Tennessee Franchise & Excise Taxes:

Ask any Tennessee business owner what keeps them up at night, and taxes usually make the list. Between payroll, sales tax, and federal filings, there’s already plenty to keep track of. On top of that, Tennessee requires most businesses to pay both franchise and excise taxes, even in years when the company doesn’t turn a profit. These obligations can sneak up on owners who aren’t prepared, and the state doesn’t take missed filings lightly.

Penalties, interest, and even the loss of your business charter can follow if you fall behind. The rules themselves can feel overwhelming, too: who exactly has to file, what counts as taxable income, and how do the deadlines work? To help you out, this post answers those questions – or contact us at Damien’s Law today for customized help with your state or federal tax problems.

Key Takeaways

• Most Tennessee businesses must file and pay both franchise and excise taxes each year, even if they aren’t profitable. 
• The franchise tax is 0.25% of net worth or property value (with a minimum of $100), while the excise tax is 6.5% of net income, with a $50,000 deduction starting in 2024.
• Returns are filed electronically on Form FAE-170 through TNTAP.
• Missing deadlines can lead to penalties, audits, or even charter revocation.

Who Has to Pay Franchise and Excise Taxes in Tennessee?

One of the first questions new business owners ask is who pays franchise tax in Tennessee. The answer is broader than many people expect. Most entities registered to do business in the state are required to file franchise and excise tax returns, regardless of whether they generated income during the year, including:

• Corporations, 
• Limited liability companies (LLCs), 
• Professional LLCs, 
• Limited partnerships, and 
• Business trusts. 

Even single-member LLCs are typically required to file. Exemptions exist, but they’re very narrow — certain nonprofits and passive investment entities may qualify, but they must meet specific criteria.

Sole proprietors, on the other hand, usually don’t fall under these rules because they’re not separate legal entities. Still, classification matters. Some businesses that believe they’re exempt are surprised to find out their setup makes them liable for both franchise and excise taxes.

The takeaway is simple: if your business has a formal entity structure in Tennessee, there’s a good chance you’re on the hook. Understanding this up front helps you avoid unexpected bills or penalties down the road.

What Is the Franchise Tax?

The franchise tax is Tennessee’s way of charging businesses for the privilege of operating in the state. Unlike income tax, it is not directly tied to profits. Instead, it’s based on the value of your business itself.

The amount you owe is calculated as 0.25% (25 cents per $100) of whichever is greater: your company’s net worth or the book value of your real and tangible personal property located in Tennessee. Even if your business didn’t generate a profit during the year, you may still owe franchise tax because of the assets you hold.

There’s also a minimum payment requirement. Every entity subject to the tax owes at least $100 annually, even if the business is inactive, losing money, or barely breaking even. Many owners get tripped up by this rule, assuming they can skip a year if the company isn’t generating income. Unfortunately, missing the minimum payment can trigger penalties and leave your account at risk.

Recent legislative changes have simplified the calculation of the franchise tax. The alternative property-based tax base was repealed for tax years ending on or after January 1, 2024, but businesses can still elect that method if it results in a higher liability.

What Is the Excise Tax?

While the franchise tax is tied to your business’s value, the excise tax is based on your business’s earnings. Tennessee charges a flat 6.5% tax on net income, making it a direct cost of doing business in the state.

Net income is based on your federal taxable income, but it doesn’t stop there. Tennessee requires specific adjustments, which can include adding back certain deductions or subtracting items that the IRS excludes from taxation. For example, depreciation rules may differ, and some income earned outside the state might not count toward your Tennessee liability. These adjustments can significantly impact the bottom line, which is why many business owners rely on professional guidance when preparing their returns.

As of tax year 2024, businesses are allowed a $50,000 standard deduction from net earnings before applying the 6.5% rate. This change under the Tennessee Works Tax Act provides some relief for smaller and mid-sized businesses. For instance, if your earnings are $150,000, the exemption means that you only face the excise tax on $100,000. 

Even businesses with relatively small profits need to be mindful. A consistent 6.5% rate, applied after adjustments, can add up quickly. Missing a payment or filing late often means facing penalties and interest on top of the tax owed. Combined with the franchise tax, the excise tax makes up the backbone of Tennessee’s business tax system.

