Key Takeaways

  • A single member LLC in Tennessee may be taxed as a disregarded entity or a separate entity for franchise and excise (F&E) tax purposes.
  • Tennessee imposes both franchise and excise taxes on most LLCs, including single-member LLCs, regardless of income distributions.
  • Even disregarded entities must file certain returns if they are subject to franchise and excise taxes.
  • Registration requirements vary by business type, and additional licenses may be required at the county or city level.
  • Series LLCs must treat each series as a separate entity for F&E tax purposes in Tennessee.

Tennessee LLC Taxes

An LLC operating in Tennessee must be registered with the state department of revenue and is liable for any required franchise taxes. Depending on the type of business, an LLC may also need to be registered with the county clerk for any local tax requirements.

The franchise tax imposed on LLCs is 0.25 percent of the real and tangible worth or net worth of a property in the state of Tennessee (whichever is greater). The minimum payment for the state franchise tax is $100. Another tax requirement is the excise tax, which is 6.5 percent of the net taxable income that is generated in the state.

Business License and Local Tax Registration

In addition to state-level registration with the Tennessee Department of Revenue, LLCs operating in Tennessee—including single member LLCs—must evaluate whether they are subject to local business taxes. Most cities and counties require registration for a business license and annual tax reporting.

The two types of business taxes in Tennessee include:

  • State-level business tax, which applies to most businesses making over $10,000 in revenue.
  • City or county-level business tax, which may apply even to businesses under the state’s $10,000 threshold, depending on local jurisdiction requirements.

To remain compliant, LLCs must:

  • Register for the business license with the local county clerk or city office.
  • Renew the business license annually.
  • File the appropriate business tax return either through the Tennessee Taxpayer Access Point (TNTAP) or with local tax authorities.

Failure to comply with local tax registration can result in penalties or the inability to legally operate within that locality.

Business Tax Climate in Tennessee

In the National State Business Tax Climate Index, Tennessee ranked in spot number 17 in 2009. This index compares five taxation areas that can impact a business operating in that state:

  • Unemployment insurance taxes.
  • Corporate taxes.
  • Property taxes, including commercial and residential properties.
  • Individual income taxes.
  • Sales taxes.

Individual Income Tax in Tennessee

In the state of Tennessee, the system for personal income tax includes a flat rate of 6 percent on only interest and dividend income. Other forms of personal income are not subject to taxation by the state.

Corporate Income Tax in Tennessee

The corporate tax structure in Tennessee includes a flat rate of 6.5 percent on all corporate income.

Sales Tax Above National Median

One area in which the tax rate in Tennessee is higher than the national median is sales tax. The national median is 6 percent, while the general sales or use-tax rate in Tennessee is 7 percent. The tax on gasoline in the state is currently at 21.4 cents per gallon, which ranks at No. 34 on the national list. In Tennessee, the cigarette tax is currently at 62 cents per standard pack, which contains 20 cigarettes, ranking at No. 38 on a national level.

Imposing Franchise and Excise Tax on Limited Liability Entities

Tennessee passed the Tax Revision and Reform Act of 1999. This act extended the franchise and excise (F&E) base-tax rate, including limited partnerships, LLCs, limited liability partnerships, and other types of business entities that qualify under the limited liability rules and operate in the state of Tennessee. All limited liability entities are directly subject to the F&E Tennessee tax at the business level, whether they have made any distributions or not. This act is different from the rules that apply on the federal level to entity classifications.

In general, this type of business entity is considered to be a single and separate entity for the purposes of F&E taxation. As a result, every business entity operating in the state must file an applicable F&E tax return separately, which will reflect its own business activities. This tax return is separate from any consolidated federal income tax return that the business may have filed.

SMLLCs

A single-member limited liability company, called an SMLLC, is generally considered a disregarded entity, which means the owner does not have to file a separate business tax return.

For F&E tax purposes, an SMLLC in the state of Tennessee is disregarded if it meets one of two requirements:

  • It is wholly owned by an entity that is classified as a corporation for federal tax purposes.
  • It is disregarded for purposes relating to federal income tax.

A sole owner can own any type of entity classified as a corporation, including an LLC, an LP, a business trust, or an S corporation, as long as the classification is for federal tax purposes. In general, an SMLLC that cannot meet these requirements will be taxed as a separate entity, which means it must file a separate F&E tax return for the business.

Franchise and Excise Filing Requirements for a Single Member LLC in Tennessee

Although a single member LLC (SMLLC) is typically disregarded for federal tax purposes, Tennessee tax law diverges from federal treatment. An SMLLC may still be subject to the state’s franchise and excise (F&E) taxes if it does not meet specific federal classification exemptions.

To be disregarded for Tennessee F&E tax purposes, the SMLLC must either:

  • Be wholly owned by a corporation for federal tax purposes, or
  • Be treated as a disregarded entity federally (e.g., reported on Schedule C, E, or F of the individual owner's return).

If the SMLLC does not meet either of these criteria, it must file its own franchise and excise tax return using Form FAE170.

Important considerations for SMLLCs in Tennessee:

  • Even if an entity is federally disregarded, it might still have a filing requirement with the Tennessee Department of Revenue if it owns property, has gross receipts in the state, or otherwise meets the nexus threshold.
  • SMLLCs that own interests in other pass-through entities operating in Tennessee may also incur a filing responsibility if the ownership results in Tennessee-source income.
  • The state may also require registration for business licenses or sales and use tax collection, depending on the nature of the business.

This means single member LLCs in Tennessee should carefully evaluate both ownership structure and business activities to determine their state tax obligations.

Series LLCs

Since a law was passed in 2006, LLCs operating in Tennessee can form and register separate series within the same business entity.

Each of the series LLCs will be treated as a separate business entity in terms of its:

  • Expenses.
  • Obligations.
  • Liabilities.
  • Debts.

Similarly, the series LLC's master LLC will be treated as a separate business entity from the series LLCs.

Tax Filing for Series LLCs in Tennessee

Each individual series within a Tennessee series LLC is treated as a separate legal entity for franchise and excise tax purposes. This means that:

  • Each series must file its own F&E tax return (Form FAE170) if it conducts business or holds assets in Tennessee.
  • The master LLC and the individual series cannot consolidate their tax filings.
  • Each series may be subject to separate registration and licensing requirements, depending on its activities and where it operates.

Series LLC owners must maintain separate accounting records for each series and avoid commingling funds to preserve the limited liability protections between series.

Frequently Asked Questions

  • Does a single member LLC in Tennessee need to file taxes separately?
    It depends. If it is disregarded for federal and Tennessee F&E tax purposes, the owner may report the income on their personal return. Otherwise, it must file an F&E return separately.
  • What taxes apply to a single member LLC in Tennessee?
    SMLLCs may be subject to franchise tax (0.25% of net worth or property value) and excise tax (6.5% of net income), in addition to local business tax obligations.
  • How do I know if my SMLLC is disregarded in Tennessee?
    Your SMLLC is disregarded if it’s wholly owned by a corporation or if it is disregarded for federal income tax purposes (e.g., Schedule C filer). Otherwise, it is taxed separately.
  • Are Series LLCs taxed together in Tennessee?
    No. Each series within a Series LLC is treated as a separate entity for tax and liability purposes and must file its own F&E tax return.
  • Does a Tennessee LLC need a business license?
    Most likely. Tennessee requires LLCs to obtain a business license through the local county or city if they exceed certain revenue thresholds or conduct taxable business activities.

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