What Is Franchise and Excise Tax in Tennessee?

Franchise and excise tax in Tennessee is a two-part business tax reported on a single return. The franchise portion charges 0.25% (twenty-five cents per $100) of a company’s net worth. The excise portion charges 6.5% of net earnings from Tennessee operations. Together they function as Tennessee’s main way of taxing business activity in place of a traditional corporate income tax, and most corporations, LLCs, limited partnerships, and business trusts registered or doing business in the state owe both.¹

The Franchise Tax: 0.25% of Net Worth

The franchise tax is a charge for the privilege of existing or doing business in Tennessee. It applies at twenty-five cents for every $100 of a company’s net worth at the close of the tax year.² Net worth is total assets minus total liabilities, drawn from your books.¹

Because the base is what you own rather than what you earn, a business that posts no profit still owes franchise tax if it holds assets. A down year with substantial equipment, real estate, or retained earnings still produces a bill. The minimum is $100, owed by any entity registered with the Secretary of State, active or not.¹ If your calculated amount is below that floor, enter $100, and the minimum cannot be prorated on a short-period return.³

The Property Measure Is Gone

Before 2024, the franchise base was the greater of net worth or the book value of your real and tangible property in Tennessee. The property measure often hit asset-heavy businesses hard even when net worth was modest. Public Chapter 950 eliminated it for tax years ending on or after January 1, 2024.⁴

The tax now runs solely on net worth as reported on Schedule F. The old Schedule G property calculation is omitted. A business can still elect to use the property measure if it wants to, but doing so only makes sense if a company has a strategic reason to pay more, and the election waives any constitutional challenge to that measure.⁵

The Excise Tax: 6.5% of Net Earnings

The excise tax applies at a flat 6.5% on net earnings from Tennessee operations during the tax year.⁶ The starting point for net earnings is federal taxable income. From there you make Tennessee adjustments, which may require adding back certain federal deductions or subtracting income unconnected to Tennessee activity. The result is what gets multiplied by 6.5%.

Nonprofits are excluded from the excise tax.⁶ For every other covered entity, excise tax stacks on top of the franchise tax.

Who Owes These Taxes

If your business is a corporation, LLC, limited partnership, or business trust that is chartered, qualified, or registered in Tennessee — or simply doing business in the state — you owe both taxes.¹ “Doing business” turns on nexus: physical presence like property or employees in Tennessee, or significant economic activity directed at Tennessee customers.

Sole proprietorships and general partnerships are generally not subject to these taxes because they aren’t treated as separate legal entities for this purpose. That changes the moment a sole proprietor forms an LLC or a general partnership converts to a limited partnership. Misclassifying your structure to avoid registration leads to back taxes, interest, and penalties when the Department of Revenue catches up.

Apportionment if You Operate in Multiple States

A business operating in Tennessee and elsewhere does not pay excise tax on all of its income. Tennessee uses an apportionment formula to figure out how much of your net earnings belong to in-state activity. For tax years ending on or after December 31, 2025, the state uses a single receipts factor, so apportionment depends entirely on the share of total receipts coming from Tennessee customers or activity.⁷

If the older multi-factor method (which included property and payroll) would produce a higher ratio for your business, you can elect to use it instead. The election is annual and only available when you have net earnings rather than a net loss.⁷

When the Return Is Due

The annual return is due on the 15th day of the fourth month after the close of your fiscal year. For a calendar-year business, that is April 15.⁸

Tennessee grants a seven-month extension to file.⁸ The extension covers paperwork only. If you owe tax, you still have to pay by the original due date, or interest and penalties start accruing immediately.

Quarterly Estimated Payments

Businesses with combined franchise and excise liability of $5,000 or more in both the prior and current year must make quarterly estimated payments.⁸ Installments are due on the 15th day of the fourth, sixth, and ninth months of the current tax year, plus the 15th day of the first month of the following tax year. For a calendar-year filer, that is April 15, June 15, September 15, and January 15.

If your combined liability stays below $5,000 in either year, you can skip estimates and pay the full amount with the annual return. That threshold covers most small businesses and newer entities.

What Late or Missing Filings Cost

Late payments draw a penalty of 5% of the unpaid balance per month or partial month, up to 25%.⁹ Interest accrues on top at a rate the Department of Revenue publishes periodically. The clock starts on the original due date, not the extended one, so an extension without payment just makes things worse.

Businesses that never register with the Department face the steepest exposure. The state can assess back taxes for every year the entity should have been filing, plus penalties and interest on each of those years. A company that operated unregistered for several years can owe more in penalties than in actual tax.

How to File

Both taxes are reported on Form FAE 170, which contains schedules for franchise tax (Schedule F for net worth), excise tax, and total tax due.¹⁰ You’ll need your federal return data as the starting point for excise tax, your balance sheet figures for franchise tax, and account identifiers from the Department of Revenue and Secretary of State.³

Filing runs through the Tennessee Taxpayer Access Point (TNTAP), which handles return submission, ACH or credit card payments, and account management.¹¹ Forms and instructions can also be downloaded from the Department of Revenue site if you want to work through the schedules before entering anything online.¹⁰

1
Tennessee Department of Revenue. Franchise and Excise Tax
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Justia. Tennessee Code 67-4-2106 – Rate of Tax
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Tennessee Department of Revenue. Tennessee Franchise and Excise Tax FAE 170 Instructions
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Tennessee Department of Revenue. FT-13 – Property Measure Repeal
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Tennessee Department of Revenue. Franchise and Excise Tax Manual – June 2025
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Justia. Tennessee Code 67-4-2007 – Tax Imposed
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Justia. Tennessee Code 67-4-2012 – Apportionment Formula
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Tennessee Department of Revenue. Due Dates and Tax Rates
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Tennessee Department of Revenue. GEN-16 – Penalties and Interest
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Tennessee Department of Revenue. Franchise and Excise Tax Forms
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Tennessee Department of Revenue. Tennessee Taxpayer Access Point