Does a Tennessee LLC need to collect sales tax?

If your LLC sells taxable goods or certain services in Tennessee, you must register with the Department of Revenue and collect the 7% state sales tax plus any local option tax (up to 2.75%). You register and file through TNTAP; there is no state fee to register.

Tennessee LLC Tax Filing: Forms & Rates (2026)

Q: How is a Tennessee LLC taxed federally?

By default the IRS treats a single-member LLC as a disregarded entity reported on the owner's Schedule C, and a multi-member LLC as a partnership filing Form 1065. Either can elect to be taxed as an S corporation by filing Form 2553 or as a C corporation by filing Form 8832.

Q: Is a single-member LLC exempt from Tennessee franchise and excise tax?

Not usually. A single-member LLC is disregarded for Tennessee franchise and excise tax only if it is disregarded federally AND its single member is a corporation. An LLC owned by an individual is generally subject to franchise and excise tax as a separate taxpayer.

Q: When is the Tennessee franchise and excise tax return due?

Form FAE 170 is due on the 15th day of the fourth month after the end of the tax year - April 15 for a calendar-year LLC. Returns and payments are filed electronically through TNTAP, and a six-month extension is available on Form FAE 173.

Q: Does electing S-corp status change Tennessee tax?

An S-corp election changes federal self-employment tax treatment, but it does not exempt the LLC from Tennessee franchise and excise tax. An LLC taxed as an S corporation still files Form FAE 170 and owes the same 0.25% franchise tax and 6.5% excise tax on Tennessee earnings.

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 6, 2026 · Last updated Aug 6, 2026

Tennessee has no personal income tax on wages, but most Tennessee LLCs still owe two state taxes: a franchise tax of 0.25% of net worth ($100 minimum) and an excise tax of 6.5% of net earnings, both filed on Form FAE 170 with the Department of Revenue by the 15th day of the fourth month after the tax year (April 15 for calendar-year filers). Federal tax follows the LLC's default pass-through classification unless you elect S-corp status.

Quick Answer

Federal default: Single-member = disregarded (Schedule C); multi-member = partnership (Form 1065)
State income tax: None on wages or salaries
Franchise tax: 0.25% of net worth, $100 minimum - Form FAE 170
Excise tax: 6.5% of Tennessee net earnings - Form FAE 170
Due date: 15th day of 4th month (April 15) via TNTAP
Sales tax: 7% state + up to 2.75% local, if selling taxable goods

How a Tennessee LLC Is Taxed: The Two Layers

A Tennessee LLC is taxed on two separate tracks that new owners often confuse. The first is federal tax, where the IRS taxes the LLC's profit through its members based on the LLC's classification. The second is Tennessee state tax, which - because the state has no broad personal income tax - centers on the franchise and excise (F&E) tax administered by the Tennessee Department of Revenue, plus sales tax and the local business tax where they apply. Understanding both layers is the key to filing correctly. For the national picture, see how to file business taxes and the business tax hub.

Federal Default Classification for an LLC

An LLC is not a federal tax class of its own; the IRS taxes it under one of the existing buckets. By default, a single-member LLC is a disregarded entity - its income and expenses flow onto the owner's personal return, typically on Schedule C of Form 1040. A multi-member LLC is taxed by default as a partnership, filing Form 1065 and issuing a Schedule K-1 to each member. In both defaults the profit is pass-through income: the LLC itself pays no federal income tax, and members report their shares. This default rule comes from the federal "check-the-box" regulations under 26 CFR § 301.7701-3.

Because default LLC profit is self-employment income, active members generally owe self-employment tax (15.3% for Social Security and Medicare) on their share, and they usually pay federal income tax and SE tax through quarterly estimated taxes. Getting an EIN from the IRS - always free - is the first federal step for a multi-member LLC or any LLC with employees.

Electing S-Corp or C-Corp Treatment

An LLC can change its federal tax treatment by election. Filing IRS Form 2553 makes the LLC an S corporation for tax purposes, so members who work in the business take a reasonable salary (subject to payroll tax) and can draw remaining profit as distributions that avoid self-employment tax - the core reason owners consider it. See Form 2553 explained and LLC vs. S-corp tax to weigh the trade-off, and S-corp vs. LLC for the overview. Filing Form 8832 instead elects full C-corporation treatment, which is less common for small LLCs. Importantly, a Tennessee S-corp election changes federal tax only - it does not remove the LLC from Tennessee franchise and excise tax, covered below.

