Tennessee Small Business Tax Guide for 2025

Whether you just launched your Nashville startup or have been running a family shop in Memphis for generations, understanding Tennessee’s small business taxes and your obligations is crucial. State taxes affect day-to-day operations, including: 

• Cash flow

• Long-term financial planning

Recently, Tennessee lawmakers passed significant changes to ease tax burdens on small businesses, and it's important to understand their impact. Avoid compliance issues and make smart financial decisions by staying informed on: 

• State business tax 

• Franchise tax 

• Excise tax

• Sales tax

Use this guide to learn about key taxes Tennessee entrepreneurs face, recent updates, and tips on deductions, credits, and planning strategies. With the right insights, Tennessee taxes can become a manageable part of your business strategy instead of an impediment.

Understanding Tennessee’s Small Business Taxes

Tennessee prides itself on its business-friendly tax climate. There is no state personal income tax, and a relatively low overall business tax burden. The primary taxes you should plan for include the state business tax, franchise and excise taxes, and sales and use tax. 

Getting to Know the State Business Tax

Tennessee’s state business tax is essentially a gross receipts tax, also called a privilege tax, that most businesses must pay for the privilege of operating in the region. You may be subject to this annual tax if you have a business location in Tennessee or sell to Tennessee residents.

Businesses are classified by the type of business activity, with a tax rate applied to gross receipts in each jurisdiction. The Tennessee Works Tax Act recently raised the filing threshold from $10,000 to $100,000 in gross receipts per jurisdiction. This means that if your annual sales are under $100,000, you no longer need to file for that location. If your business has more than $3,000 in gross receipts, you must maintain a valid local business license or a minimal activity license if sales are between $3,000 and $100,000. 

Most for-profit businesses – from physical retailers to multistate e-commerce sellers – fall under the state business tax. This includes sole proprietors and single-member LLCs with qualifying gross receipts. Non-profits with 501(c) status are generally exempt, and certain manufacturers or professionals might have separate rules or exemptions. Each business location in Tennessee is licensed and taxed separately, so if you operate in multiple counties, monitor receipts in each.

Tennessee requires filing business tax returns electronically, typically via the Tennessee Taxpayer Access Point (TNTAP) online portal. The annual return, Form BUS-428, is due by the 15th day of the fourth month after your fiscal year ends – April 15 for calendar-year businesses. Include all gross receipts for the tax year on the return; the state then forwards the appropriate portion to your local county/city. 

Understanding Franchise and Excise Taxes

Tennessee imposes franchise and excise taxes on most businesses, which are state-level entity taxes that function similarly to income and net worth taxes. Excise tax is essentially Tennessee’s business income tax, and franchise tax is a tax on the value of a business’s assets or capital in the state. If you operate as a corporation, LLC, limited partnership, or business trust that is chartered or doing business in Tennessee, you will likely be subject to franchise and excise (F&E) taxes. S corporations and LLCs that are pass-through entities must pay Tennessee’s franchise and excise taxes. General partnerships and sole proprietors without an LLC are exempt from F&E in most cases.

• Excise Tax. The excise tax is 6.5% of your net taxable earnings. You'll start with your federal taxable income (or net profit) and make state-specific adjustments to reach Tennessee net earnings. All regular business deductions are accounted for in that net income, so the excise tax is only applied to your business’s profits. As part of the Tennessee Works Tax Act’s small business relief, beginning with tax year 2024, Tennessee now offers a $50,000 standard deduction against net earnings for excise tax calculations.

• Franchise Tax. The franchise tax is levied on the greater of your business’s net worth or the value of real and tangible property owned or used in Tennessee. The tax rate is 0.25% of that value, with a minimum franchise tax of $100 per year. Think of franchise tax as paying $0.25 for every $100 of your asset base or your total equity, whichever is higher. Every corporation or LLC must pay at least $100 each year. The Tennessee Works Tax Act provides relief starting with 2024 returns, businesses can exclude up to $500,000 of property value from the franchise tax base. The $100 minimum still applies, but this change ensures small and mid-size companies aren’t over-taxed.

Franchise and excise taxes are reported together on one Franchise & Excise Tax Return (Form FAE170). Like the business tax, the annual F&E return is due on the 15th day of the fourth month after your fiscal year ends.

Navigating Sales and Use Tax

If your business involves selling products or certain services in Tennessee, you must also contend with sales and use taxes. Tennessee’s sales tax is a significant source of state and local revenue, and compliance is key whether you operate a brick-and-mortar shop or sell online.