Together, these taxes ensure that companies contribute whether through their assets, their earnings, or both, which is why understanding how they work is essential for staying compliant.

What Form Do I File for Franchise & Excise Taxes?

Tennessee businesses that are subject to franchise and excise taxes must file Form FAE-170 each year with the Department of Revenue. This is the combined return used to report both taxes, and it’s required even if your business didn’t turn a profit during the filing period.

The due date follows your company’s fiscal year. For most businesses that operate on a calendar year, the return is due by April 15. Specifically, the deadline is the 15th day of the fourth month after the end of your fiscal year. Missing that date can trigger penalties and interest immediately, so it’s important not to put it off.

Tennessee also requires that returns be filed electronically through the Tennessee Taxpayer Access Point (TNTAP). Paper filings aren’t accepted. The system allows you to file the return, make payments, and set up installment agreements if you need more time to pay.

Even if your business is inactive or if you’ve had a loss for the year, filing the return is still necessary. Failing to file — or failing to pay at least the $100 minimum franchise tax — can quickly lead to compliance problems that are much harder to untangle later.

Common Issues Business Owners Face

Even the most diligent business owners can run into problems with Tennessee’s franchise and excise taxes. One of the most frequent issues is missed filings. Some owners assume that if their company isn’t profitable or is inactive, they don’t need to file. Unfortunately, the state still expects a return and at least the $100 minimum franchise tax each year.

Out-of-state businesses often face another hurdle: realizing too late that they’re considered to be “doing business” in Tennessee and therefore subject to these taxes. The rules related to business nexus can be complicated, and classification disputes with the Department of Revenue aren’t uncommon. If you’ve been doing business without filing or collecting sales tax, you may want to look into TN’s voluntary disclosure program.

Cash flow struggles can also create problems. Businesses sometimes delay paying their tax liability, only to find that penalties and interest start accumulating right away. For newer or smaller companies, those extra costs can quickly snowball into a larger financial burden.

Other challenges include tax warrants, which allow the state to collect unpaid franchise or excise liabilities directly, and the risk of charter revocation for entities that fail to meet their obligations. Audits are also a reality, and they can be stressful without experienced guidance. Knowing these risks upfront can help you avoid them or prepare to respond quickly if they occur.

How Damiens Law Helps Tennessee Business Owners

When franchise and excise tax issues arise, the consequences can feel overwhelming. Notices from the Department of Revenue often use intimidating language, and deadlines leave little room for error. This is where experienced legal guidance makes all the difference. If you need franchise excise tax help, Tennessee business owners can rely on Damiens Law to provide both clarity and strategic advice.

A skilled Tennessee business tax attorney can review your entity structure to confirm exactly what you owe and whether any exemptions apply. If you’ve missed filings or payments, they can help you get current while minimizing penalties whenever possible. For businesses that have received tax warrants or threats of charter revocation, legal counsel can step in quickly to protect your rights and pursue reinstatement.

Representation is especially important during audits or classification disputes. The Department of Revenue will be focused on collecting, not on making the process easier for you. Having someone who understands the state’s tax system ensures you don’t face it alone.

Damiens Law also assists with negotiating payment plans, applying for penalty relief, and exploring settlement options, such as an Offer in Compromise, if you qualify. In short, we help business owners move from reaction mode to resolution, with a plan to prevent future issues.

Don’t Let Tax Compliance Put Your Business at Risk

Franchise and excise taxes are part of doing business in Tennessee, but that doesn’t mean they’re simple. Between understanding who must file, keeping track of deadlines, and managing payments, it’s easy for mistakes to happen. The problem is that those mistakes come with heavy consequences — penalties, tax warrants, and even the loss of your business charter.

If you’re unsure about your obligations or you’ve already received a notice from the Department of Revenue, the worst thing you can do is ignore it. The sooner you take action, the more options you’ll have for resolving the situation and protecting your company.

At Damiens Law, we work with Tennessee business owners every day to address compliance issues and prevent minor problems from escalating into major setbacks. Whether you need help catching up on missed filings, negotiating a payment plan, or defending yourself during an audit, our team is here to guide you through the process with skill and discretion.

Contact Damiens Law today to schedule a no-obligation discovery call and protect your business’s future.