Tennessee Franchise and Excise Tax (Form FAE 170)

Franchise and excise tax is the primary state tax for a Tennessee LLC, and both parts are reported together on Form FAE 170 filed with the Department of Revenue. The franchise tax is 0.25% of the LLC's net worth (total assets less liabilities apportioned to Tennessee), with a minimum of $100 that applies even to an entity with little activity. Effective for tax years ending on or after January 1, 2024, Tennessee repealed the alternative property measure, so franchise tax is now computed on net worth alone. The excise tax is 6.5% of the LLC's Tennessee taxable net earnings (net income). Together these two taxes replace the individual income tax that Tennessee does not levy.

The combined FAE return is due on the 15th day of the fourth month following the close of the tax year - April 15 for a calendar-year LLC. You file and pay electronically through TNTAP (Tennessee Taxpayer Access Point). A six-month filing extension is available on Form FAE 173, but it does not extend the time to pay, so you should remit an estimate by the original due date to avoid interest. This state obligation is separate from the yearly Tennessee annual report filed with the Secretary of State.

Which LLCs Owe Franchise and Excise Tax

Nearly every LLC doing business in Tennessee is subject to F&E tax, because the tax reaches entities that provide their owners with limited liability protection. Federal classification does not control here. A key point that trips up owners: a single-member LLC is disregarded for Tennessee F&E tax only if it is disregarded federally and its single member is itself a corporation. An LLC owned by an individual is therefore not exempt - it is a separate taxpayer that must file Form FAE 170, even though the same LLC is "disregarded" on the owner's federal return. This divergence from federal law is set out in the Department of Revenue's guidance and in Tennessee's disregarded-entity rule.

Some entities qualify for statutory F&E exemptions (for example, certain family-owned non-corporate entities, farming or personal-residence LLCs, and qualified obligated-member entities), but each requires meeting specific criteria and, in most cases, applying to the Department of Revenue. Do not assume your LLC is exempt; confirm eligibility before skipping a return, because an unexcused missed filing accrues penalties and interest.

Tennessee Sales and Use Tax

If your LLC sells taxable tangible goods or certain taxable services in Tennessee, you must register for and collect sales and use tax. The Tennessee state sales tax rate is 7%, and local jurisdictions add a local option tax of up to 2.75%, so the combined rate in most areas is roughly 9.25% to 9.75%. You register with the Department of Revenue through TNTAP - there is no state fee to register - and then file sales tax returns (usually monthly) reporting and remitting the tax you collected. Remote sellers and marketplace facilitators have their own economic-nexus thresholds. Sales tax is money you collect from customers and pass through, distinct from tax on your own profit.

Tennessee Business Tax and Local License

Separate from F&E tax, Tennessee imposes a business tax - a gross-receipts tax tied to a local business license. An LLC with taxable gross receipts of $100,000 or more in a jurisdiction needs a standard business license and must register and file the business tax return with the Department of Revenue. An LLC with more than $3,000 but under $100,000 in gross receipts needs only a minimal activity license ($15 from the county or city clerk) and does not file the state business tax return. These thresholds reflect the Tennessee Works Tax Act and apply to tax years ending on or after December 31, 2023. See business license in Tennessee for the full breakdown.

Payroll and Employer Taxes

If your Tennessee LLC has employees, additional filings apply. You withhold and remit federal income tax, Social Security, and Medicare, and file federal Form 941 quarterly and Form 940 for federal unemployment tax. At the state level, Tennessee has no state income tax withholding on wages, but you must register for state unemployment insurance (SUTA) with the Tennessee Department of Labor and Workforce Development and pay unemployment premiums. An LLC taxed as an S corporation must run its owner-employees' pay through payroll. Confirm worker classification before treating anyone as a contractor rather than an employee.

Tennessee LLC Tax Filing Calendar and Forms

The table below summarizes the main taxes a Tennessee LLC may file, the form, the rate, and the deadline. Rates and thresholds are effective for 2026; confirm current figures with the Department of Revenue before filing.

