Tennessee does not tax wages, but it does tax the business that pays them. Corporations, limited partnerships, LLCs and business trusts owe franchise and excise tax at the entity level, and sales tax and local business tax add to the picture. This guide is written for tax year 2025 returns and 2026 planning.
Individuals: what Tennessee leaves alone
The Department of Revenue says the Hall income tax, which applied only to interest from bonds and notes and to stock dividends, was repealed for tax periods beginning January 1, 2021, or later. The Department also reports that the inheritance tax is no longer imposed after December 31, 2015, and that the gift tax was repealed effective January 1, 2012. So wages, interest, dividends and capital gains generate no Tennessee return. Income earned in other states can still be taxed there; see our Kentucky page and Georgia page for neighboring rules.
Franchise and excise tax: where owners feel Tennessee
The Department's rate page sets the franchise tax at 0.25% of Tennessee net worth and the excise tax at 6.5% of Tennessee taxable income. Returns are due on the 15th day of the fourth month after year-end (April 15 for calendar-year filers), with a seven-month extension. Quarterly estimates apply if combined liability was $5,000 or more in both the prior and current years.
Three points surprise new owners:
- LLCs are in. Entity type does not protect you, and the $100 minimum franchise tax applies to any entity registered with the Secretary of State, even if inactive.
- The property measure is gone. Public Chapter 950, signed May 10, 2024, removed the property measure from the franchise tax for years ending on or after January 1, 2024. The Department's Schedule G refund page says the refund claim deadline was December 2, 2024. For 2025 returns, franchise tax follows net worth.
- Family entities may be exempt. The family-owned non-corporate entity exemption requires relatives (or their trusts) to own at least 95% and substantially all (66.67%) of activity to be passive investment income or farming, with an annual application. Small residential rental LLCs may fit.
See our guides to LLC tax classification and business tax preparation.
Sales tax: 7%, local add-ons and the single-article rule
The state rate is 7% on most tangible personal property and taxable services and 4% on food. Every county or city has a local rate, capped at 2.75% in multiples of 0.25%. The local tax usually applies only to the first $1,600 of a single article, while a 2.75% state single-article tax applies to the portion between $1,600 and $3,200. Returns are due on the 20th after the period.
Out-of-state dealers with no physical presence must register once sales to Tennessee customers reach $100,000, including exempt retail sales. Marketplace facilitators above $100,000 collect for their sellers. Individuals owe use tax on untaxed purchases through TNTAP.
Business tax: the gross receipts layer
Business tax has a state part and a city part, and returns are filed through the Department's TNTAP portal. The registration page says you generally register at $100,000 of gross receipts in a county or city, with a $22 minimum tax and rates that vary by classification and by retailer or wholesaler status. A separate $15 license fee goes to the county or municipal clerk, and in-state locations with $3,000 to $100,000 of receipts need a minimal activity license. Check the Department's city and county dashboard, which lists where the tax has been enacted.
Payroll, workers' compensation and annual reports
Wages carry no state withholding. Employers register for unemployment insurance with the Department of Labor and Workforce Development, which lists a $7,000 taxable wage base for 2026 and sets premium rates by reserve ratio. See our unemployment insurance guide.
The Labor and Workforce Development Department says construction businesses generally need workers' compensation for everyone, including owners, while other businesses need it with five or more employees. Annual reports are filed through the Secretary of State's TNCaB system.
Property tax in Nashville, Memphis and Knoxville
The Department does not collect property tax. County assessors appraise it, and county commissions and city governments set rates. Residential and farm property is assessed at 25% of appraised value, commercial and industrial at 40% and business personal property at 30%, as the Department lists them. Value appeals start at the county board of equalization and can reach the State Board of Equalization. Each metro sets its own rates, so look up your jurisdiction.
Moving to Tennessee for work
Employees relocating to Nashville or Memphis, including H-1B and NRI taxpayers, stop owing state tax on wages but keep federal duties such as FBAR reporting for India accounts. See our H-1B and visa holder and FBAR pages. Commuters whose jobs sit across a state line, such as from Memphis into Mississippi or Arkansas, can owe nonresident tax to the work state. A Tennessee LLC that owns rental property needs a franchise and excise check.
How we can help
We prepare franchise and excise returns, review whether an entity qualifies for exemption, set up TNTAP and Jobs4TN accounts, sort out business tax by jurisdiction and answer state tax notices. Learn about multi-state tax and payroll services.
Frequently asked questions
Does Tennessee have a state income tax?
Not on wages. The Hall tax on interest and dividends was repealed for tax periods beginning January 1, 2021 or later. Businesses still pay franchise and excise tax.
Do LLCs and S corporations pay Tennessee franchise and excise tax?
Yes, generally. The Department says LLCs, corporations, limited partnerships and business trusts registered or doing business in Tennessee must pay, subject to listed exemptions.
Do I need to collect Tennessee sales tax if I sell from another state?
With no physical presence, you must register once sales to Tennessee customers reach $100,000. A storefront or employees can trigger registration sooner.
Official sources
- Tennessee Department of Revenue: Franchise and excise tax rates and due dates
- Tennessee Department of Revenue: Sales and use tax rates
- Tennessee Department of Revenue: Business tax registration and licensing
- Tennessee Department of Revenue: Hall income tax
- Tennessee Department of Labor and Workforce Development: UI tax rates
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.