Franchise Tax

Franchise Tax in Tennessee: Complete Guide 2026

Updated 2026-03-12

Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.

Franchise Tax in Tennessee: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Tennessee imposes two primary business taxes: the franchise tax and the excise tax. They are closely linked — virtually every entity subject to one is also subject to the other — but they are computed on entirely different bases. The franchise tax is based on the greater of net worth or the book value of real and tangible personal property in Tennessee, while the excise tax is based on net earnings. Together, they function as Tennessee’s substitute for a corporate income tax in a state that has no individual income tax on wages. Recent legislative changes have significantly altered the franchise tax calculation, making it essential for businesses to understand the current rules.

Tennessee Franchise and Excise Tax Rates (2026)

TaxRateBase
Franchise Tax~0.25% (minimum ~$100)Greater of net worth or real/tangible property in TN
Excise Tax~6.50%Net earnings (Tennessee taxable income)
Minimum Franchise Tax~$100Applies regardless of net worth

How the Tennessee Franchise Tax Works

Who Must Pay

The franchise and excise taxes apply to most business entities doing business in Tennessee, including:

  • Corporations (C-corps and S-corps)
  • Limited liability companies (LLCs)
  • Limited partnerships (LPs) and limited liability partnerships (LLPs)
  • Business trusts and registered entities
  • Out-of-state entities with Tennessee nexus

General partnerships composed entirely of natural persons and sole proprietorships are generally exempt. Nonprofit organizations with federal tax-exempt status are also typically exempt.

Franchise Tax Calculation

The franchise tax is computed at ~0.25% of the greater of:

  1. Tennessee net worth — the entity’s total equity (assets minus liabilities) apportioned to Tennessee using a single-factor property ratio, or
  2. Real and tangible personal property — the book value of the entity’s real estate and tangible personal property owned or used in Tennessee

The minimum franchise tax is ~$100, regardless of how small the calculated amount may be.

Recent Legislative Changes

Tennessee enacted significant changes to the franchise tax in ~2024, providing a refund mechanism for taxpayers who were assessed franchise tax based on the property measure (rather than net worth) in prior years. Eligible businesses may claim refunds for franchise tax paid above what they would have owed under the net worth measure alone for tax years back to approximately ~2020. This change was prompted by court decisions challenging the constitutionality of the property-based computation. Businesses should consult a tax professional to determine eligibility for refund claims.

The Excise Tax

The excise tax of ~6.50% is imposed on net earnings — essentially Tennessee-sourced taxable income, computed starting from federal taxable income with Tennessee-specific modifications. Key modifications include adding back Tennessee franchise tax paid, adjusting for federal deductions not allowed under Tennessee law, and apportioning multistate income using Tennessee’s apportionment formula. The excise tax uses a single-sales-factor apportionment formula for most industries.

Filing Requirements

RequirementDetail
Filing deadline~15th day of the ~4th month after the entity’s fiscal year-end (April ~15 for calendar-year filers)
ExtensionAutomatic ~6-month extension with timely payment of estimated tax
Estimated paymentsRequired if expected tax liability exceeds ~$5,000
Filing methodElectronic filing required for most entities via TNTAP (Tennessee Taxpayer Access Point)

Comparison to Other State Business Taxes

StateBusiness Tax TypeRateBase
TennesseeFranchise + Excise~0.25% + ~6.50%Net worth/property + Net earnings
TexasFranchise (margin) tax~0.75% / ~0.375%Revenue minus deductions
GeorgiaNet worth tax~0.05%—~0.20%Net worth
KentuckyLimited liability entity tax~0.095% (min ~$175)Gross receipts/gross profits
FloridaCorporate income tax~5.50%Net income

Tennessee’s dual franchise-plus-excise structure creates a higher combined burden than states with only an income tax, but the absence of individual income tax on wages offsets this for business owners drawing salary.

Tips for Minimizing Tennessee Franchise and Excise Tax

  1. Evaluate the property vs. net worth measure. Determine which base applies to your entity. Following recent legislative changes, taxpayers may be able to claim refunds if the property measure produced a higher tax than net worth in prior years.
  2. Minimize Tennessee-apportioned net worth. If your entity operates in multiple states, review the property apportionment ratio. Reducing the proportion of tangible assets in Tennessee lowers the franchise tax.
  3. Optimize the excise tax through apportionment. Tennessee’s single-sales-factor formula means that reducing Tennessee sales as a proportion of total sales can reduce excise tax liability.
  4. File estimated payments to avoid penalties. If your combined franchise and excise tax exceeds ~$5,000, quarterly estimated payments are required. Underpayment triggers a ~5% penalty.
  5. Claim available credits. Tennessee offers job tax credits, industrial machinery credits, and headquarters credits that directly offset franchise and excise tax liability.
  6. Review eligibility for the franchise tax refund. Businesses that paid franchise tax based on the property measure in prior years should evaluate refund claims under the ~2024 legislative changes.
  7. File through TNTAP. Electronic filing is required for most entities and provides real-time confirmation of receipt and payment status.

Key Takeaways

  • Tennessee’s franchise tax is ~0.25% of the greater of net worth or real/tangible property in Tennessee, with a minimum tax of ~$100
  • The excise tax of ~6.50% on net earnings is filed alongside the franchise tax as a combined return
  • Recent legislation allows refund claims for franchise tax overpayments in prior years based on the property measure
  • Most business entities are subject to both taxes; sole proprietorships and all-natural-person general partnerships are generally exempt
  • Estimated payments are required if combined tax liability exceeds approximately ~$5,000
  • Tennessee has no individual income tax on wages, making the franchise/excise taxes the primary business tax mechanism

Next Steps