Tax	Form	Rate	Due date
Federal income (single-member default)	Schedule C (Form 1040)	Owner's rate	April 15
Federal income (multi-member default)	Form 1065 + K-1	Pass-through	March 15
Tennessee franchise tax	FAE 170	0.25% net worth; $100 min	15th day, 4th month (Apr 15)
Tennessee excise tax	FAE 170	6.5% net earnings	15th day, 4th month (Apr 15)
Sales and use tax	Sales tax return (TNTAP)	7% state + up to 2.75% local	Monthly (usually 20th)
Business tax (if $100k+)	Business tax return (TNTAP)	Varies by classification	15th day, 4th month
Federal EIN	IRS Form SS-4	$0 (free)	Before first filing

Estimated F&E payments are required during the year once your liability is large enough, and all state returns are filed through TNTAP. Keep the two April deadlines - federal and Tennessee FAE - on your calendar so neither slips.

Penalties for Late Tennessee Tax Filing

Missing a Tennessee tax deadline is costly. The Department of Revenue charges a late-filing and late-payment penalty (generally 5% of the unpaid tax per month, up to 25%) plus interest on the balance, and a chronically delinquent entity risks losing its good standing. Because the $100 minimum franchise tax applies regardless of profit, even an inactive LLC that stays registered must file Form FAE 170 and pay the minimum. If you are winding down, file a final return and formally close the LLC through Tennessee dissolution so the annual F&E obligation stops. The simplest way to avoid penalties is to register in TNTAP early, calendar the deadlines, and file even a zero or minimum return on time.

Frequently Asked Questions

Does a Tennessee LLC pay state income tax?

Tennessee has no personal income tax on wages or salaries, so members do not pay state income tax on take-home pay. But most LLCs owe franchise tax (0.25% of net worth, $100 minimum) and excise tax (6.5% of net earnings) on Form FAE 170. See Tennessee annual report and taxes.

How is a Tennessee LLC taxed federally?

By default a single-member LLC is a disregarded entity on Schedule C and a multi-member LLC is a partnership filing Form 1065. Either can elect S-corp treatment with Form 2553. See LLC or S-corp.

Is a single-member LLC exempt from Tennessee franchise and excise tax?

Not usually. An SMLLC is disregarded for F&E only if it is disregarded federally and its single member is a corporation. An LLC owned by an individual is generally subject to F&E tax as a separate taxpayer.

When is the Tennessee franchise and excise tax return due?

Form FAE 170 is due the 15th day of the fourth month after the tax year - April 15 for calendar-year LLCs - filed through TNTAP. A six-month extension is available on Form FAE 173, but it does not extend the time to pay.

Does a Tennessee LLC collect sales tax?

If it sells taxable goods or certain services, yes. Register with the Department of Revenue and collect the 7% state rate plus up to 2.75% local tax. Registration through TNTAP is free.

Does electing S-corp status change Tennessee tax?

No. An S-corp election changes federal self-employment tax, but the LLC still files Form FAE 170 and owes the same 0.25% franchise and 6.5% excise tax on Tennessee earnings.

Sources

Tennessee Department of Revenue - Franchise & Excise Tax (0.25% net worth, $100 minimum; 6.5% excise).
Tennessee Department of Revenue - F&E-3, Filing Requirements for Disregarded Entities (SMLLC disregarded only if member is a corporation).
Tennessee Department of Revenue - Notice 13-16, Single Member LLCs: Tax Classification (PDF).
Tennessee Department of Revenue - F&E-5, Due Date for Form FAE 170 (15th day of 4th month; TNTAP e-file).
Tennessee Department of Revenue - Sales and Use Tax (7% state rate).
Tennessee Department of Revenue - Business Tax (gross-receipts tax and license thresholds).
Tennessee Department of Revenue - BUS-13, Business Licenses Overview ($3,000 / $100,000 thresholds).
Tennessee Secretary of State - Division of Business Services (annual report; entity standing).
Legal Information Institute - Tenn. Comp. R. & Regs. 1320-06-01-.40, Disregarded Entities.
Legal Information Institute - 26 CFR § 301.7701-3, Entity classification election.
IRS - Limited Liability Company (LLC) (federal default classification).
IRS - Single Member Limited Liability Companies (disregarded entity).
IRS - About Form 2553, Election by a Small Business Corporation (S-corp election).
IRS - Self-Employment Tax (15.3% SE tax on pass-through income).
IRS - Get an Employer Identification Number (free EIN).

LegalGlass provides general information for educational purposes and is not a law firm or a substitute for advice from a licensed attorney or tax professional. Laws, rates, and thresholds change; verify current requirements with the Tennessee Department of Revenue and the IRS before acting.