Tennessee LLC Taxes
If you are considering forming a limited liability company (LLC) in Tennessee, you will need to ensure that you understand all of the federal, state, and local tax requirements that your business will be privy to.
This guide on Tennessee LLC Taxes will walk you through everything you need to know, including the procedural steps for filing taxes and key practices to help your LLC maintain compliance in the state.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
How Is an LLC Taxed in Tennessee?
Taxation in Tennessee isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.
While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:
- C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
- S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.
The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Tennessee to help you ensure your LLC navigates them effectively.
Tennessee Local Taxes
Cities and towns in Tennessee have a variety of different local taxes. Below, we have included the most common local taxes, explaining how they may impact you as an LLC owner.
Local Sales and Use Taxes
If your LLC sells, leases, or provides taxable goods or services within counties and cities in Tennessee, you will be required to register with the Tennessee Department of Revenue in order to collect and remit the local sales and use tax on your taxable transactions.
Depending on your jurisdiction, the local sales and use tax rate can vary; having said that, it cannot exceed 2.75%, and it must be a multiple of 0.25%. Keep in mind that the local sales tax rate and local use tax rate in a specific location are the same.
If your LLC owns real and tangible property in Tennessee, you will need to determine the classification of your property based on how it is used. The property classification and its statutory assessment percentages are as follows:
- Residential Property: 25%
- Farm Property: 25%
- Commercial and Industrial Property: 40%
- Public Utility Property: 55%
- Business personal property: 30%
To determine your property tax, you will need to multiply your property's appraised value by the assessment percentage based on your property classification. This will then need to be multiplied by your county’s property tax rate in order to calculate your property tax.
Recommended: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant.
Tennessee State Taxes
Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Tennessee.
State Sales and Use Taxes
Currently, the state sales tax rate for most taxable products, such as tangible personal property and taxable services, is 7%.
For example, if an LLC sells $1,000 worth of software and hardware to a customer in Nashville, they would pay sales taxes amounting to $70 ($1,000 sales price x 0.07 state rate).
However, certain products and services are subject to varying state tax rates as listed below:
- Food and Food Ingredients: 4.0%
- Aviation Fuel: 4.25%
- Industrial Water for Manufacturers: 1.0%
- Industrial Energy Fuel for Manufacturers: 1.5%
- Electricity for Qualified Data Centers: 1.5%
- Interstate and International Telecommunications Sold to Businesses: 7.5%
- Manufactured Homes: 3.5%
- Video Programming Services (Cable TV Monthly Charges of $15.00 to $27.50): 8.25%
- Direct-to-Home Satellite Television Services: 8.25%
- Sales of Tangible Personal Property to Common Carriers for Use Out of State: 3.75%
Note: If your LLC sells taxable products or services in Tennessee, you are required to obtain a sales and use tax certificate. You might also want to check out the updated Sales and Use Tax Manual on tax rates and filing instructions.
State Business Tax
If your business is located outside of the state, you'll be subject to state-level business tax if you:
- Have substantial nexus with the state
- Are engaged in the state in one of the specified business activities listed in the Tennessee Code
- Earn gross receipts within a county that are $10,000 or more.
Consider that the amount of business tax that your business has to pay is calculated based on your gross taxable sales per location, your business classification, whether you’re a retailer or wholesaler, and if your business is without any deductions and exemptions unless permitted by Tennessee law.
Note: You can check out the Tennessee Department of Revenue’s business tax due dates and rates page for more information.
Franchise and Excise Taxes
If you are an LLC registered in Tennessee or doing business in this state, you will need to register for and pay franchise and excise taxes.
The minimum franchise tax of $100 applies to any entity that is registered to do business in Tennessee, even if the business is inactive. This is calculated by multiplying each business’s tax base by 0.25% and then rounding it up to the nearest $100.
On the other hand, the Tennessee excise tax is 6.5%, and is based on your net earnings or loss for federal income tax purposes. Some adjustments, such as adding back any self-employment net earnings, can be included.
Alcohol, Beer, and Tobacco Taxes
If your business sells alcohol, beer, and tobacco products, you will be subject to both state and local taxes. The state taxes are imposed on the wholesale or retail price of the products, while the local taxes are imposed on the privilege of selling or distributing the products within a local jurisdiction.
- Wine Tax: Ranges from $1.10 to $4.40 per gallon.
- Beer Tax: Ranges from $4.29 to $40. There is also a local tax of $35.60 per 31-gallon barrels sold in each county or city.
- Liquor-by-the-Drink Tax: 15% on the gross sales of alcoholic beverages for consumption on the premises. There is also a local tax based on a percentage of the gross receipts from the sale of alcoholic beverages.
- Tobacco Taxes: These are state taxes on the sale, use, consumption, handling, or distribution of all tobacco products in the state. The rates are $0.62 per pack of 20 cigarettes and 6.6% of the wholesale cost of tobacco products other than cigarettes.
Tennessee is known for imposing a variety of taxes on different types of businesses and activities within the state. Some of the most common taxes in Tennessee include:
- Automobile Rental Surcharge Tax is 3% on the gross receipts from renting vehicles.
- Bail Bond Tax is 12% executed by a professional bondsman or bonding company.
- Coin-Operated Amusement Tax is 10% on the gross receipts from coin-operated amusement machines.
- Fantasy Sports Tax is 6% on the adjusted revenues of fantasy sports operators.
- Gross Receipts Taxes on the gross receipts of certain businesses, such as electric power companies and telecommunications services.