Tennessee imposes a 7% state sales tax on the retail sale of tangible personal property and certain taxable services. On top of that, every county and city in Tennessee has an additional local sales tax, which is capped at 2.75%. Local rates vary, but the average combined sales tax rate in Tennessee is 9.55%, among the highest in the country. When you make a sale, you are responsible for collecting the appropriate sales tax based on the delivery location of the goods or where the service is provided. Use tax is the companion to sales tax – essentially the same tax applied when sales tax was not collected..

Any business with a physical presence in Tennessee must register for a sales tax permit and collect tax on taxable sales. Tennessee follows the modern economic nexus standard after the Supreme Court’s Wayfair decision. Out-of-state sellers must register and collect Tennessee sales tax if they exceed $100,000 in sales to Tennessee customers in the previous 12 months.

When you register for sales tax with the Department of Revenue, they will assign you a filing frequency (monthly, quarterly, or annually) depending on your expected sales volume. Most businesses file monthly sales tax returns due by the 20th of the following month.

Making the Most of Deductions and Credits

Nobody wants to pay more taxes than necessary. The good news is that there are plenty of deductions and credits to help you reduce your tax bill, potentially saving thousands each year. 

What’s Common in Deductions

Running a small business incurs many expenses, which can be deducted from your income to lower your taxes. On your federal tax return and indirectly on Tennessee’s excise tax, which uses your net income, you should be taking advantage of every business deduction you’re entitled to. Common deductible expenses include: 

• Office supplies

• Software subscriptions

• Marketing and advertising costs

• Travel expenses for business trips

• Meals with clients (usually 50% deductible)

• Business insurance premiums

• Legal and professional fees

• Home office expenses

• Vehicle expenses for business use

• Wages or contractor payments

Tennessee also allows full deduction of state business taxes and F&E taxes on the federal return as a business expense. The key is to keep thorough records and receipts for all these expenses so you can substantiate them if needed.

Exploring Tax Credits

Tax credits provide a dollar-for-dollar reduction of your tax liability. Tennessee offers various tax credits to encourage businesses to invest, create jobs, and engage in certain activities that benefit the state’s economy. Here are some notable credits and incentives relevant to Tennessee small businesses:

• Job Tax Credit: Tennessee provides a standard job tax credit for businesses that invest in the state and create a certain number of new jobs. This credit can be used to offset up to 50% of your combined F&E tax liability each year, and any unused credit carries forward for 25 years.

• Paid Family Leave Tax Credit: As part of the Tennessee Works Tax Act’s support for families, a new Paid Family and Medical Leave (PFML) Credit is available for a limited time. This Tennessee credit allows businesses to claim a credit against franchise and excise tax for providing paid family leave to their employees. It’s available for tax years 2023 and 2024.

• Industrial Machinery and Research Credits: Tennessee historically has offered credits for industrial machinery investments and research and development activities. R&D credits can apply if your company incurs expenses in Tennessee and tends to apply to more specialized industries.

• Qualified Production and Film Credit: To encourage TV and film production in the state, Tennessee has a franchise/excise tax credit for qualified production expenses.

• Other incentives: Tennessee’s Department of Economic and Community Development offers grants and tax abatement programs for businesses that make substantial investments or create jobs. For small businesses, one related incentive is the Small Business Opportunity Fund or loans for certain sectors, which isn’t a tax credit but can provide low-interest capital.

Most Tennessee tax credits require that you file a business plan or application with the Department of Revenue before claiming them. 

Tax Registration and Compliance Made Simple

Understanding taxes is one part of the equation – actually complying with all the rules is another. Compliance involves registering for the right tax accounts, filing returns, paying taxes on time, and keeping good records. Maintaining compliance will save you from penalties, interest, and stress down the road. 

Setting Up Your Tax Account

Before paying taxes, you must be registered with the state. If you’re a new business, Tennessee makes the registration process relatively straightforward.

Tennessee offers an online portal called TNTAP (Tennessee Taxpayer Access Point) for business registration. You can access it via the DOR website and use the “Register a Business Online” feature. During registration, you’ll provide information about your business (legal name, EIN or SSN, business address, NAICS code or business type, start date, etc.) and select which tax accounts you need. For most small businesses, you will choose one or more of the following: Sales and Use Tax, Business Tax, Franchise & Excise Tax, and employer withholding if you have them, or other specialized taxes.

Being prompt and detail-oriented can help you avoid these common pitfalls: 

• Waiting too long to register

• Registering for the wrong taxes or missing one. 

