning the business’s profits pass through to the members’ individual tax returns. As a result, your LLC itself does not pay taxes to the federal government or to the State of Tennessee. Instead, LLC owners must pay taxes on their portion of the income made from the LLC. 

In Tennessee, LLC owners can expect to pay the following taxes:

Federal Taxes

Regardless of where your business is located, if you have an LLC within the United States, you will have to pay federal income taxes and federal self-employment taxes. These taxes are reported on your Form 1040.

Federal Self-Employment Taxes

It doesn’t matter if your LLC is a single-member LLC or a multi-member LLC; all LLC members must pay self-employment taxes on their share of the LLC’s profits. The self-employment tax rate is 15.3%. 

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets, as well as the percent owed, will change each year. 

Tennessee State Taxes

Each state has its own laws dictating how individuals and businesses are taxed. For example, while Tennessee does not have a state income tax, businesses may need to register for other taxes in order to sell goods or operate legally.

Tennessee Income Taxes

As mentioned above, Tennessee is one of several states that does not have a state income tax rate. Many businesses consider this to be an advantage, as it means you will not have to pay the state taxes on your profits.

Tennessee Sales and Use Tax

Tennessee’s state sales tax rate is 7%, and some counties and cities have their own local sales tax rates. These local rates average out to 2.55%.

Register for Sales Tax in Tennessee 

You must register with the Tennessee Department of Revenue if your business sells taxable goods or services.

Visit the Tennessee Department of Revenue website for more information.

Additional State Taxes

Tennessee’s Department of Revenue oversees the collection of various taxes that businesses may have to pay depending on their location, industry, and number of employees. 

These are a few taxes that business owners in Tennessee may be responsible for paying:

  • Fantasy Sports Tax
  • Motor Fuel Tax
  • Local Occupancy Tax
  • Oil and Tire Fees
  • Unauthorized Substances Tax

To learn more, check out the Tennessee Department of Revenue’s website for more information on these and other taxes.

Tennessee Local Taxes

The local laws and ordinances in one city or county of Tennessee will vary in another. Regardless of where you live in Tennessee, we recommend you check with your local jurisdiction and ensure that your business obtains the proper local permits and follows any local regulations that may impact your business’s operation.

Tennessee LLC Compliance

You must obey Tennessee’s state and local laws to maintain your business's compliance and good standing. While LLCs technically do not file taxes with the state, your business must still file an annual report each year with the state.

Tennessee LLC Annual Report

All Tennessee LLCs must file an annual report with the Secretary of State each year. Filing can be done online or by mail. 

The minimum filing fee is $300, but if you have more than six members, you will need to pay $50 for each additional member. For example, an LLC with six members would only pay $300, while an LLC with eight members would pay $400.

Annual reports are always due on the first day of the fourth month after the end of your LLC’s fiscal year. For most businesses, this means your annual report will be due on April 1 each year. If you do not file your report within two months of your due date, the state will dissolve your LLC.

For more information, check out our Tennessee LLC Annual Report guide.

LLC taxes are complex. While our guide can provide you with important information, we recommend you schedule a free consultation with an accountant to ensure that you handle your business taxes correctly.