Tennessee Franchise and Excise Tax: What LLC Owners Actually Pay

Running an LLC in Tennessee means handling two annual taxes that many new business owners discover late: the franchise tax and the excise tax. These are state-level taxes separate from federal income tax, and they hit your bottom line whether your business made money or not. The good news is they're predictable once you understand how they work. The reality is they can add hundreds or thousands of dollars to your annual tax bill.

This guide walks you through exactly what these taxes are, how much you'll owe, when you're required to file, and what options exist for refunds. Everything here is based on Tennessee Department of Revenue rules and is accurate as of 2026.

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The Two Taxes You Need to Understand

Tennessee imposes both a franchise tax and an excise tax on LLCs. These are separate calculations based on different measures of your business, and you owe both of them annually.

Franchise Tax: Calculated on Net Worth

The franchise tax is straightforward: Tennessee charges 0.25% of your LLC's Tennessee net worth, with a minimum of $100 per year. "Tennessee net worth" means the net worth attributable to your Tennessee operations, essentially your assets minus liabilities as of the close of your fiscal year.

What matters here: the threshold is low, and the minimum is fixed. Even if your net worth is only $5,000, you owe at least $100. Once your net worth exceeds $40,000, the percentage-based calculation (0.25%) will exceed that minimum, and you'll pay the percentage.

Excise Tax: Calculated on Taxable Income

The excise tax is the bigger one for most LLCs. Tennessee charges 6.5% of your Tennessee taxable income. This is income calculated for Tennessee tax purposes, which is generally your federal taxable income (after business expenses, depreciation, and other deductions are applied) but only the portion attributable to Tennessee.

For most small LLCs, this is straightforward: if your LLC is based in Tennessee and all operations are in Tennessee, it's 6.5% of your bottom-line profit before you pay owner distributions or federal income taxes.

Real Numbers: Examples of What You'll Pay

Let's put actual numbers to this so you know what's coming.

Small Single-Member LLC (First Year)

Scenario: You start an LLC with $10,000 in initial capital. By year-end, after expenses, you've cleared $5,000 in profit.

Tennessee net worth: $15,000 (capital plus profit)
Tennessee taxable income: $5,000
Franchise tax: $15,000 × 0.25% = $37.50, but you owe the $100 minimum
Excise tax: $5,000 × 6.5% = $325
Total: $425

Growing LLC (Year Three)

Scenario: Your LLC now has $80,000 in net worth and generates $30,000 in annual taxable income.

Franchise tax: $80,000 × 0.25% = $200
Excise tax: $30,000 × 6.5% = $1,950
Total: $2,150

Established LLC (High Profit)

Scenario: Your LLC has $250,000 in net worth and $100,000 in annual taxable income.

Franchise tax: $250,000 × 0.25% = $625
Excise tax: $100,000 × 6.5% = $6,500
Total: $7,125

Notice the excise tax dominates for profitable operations. This is why understanding your projected income matters before filing your Articles of Organization.

Filing Requirements and the April Deadline

Both the franchise and excise taxes are reported on the same annual filing: the Tennessee Franchise and Excise Tax Annual Return (also called the FAE return).

When It's Due

The annual return is due on the 15th day of the fourth month after the close of your fiscal year. If your LLC uses a calendar year (January through December), that means the return is due April 15. If you use a different fiscal year, count four months from the last day of your year and mark that date on your calendar.

This is a hard deadline. Missing it means penalties and interest begin accruing immediately.

How to File

You file through the Tennessee Department of Revenue. The specific form is the FAE 170 (Franchise and Excise Tax Annual Return). Filing can be done online or by mail. Online filing is faster and reduces the risk of processing errors.

You'll need:

Your LLC's legal name and Tennessee registration number
Your federal EIN (Employer Identification Number)
Net worth figures as of the close of your fiscal year
Tennessee taxable income for the year (from your federal tax return, adjusted for Tennessee purposes if applicable)
If applicable, information on any pass-through income or losses

Most LLCs hire a CPA or tax professional to prepare this return because the calculations require accurate financial records and understanding of what counts as "Tennessee taxable income" versus other types of income.

Understanding Tennessee FAE 170 and Form Requirements

The Tennessee FAE 170 form is the official annual return. It's not complicated, it's a single form asking for net worth and taxable income, but getting the numbers right is crucial because penalties and interest apply if you underreport.

Key things the form requires:

Declaration of your fiscal year and net worth as of the last day of that year
Your Tennessee taxable income for the year
Calculation of franchise tax (net worth × 0.25%, minimum $100)
Calculation of excise tax (taxable income × 6.5%)
Payment of the total due

The form itself is available on the Tennessee Department of Revenue website. Your tax professional can also pull it or use their own software to generate a compliant filing on your behalf.