• Multiple locations not accounted for

• Not registering because you think you’re too small

Keeping Up with Filing and Payment Dates

Once you’re registered, the ongoing challenge is staying on top of all the filing and payment deadlines, including: 

• State Business Tax: Due annually by the 15th day of the 4th month after your fiscal year end. 

• Franchise & Excise Taxes: These are due annually on the same schedule as above, on the 15th day of the 4th month. Quarterly estimated F&E payments are due April 15, June 15, September 15, and January 15, if required.

• Sales & Use Tax: Filing frequency varies. Monthly filers must remit by the 20th of the following month. Quarterly filers file by the 20th of the month following the quarter, and annual filers file by January 20. 

• Payroll-Related Taxes: Remember to file your state employer tax returns if you have employees. Tennessee doesn’t have state income tax withholding, but it does have unemployment insurance premiums that employers pay quarterly to the Tennessee Department of Labor. Payroll taxes have their own schedule, usually quarterly reports due in April, July, October, and annual FUTA in January.

• Federal Taxes: Don’t forget your federal obligations. Partnerships and S corps tax returns are due March 15, personal 1040 (for sole proprietors and LLC owners) April 15, and C corps April 15.

Tennessee imposes penalties that can add up quickly if you miss a deadline. For most taxes, the late filing or payment penalty is 5% of the tax per month, up to 25% max. There is also interest on any late payments, which is adjusted annually, at around 7% per annum on unpaid tax balances. 

Staying on Top of Recordkeeping

Good recordkeeping is the backbone of smooth tax compliance and optimal deductions. If your books and records are a mess, you’ll struggle with everything from preparing tax returns to surviving a potential audit. Organized records can make tax time relatively painless and help you substantiate every deduction and credit you claim.

Keep all documents related to your business’s income and expenses. This includes:

• Revenue records: invoices issued, sales receipts, daily sales reports, bank deposit records, 1099-K forms from payment processors, etc.

• Expense records: receipts for purchases, bills from vendors, canceled checks or bank statements showing payments, credit card statements for business purchases, expense reports, and mileage logs for business travel.

• Payroll records: if you have employees or contractors, keep payroll registers, copies of W-2s and 1099s, timesheets, and payroll tax filings.

• Tax filings: Keep copies of all filed tax returns (federal and state) and proof of payment. Also, retain any communications from tax agencies, like account statements or notices.

• Legal and corporate documents: your business formation papers, any licenses and permits, EIN confirmation letter, franchise agreements, leases, loan agreements, etc. 

• Accounting records: If you use accounting software, that ledger is a record of your transactions. Make sure to back up your software data. If you keep a manual ledger, preserve those books in a safe location.

How long should you keep these records? A general rule of thumb from the IRS is at least 3 years from the date you file the tax return. However, some experts advise keeping records for 7 years, since certain situations extend the audit window. Some records you should keep even longer: payroll tax records (at least 4 years per IRS guidelines), asset purchase records (retain for as long as you own the asset, plus the 3-7 years after you dispose of it, because depreciation can be recaptured), and corporate/LLC records (permanently, or at least for the life of the business). Tennessee could audit back 3 years or more for sales tax, so keep those sales journals and resale certificates from customers, etc., for 5+ years. Emails and digital records count too – if you get e-receipts, have a good system for organizing them.

Save time and gain peace of mind knowing your records are up to date and error-free with 1-800Accountant's full-service bookkeeping solution. 

Tax Planning for Growing Your Business in Tennessee

Paying taxes is one thing – planning for taxes is another. Strategic tax planning can help align your tax obligations with your business goals, ensuring you’re compliant and optimizing your tax posture as you grow. Tennessee’s tax landscape, with its mix of no personal income tax but significant business taxes, offers some unique planning opportunities.

Matching Tax Strategies With Your Business Goals

Every stage of your business – startup, growth, expansion – comes with different tax considerations. It’s wise to align your tax strategy with your business goals. Here are a few scenarios and strategies to consider:

• Choosing the right business entity: The structure of your business has major tax implications and will impact what and how much you pay. If your goal is to minimize self-employment taxes and you plan to take a modest salary, an S corp election for your LLC might be a good strategy – you’ll pay yourself a reasonable salary and take the remaining profit as distributions.

• Income timing and smoothing: If your business income fluctuates, you have opportunities to time certain actions. Tennessee’s excise tax, being a flat 6.5%, means you don’t have brackets to worry about at the state level, but federally, you might jump tax brackets in a high-income year. Consider helpful business strategies like deferring income or accelerating expenses in these scenarios.

