Tennessee LLC Tax: Everything You Need to Know
Tennessee LLC tax includes the tax rules that apply to limited liability companies (LLCs) operating in the state of Tennessee, as well as the LLCs' owners.3 min read
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 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.
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.
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:
Similarly, the series LLC's master LLC will be treated as a separate business entity from the series LLCs.
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