Tennessee’s business-tax structure has evolved significantly in recent years, especially for Limited Liability Companies (LLCs), both domestic and foreign. While the state does not impose a general income tax on individuals, its franchise and excise taxes apply broadly to business entities operating in or registered to do business in Tennessee. Staying compliant under these rules is essential for LLC owners to avoid penalties and ensure their entities remain in good standing with the Tennessee Department of Revenue (TDOR).
The Challenge of Tennessee’s Tax Landscape
Tennessee’s tax system often surprises out-of-state LLC owners. Even though Tennessee markets itself as a “business-friendly” state, its franchise and excise (F&E) taxes reach deeply into the structure and operations of any LLC that maintains property, earns income, or has other connections to the state.
Under Tennessee Code Annotated § 67-4-2000 et seq., an entity is subject to franchise and excise taxes if it is chartered, qualified, registered, or doing business in Tennessee. This includes out-of-state LLCs that are registered with the Tennessee Secretary of State, as well as those that own or lease property, maintain employees, or generate receipts from Tennessee sources—even if organized elsewhere.
Because the state views these taxes as a “privilege for doing business,” Tennessee can impose liability even when an LLC has no net income or limited activity in the state.
Franchise Tax Requirements for LLCs
1. Who Must Pay
All for-profit LLCs that are:
organized in Tennessee, or
registered or conducting business in Tennessee
are required to file a Franchise & Excise Tax Return (Form FAE 170) each year and pay at least the minimum franchise tax of $100, regardless of income or activity level.
(See TDOR Franchise & Excise Manual, June 2025.)
2. Rate and Tax Base
The franchise tax rate is 0.25% (¼ of 1%), or $0.25 per $100 of the tax base, with a $100 minimum.
Until 2024, the franchise tax was based on the greater of:
the entity’s net worth, or
the book value of real and tangible property owned or used in Tennessee.
However, with the passage of Public Chapter 950 (2024), Tennessee eliminated the “property measure” effective for tax years ending on or after January 1, 2024. The tax base is now only the LLC’s Tennessee-apportioned net worth (assets minus liabilities), a change that simplifies compliance for many entities.
3. Minimum Tax
Even if an LLC has no business income or property in Tennessee, registration alone triggers the $100 minimum tax. If the LLC is inactive but remains on file with the Secretary of State, that minimum continues to accrue annually until the entity formally withdraws or dissolves.
Disregarded Entities: Federal vs. Tennessee Treatment
Many LLC owners assume that if their company is disregarded for federal tax purposes, it is also disregarded by the state. In Tennessee, that assumption can be costly.
Tennessee law generally does not follow federal disregard rules for franchise and excise tax purposes.
This means:
A single-member LLC (SMLLC), even if disregarded at the federal level, is still a separate taxable entity for Tennessee F&E purposes if it has nexus or is registered in the state.
The SMLLC must file its own FAE 170 return and pay the franchise tax.
Only in very narrow cases—such as when a wholly-owned LLC is treated as a division of a corporate parent—may it be included on a consolidated return and not file separately.
In short, a federally disregarded LLC is not disregarded in Tennessee.
Out-of-State LLCs and Tennessee Nexus
An LLC formed outside Tennessee (a “foreign LLC”) can still owe Tennessee franchise tax if it has substantial nexus in the state.
Tennessee applies a “doing-business” standard, meaning that nexus exists when the entity:
owns or leases real or tangible property in Tennessee,
maintains employees or an office in Tennessee, or
derives revenue from Tennessee customers.
Even without physical presence, economic nexus can arise when sales or service revenues exceed the Department’s factor thresholds.
Registration with the Secretary of State often constitutes prima facie evidence of nexus.
Failing to file and pay the $100 minimum tax—even unintentionally—can result in interest, penalties, and administrative dissolution.
Key Takeaways
Tennessee imposes a franchise tax of 0.25% on an LLC’s Tennessee-apportioned net worth, with a $100 minimum.
The property-based tax base was repealed beginning in 2024.
Single-member LLCs are not ignored for state purposes—they must still file and pay if doing business in Tennessee.
Out-of-state LLCs that hold property, employees, or receipts in Tennessee have nexus and must comply.
Refunds are available through November 2024 for overpaid franchise tax under the former property measure.
Tennessee’s franchise-tax rules for LLCs highlight the state’s balance between business-friendly branding and rigorous tax enforcement. LLC owners—especially those operating across state lines—must understand that registration alone triggers liability, disregarded-entity status offers no exemption, and recent law changes may entitle them to refunds.
Whether forming a new Tennessee LLC or managing an existing one, staying compliant with the Tennessee Department of Revenue’s franchise-tax rules is not optional—it’s a critical part of responsible entity management.
That being said, from an Asset Protection standpoint, we would still highly recommend that a Tennessee property go into an LLC to protect the property.
Lodmell & Lodmell, PC is one of the nations leading Asset Protection Law Firms and the creators of The Bridge Trust®. L&L serves clients nationwide and may be reached at support@lodmell.com or 602-230-2014.
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