• Growth and expansion considerations: As you grow, you might expand into other states or hire remote employees. Each state has its own taxes, so multistate tax planning becomes essential as you develop your operations outside Tennessee.

Using Tax Incentives to Boost Your Business

Tax incentives exist to encourage businesses to take beneficial actions like creating jobs, investing in equipment, or operating in certain areas. Through its tax credits and incentive programs, Tennessee offers several opportunities for small businesses to benefit.

• Fueling expansion with credits: Suppose you’re considering expanding your operations or hiring additional staff. Tennessee’s Job Tax Credit can offset a chunk of your F&E tax when you create new jobs. Always integrate the available credits into your expansion budget. For example, one small manufacturer in Tennessee decided to automate part of their production line – they invested in new machinery (qualifying for an industrial machinery credit) and added five employees to run it. The combined state incentives significantly reduced their costs in the first year, acting like a partial rebate on their growth investment.

• Geographic incentives: Tennessee, through its Department of Economic and Community Development, may offer additional incentives for businesses expanding in certain locations. This can include property tax abatements, infrastructure grants, or even PILOT (payment instead of tax) agreements for larger investments. While not state taxes, these incentives reduce your overall costs and can complement state tax incentives. For instance, a storefront that opens in a redevelopment zone might get a credit for local property tax plus a state tax credit if it creates jobs.

• Training and development incentives: Tennessee wants a skilled workforce, so there are programs like the Incumbent Worker Training Program that can provide grants for employee training. Additionally, certain education expense deductions or credits can apply if you invest in training your staff.

• Take advantage of the new F&E deductions: The Tennessee Works Tax Act’s $50k excise tax deduction and $500k franchise exemption are essentially automatic incentives – you don’t have to do anything to claim them except compute your taxes under the new law. Perhaps you can reinvest those tax savings. For example, if your business usually paid around $5,000 in excise tax but now has a $50k income deduction, you owe almost nothing; consider redirecting that budgeted money into growth initiatives. 

Incentives can boost your business growth if you plan for them. Always do your homework or consult a professional when making a major business decision.

Stay Ahead of Tennessee’s Tax Changes

Tax laws evolve with new legislation, economic conditions, and policy priorities. Tennessee has demonstrated a commitment to tax reform that benefits businesses, from phasing out the Hall personal income tax on investments to enacting the comprehensive Tennessee Works Tax Act. As a small business owner, it’s important to stay ahead of these tax changes so you can adapt and benefit accordingly.

What's new in Tennessee tax laws

The Tennessee Works Tax Act of 2023 was a landmark package of tax cuts and changes totaling about $400 million in relief. Key changes affecting small businesses include:

• Business Tax threshold raised to $100k – eliminating the filing requirement for tens of thousands of small businesses.

• Excise Tax $50k deduction – letting businesses shield the first $50k of net earnings from the 6.5% excise tax.

• Franchise Tax base exemption of $500k – reducing the taxable base of property/net worth by half a million.

• Paid Family Leave credit – a new, temporary credit to encourage offering paid leave.

• Sales tax and apportionment tweaks – likely moving to single-sales factor by 2025 and aligning interstate sales tax rules for clarity.

• Extended carryforwards – giving businesses more time to use accrued tax credits.

• Miscellaneous – things like a grocery sales tax holiday (Aug–Oct 2023) and removal of some niche sales tax exemptions to simplify the law.

For 2025 and beyond, these changes mean less tax and more straightforward calculations for many small businesses. 

What the future holds for tax trends

Tennessee has been on a trend of reducing taxes where feasible, spurred by strong economic growth and revenues. The governor and legislature signaled interest in making Tennessee even more competitive for business. It’s possible we’ll see continued gradual reductions in the excise or franchise tax rates, or further raises to thresholds. On the sales tax front, Tennessee will likely keep up with national trends – for instance, they’ve already enacted marketplace facilitator rules and economic nexus. Tennessee will likely adapt if there’s a federal change, like Congress potentially simplifying interstate sales tax or data privacy around tax.

Finding Resources and Support for Your Small Business

Tennessee offers a range of resources to help you navigate tax requirements, and plenty of professionals are ready to assist when things get complex.

What State Resources Are Available

The Tennessee DOR should be your first stop for official tax information. Their website (tn.gov/revenue) features guides, forms, and FAQs that address common questions. Here are helpful resources provided by the state:

• Tennessee DOR “For New Businesses” Guide: This online guide walks you through the steps of starting a business in Tennessee, including tax registration and licensing. They provide a downloadable worksheet to keep track of your progress.