One important note: if your LLC has multistate operations, only the Tennessee-sourced net worth and Tennessee-sourced income count. This requires allocation if you do business in multiple states. For most small LLCs based in Tennessee, all of it is Tennessee-source, but if you're selling into other states or operating offices outside Tennessee, talk to a CPA about proper allocation.

Franchise Tax Refunds: When You Can Get Money Back

Tennessee does offer franchise tax refunds under specific circumstances. Here's when you might qualify:

Dissolution or Withdrawal

If your LLC dissolves during the year or withdraws from Tennessee operations, you may be entitled to a pro-rata refund of the franchise tax for the portion of the year you weren't operating. The refund is calculated based on the number of months the business was actually active.

Example: If your LLC dissolves on June 30 (six months into the year), you'd be entitled to a refund for six months of the annual franchise tax, assuming you paid the full year's amount upfront.

Net Worth Reduction

If your net worth at year-end is lower than previously estimated and you've already paid the franchise tax, you may request an amended return to recalculate and claim a refund of the overpayment. This is uncommon for most LLCs but can occur if significant asset sales or write-downs happen late in the year.

Credit for Taxes Paid to Other States

If your LLC operates in multiple states and pays franchise or similar taxes to other states, Tennessee may allow a credit against your Tennessee franchise tax liability (though not the excise tax). This prevents double-taxation on the same net worth in states that have such provisions. Work with your CPA to determine if this applies.

Refund claims are filed by submitting an amended FAE 170 form or a formal refund request to the Tennessee Department of Revenue. The deadline to claim a refund is typically three years from the original filing due date, so don't sleep on this if you believe you've overpaid.

How These Taxes Affect Your Business Planning

These taxes aren't optional, and they're not small for profitable businesses. When you're planning your LLC structure, you need to factor them in.

For a business projecting $50,000 in annual income, the franchise and excise tax tab could easily be $3,200 to $3,500 depending on starting net worth. That's real money that affects your pricing, margins, and whether the business makes financial sense.

Some business owners wonder if a different legal structure (sole proprietorship, S-corp, C-corp) would reduce these taxes. Tennessee treats all business entities the same way for franchise and excise tax purposes: only LLCs, corporations, and certain other entities pay them. Sole proprietorships, general partnerships, and some pass-through entities are exempt. This is one legitimate reason some people choose different structures, though it comes with other tradeoffs (liability protection, administrative complexity, federal tax treatment).

If you're at the stage where structure choice still matters, talk to both a tax professional and a business attorney about your specific situation. For most people, an LLC remains the best choice despite these taxes because of liability protection.

Getting Help with Your Tax Filing

Because these taxes require accurate net worth and income calculations, most LLC owners hire professionals. You have two main options:

Accountant or CPA: Handles your full bookkeeping, federal tax return, and Tennessee franchise/excise tax filing. This is more comprehensive and usually costs $1,000 to $3,000 depending on complexity. Best if you want someone managing your books year-round.

Tax Preparer or Tax Service: May handle just the Tennessee return if you're doing your own bookkeeping. This costs $300 to $800 and works if you're organized and confident about your numbers.

Either way, bring documentation of your net worth (balance sheet) and income (income statement or federal tax return) to the appointment. The cleaner your records, the faster and cheaper the process.

Key Deadlines and Resources

Annual Return Due Date: The 15th day of the fourth month after your fiscal year closes (April 15 for calendar-year LLCs)

Payment Due Date: Same as filing deadline

Official Resources:

Tennessee Department of Revenue: https://www.tn.gov/revenue.html
Tennessee Small Business Development Center (TSBDC): https://www.tsbdc.org/ offers free consulting on tax structure questions

The Bottom Line

Tennessee's franchise and excise tax is a real cost of doing business as an LLC in the state. The franchise tax is modest ($100 minimum, 0.25% of net worth), but the excise tax (6.5% of taxable income) is substantial for profitable businesses. Budget for it, file on time, and work with a tax professional if numbers and deadlines aren't your strength.

The tax is not discretionary, and the April 15 deadline is firm. Set a calendar reminder, gather your financial records by early April, and submit the FAE 170 by the deadline. If you anticipate a refund or have multistate operations, start conversations with your tax advisor earlier in the year so you're not scrambling at tax time.

Disclaimer

This guide is informational only and does not constitute legal, tax, or financial advice. Tax laws and rates are subject to change, and individual circumstances vary. Before making decisions about your LLC structure, filing status, or tax strategy, consult with a qualified CPA, tax attorney, or tax professional licensed in Tennessee. They can review your specific situation and ensure compliance with current law.