Tennessee lesson 5 of 6
Tennessee franchise and excise tax, and licences
Tennessee has no personal income tax on wages, but almost every LLC chartered or doing business in the state owes franchise and excise tax, a state-level charge separate from the Secretary of State's fees.
How the tax is calculated
Franchise tax is 25 cents per $100 of the LLC's net worth, or an alternative property measure if that produces a higher figure, with a $100 minimum tax that applies even to LLCs with little or no net worth. Excise tax is 6.5% of net earnings, based on federal taxable income with Tennessee adjustments. Both are reported together on Form FAE170, generally due the 15th day of the fourth month after the close of the tax year, which is April 15 for a calendar-year LLC.
The FONCE exemption
A family-owned noncorporate entity can be exempt from franchise and excise tax if at least 95% of the voting rights, capital interest or profits are owned by relatives, qualifying trusts for their benefit, or the estate of a deceased relative, and at least 66.67% of the entity's activity is passive investment income or farming. This exemption has to be affirmatively claimed and does not apply automatically just because an LLC is family owned.
Do not assume a small, family-run LLC is automatically exempt. Confirm both ownership and activity tests are met, and file the required documentation with the Department of Revenue.
Sales tax and other registrations
If you sell taxable goods or services in Tennessee, register with the Department of Revenue for a sales and use tax certificate of registration. If you hire employees, you also register for unemployment insurance with the Department of Labor and Workforce Development.
Key takeaways
- Franchise tax has a $100 minimum; excise tax is 6.5% of net earnings.
- The FONCE exemption can remove the franchise and excise tax burden for qualifying family-owned LLCs, but it must be claimed and both tests must be met.
- Selling taxable goods or hiring staff triggers separate Department of Revenue registrations.
Frequently asked questions
Does every Tennessee LLC owe franchise and excise tax?
Most do, including LLCs with no profit, because of the $100 minimum franchise tax. Some LLCs qualify for exemptions such as FONCE, but exemption is not automatic and must be claimed with the Department of Revenue.
Is franchise and excise tax filed with the Secretary of State?
No. It is filed with the Tennessee Department of Revenue on Form FAE170, separate from the Secretary of State's Articles of Organization and annual report.
Official sources
Or let us file your Tennessee LLC for you
Everything above is yours to use for free. If you would rather hand it over, we prepare and file the Articles of Organization (Form SS-4270), act as your registered agent, and track your ongoing deadlines.
Last reviewed: September 2026 - reviewed by Gullia Filing Legal & Formation Team