• Tax Manuals and Publications: The DOR publishes more in-depth guides for specific taxes. For example, a Business Tax Guide, Sales and Use Tax Guide lists what's exempt, how to handle nexus, etc. Similarly, the Franchise & Excise Tax section has notices and important updates.

• Forms and Instructions: If you need any tax form, the Forms page on the DOR site has them all, including helpful instructions for each.

• TNTAP (Tennessee Taxpayer Access Point): This is not just for filing – TNTAP also has a Message center and a Help section. You can send secure messages about your account to DOR agents.

• Revenue Help Desk and Tutorials: Tennessee DOR has a Revenue Help website and also posts helpful YouTube webinars on tax topics. The DOR also has a general help email and phone line where the agents answer technical questions or walk you through using the website.

• Local Government Resources: Don’t forget your county clerk or city business tax office. They can help with local licenses and sometimes have guides for local requirements.

• Tennessee Smart Start Guide: It’s more of a broad business startup guide, but it does highlight that Tennessee has a low tax burden and reminds new business owners of registrations. It’s an excellent overview if you’re just getting started, covering not just taxes but other business basics.

Remember, while state resources are helpful for factual information, they won’t always give you personalized advice or strategies. That’s where professionals excel.

When to Call in Professional Help

As your business grows or your tax situation gets more complicated, there often comes a point when it makes sense to hire a professional. Here are some signs and scenarios when you should consider calling in an expert, such as a CPA, tax advisor, or accountant:

• Time Crunch or Overwhelm: If bookkeeping and tax prep are eating up hours that you’d rather spend running and growing your business, it’s time to delegate.

• Complex Transactions: Did you take on investors or a business loan? Merge with another company? Start selling internationally? Big moves like these usually have tax implications beyond the ordinary. A tax professional will ensure these transactions are handled properly on your returns and advise on any elections or allocations needed.

• Multi-State or Nexus Issues: Once you start doing business across state lines, your state tax picture multiplies. Keeping track of what’s taxable where and filing returns in multiple jurisdictions is something a professional can help manage. They can also help you plan to minimize multi-state taxes.

• Tax Notices or Audits: If you receive a confusing tax notice or get selected for an audit, you’ll want a professional to step in. Something like a Tennessee sales tax audit can be very detailed – having a CPA or tax lawyer represent you can make a massive difference in the outcome.

• Year-Round Tax Planning: If you find yourself with unexpected tax bills or wondering “what can I do to save on taxes next year?”, you’d benefit from tax planning services. A professional can review your finances mid-year and suggest tactics to reduce taxes before year-end. This proactive approach is hard to do on your own unless you’re very tax-savvy.

• Simply Seeking Peace of Mind: Sometimes it’s not about complexity; it’s about confidence. You might want a pro involved so you know it’s done right and you won’t have to worry.

When choosing a professional, look for a firm experienced with Tennessee small businesses. They should understand the nuances of the franchise & excise taxes, the recent TN law changes, and industry-specific issues, if any. This is what 1-800Accountant specializes in – we have a team of expert CPAs and accounting professionals who work exclusively with small business owners nationwide, including many in Tennessee. By working with professionals who know both federal and Tennessee tax inside and out, you can avoid costly mistakes and uncover savings you didn’t know existed.

Unlocking Success with Expert Tax Guidance from 1-800Accountant

Congratulations – you’ve made it through this comprehensive guide on Tennessee small business taxes! By now, you should have a clearer picture of your tax obligations in the Volunteer State and the many ways you can minimize taxes and stay compliant. We’ve covered a lot of ground, from understanding the nitty-gritty of state business tax, franchise & excise taxes, to leveraging deductions, credits, and planning for the future. The overarching theme is this: knowledge and proactive planning are your allies in the world of taxes. When you understand the rules, you can turn taxes from a source of anxiety into an opportunity for savings and strategic advantage.

This is where 1-800Accountant, America's leading virtual accounting firm, is a game-changer for many small businesses. When you trust us with your complex financial work, you get:

• Expert CPAs and Advisors

• Personalized Tax Strategy

• Year-Round Support

• All-in-One Services

• Flat, Affordable Fees

• Virtual Convenience

Ready to simplify your taxes and supercharge your financial strategy? Schedule a call with 1-800Accountant today, and let’s write the next chapter of your Tennessee success story together.