- Local Occupancy Tax ranges from 0% to 5% that is imposed by some local governments on the rental of rooms in hotels, motels, etc.
- Motor Fuel Taxes are $0.26 per gallon for gasoline, $0.27 cents per gallon for diesel, and $0.14 per gallon for liquefied gas used to operate vehicles on public highways.
- Oil & Tire Fees are $1.35 per new tire sold, $0.02 per quart of oil sold, and $0.35 per tire disposed of.
- Professional Privilege Tax is $400 per year on individuals licensed or registered to practice certain professions, except for lobbyists, who pay $150 per year.
- Recordation Tax rates are $0.37 per $100 of value for deeds, $0.115 per $100 of indebtedness for mortgages, and $1 per $1,000 of value for other instruments.
- Severance Taxes range from $0.015 to $0.03 per ton for coal, $0.03 to $0.06 per MCF for natural gas, and 3% of the value for oil.
- Unauthorized Substances Taxes are imposed on the possession of illegal drugs, ranging from $3.50 to $44 per gram for cocaine, $3.50 per gram for marijuana, and $50 per gram for methamphetamine.
Note: For more information on Tennessee’s various business taxes, see the Tennessee Business Tax Manual.
Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:
By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.
Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.
In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.
This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.
If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.
Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.
If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.
Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.
How to File LLC Taxes in Tennessee
Below, we’ve outlined the general process an LLC in Tennessee will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in.
Step 1: Gather Your Documentation
To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:
- You and your partner’s Social Security number, date of birth, and residential address
- The previous year’s tax returns
- Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)
Then, you’ll need to gather all documentation related to your business’s income, such as:
- Invoices you’ve issued
- Sales transaction logs
- Electronic payment reports from services like PayPal or Stripe
Lastly, assemble all records pertaining to your business expenses, which should cover:
- Lease receipts for your business premises
- Bills for utilities
- Records of office supplies purchases
- Documentation of business-related travel
- Payroll records for employees
Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return.
Step 2: Find The Right Tax Forms
Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:
- Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
- Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
- C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
- S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.
Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.
With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.
Step 3: File Your Taxes
The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:
- Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
- State Tax Returns: You must file your state taxes in Tennessee electronically through the Department of Revenue's Tennessee Taxpayer Access Point (TNTAP). To get started, you need to create a TNTAP logon in order to use their online platform. Alternatively, you can also use a software vendor to file and pay your taxes.
- Local Tax Returns: Some local taxes, like the business tax, should be filed with the Tennessee Department of Revenue using the TNTAP tool. For those filing their property taxes, you can contact your local assessor’s office for filing instructions.
Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form.
For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
Keep Your Tennessee LLC Compliant
While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant.
Tennessee LLC Annual Report
LLCs in Tennessee are required to file an annual report in order to remain in good standing with the Secretary of State.
The annual report filing fee in Tennessee is $50 per LLC member, with a minimum of $300 and a maximum of $3,000. The report is due by the end of the fourth month after the company's fiscal year closes. For example, if your LLC’s fiscal year ends in December, you have to file the annual report by April 1.
To file an annual report for your Tennessee LLC, you can use the Business Services Online tool on the Secretary of State website. You will need your Secretary of State Control Number, which you can easily find by using the Business Information Search tool.
It's worth noting that Tennessee doesn't charge a late fee for failing to file an annual report. However, if you fail to file for two consecutive years, your LLC may be dissolved by the state. If this happens, you will need to pay a reinstatement fee of $70, along with all past-due annual report fees and in order to reinstate it.
Licensure and Tax Requirements
In Tennessee, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:
- Sales Tax Licenses: If your LLC sells goods or services that are subject to sales tax in Tennessee, you must register for a sales and use tax certificate and collect and remit this tax to the Department of Revenue.
- Professional Licenses: If your LLC offers services that require a professional license, such as accounting, insurance, law, medicine, real estate, etc., you must obtain the appropriate license from the relevant board or agency.
- Environmental Permits: If your LLC operates in a sector that involves environmental impacts, such as mining, agriculture, construction, etc., you may need to obtain one or more environmental permits from the Tennessee Department of Environment and Conservation.
Note: To find out which licenses and permits your LLC may need in Tennessee, visit the One-Stop Licensing App that lets you search and apply for some professional licenses and permits.
Tennessee LLC Taxes FAQs
LLCs in Tennessee pay various taxes at the local, state, and federal levels. Depending on your business activities, gross sales, and location, you will be required to pay sales tax, use tax, property tax, franchise and excise taxes, and business taxes, among others.
For a closer look at federal-level taxes, see our LLC Taxes guide.
Yes, a single-member LLC is subject to excise tax, which is a tax on the net earnings of the business. The current rate for this tax is 6.5% of the LLC's net taxable income earned within the state.
If you’re interested in forming a single-member LLC, check out our article on how to start an LLC in Tennessee.
If a business has gross sales below a certain threshold, or if it's a nonprofit organization or a government entity, it may be exempt from the business tax.
However, this doesn't necessarily mean that these businesses won't have to pay income taxes. Depending on their specific circumstances and sources of income, they may still have other tax obligations.
The business tax rate varies depending on the classification and location of the business. Typically, the rates range from 0.125% to 0.475% of gross sales. In addition, a state excise tax of 6.5% and a franchise tax of 0.25% may also apply.
Learn more about what taxes you need to file in the state with our section on Tennessee state taxes.