Tennessee — Corporate Income / Franchise Tax

Tennessee does not impose a traditional corporate income tax. Instead, the state levies two distinct taxes on corporations and most limited liability entities: the franchise tax and the excise tax.

Franchise Tax: The franchise tax is a privilege tax imposed on the greater of a business entity’s net worth apportioned to Tennessee or the value of real and tangible property owned or used in the state. However, recent legislative changes have materially altered this base. Effective for tax years ending on or after January 1, 2024, the franchise tax is computed primarily on net worth apportionable to Tennessee, and the property measure has been eliminated for most taxpayers by Public Chapter 950 (2024). The $100 minimum franchise tax remains in effect (Tenn. Code Ann. § 67-4-2119). Entities may elect the older property measure in limited circumstances, but only if it results in a higher tax for that year and with a waiver of constitutional claims (Tenn. Code Ann. § 67-4-2123).

Excise Tax: The excise tax is imposed on a taxpayer’s net earnings or income for the tax year at a rate of 6.5 percent. A new $50,000 standard deduction was introduced, effective for tax years ending on or after December 31, 2024 (Public Chapter 377 (2023), Tenn. Code Ann. § 67-4-2007(d)). This deduction cannot create or increase a net loss, and further details are provided in the Tennessee Department of Revenue’s recent guidance and manuals.

Who is Taxed: Both taxes generally apply to corporations, limited partnerships, limited liability companies, and business trusts chartered, qualified, or registered in Tennessee, or actively doing business in the state with substantial nexus. Nonprofit entities, or those otherwise exempt, remain outside these taxes unless they have income from unrelated business or taxable activity.

Summary of Key Changes:

• Elimination of franchise tax property measure (except by annual election under strict conditions).
• Introduction of a $50,000 excise tax deduction beginning in the 2025 tax year.

Source: Tenn. Dep't of Revenue, Franchise & Excise Tax Overview Source: Tenn. Code Ann. § 67-4-2007, as amended 2024 Source: Tenn. Code Ann. § 67-4-2108, as amended 2024 Source: Public Chapter 950 (2024) Source: Public Chapter 377 (2023)

Effective for tax years ending on or after January 1, 2024, Tennessee's franchise tax is imposed at a rate of 0.25% ($0.25 per $100) of a taxpayer’s net worth apportioned to Tennessee. The historical property-based minimum measure—formerly computed as the “greater of net worth or the value of real and tangible property in Tennessee”—was fully repealed by Public Chapter 950 (2024) (SB2103/HB1893), effective for all returns for periods ending on or after January 1, 2024.

There is no default, alternative, or elective property measure for franchise tax periods ending on or after this effective date, except for the narrow election permitted under Tenn. Code Ann. § 67-4-2123. Under this provision, a taxpayer may annually elect to compute its franchise tax base under the pre-2024 property measure (as defined in former § 67-4-2108), but only if the election results in a higher tax for that year and the taxpayer waives any constitutional claim as to the minimum tax base. This is an annual, not binding, election; for all other taxpayers, only the net worth measure applies and the property base is eliminated for the vast majority of filers. The property-measure base (Schedule G) is not generally available as a default or backup base.

This statutory change was enacted to simplify the franchise tax base and eliminate constitutional questions regarding the property measure. Public Chapter 950 (2024) also authorizes refunds of property measure-based tax paid with respect to periods affected by the repeal, subject to specified claim deadlines.

The excise tax rate remains unchanged at 6.5% of net earnings from business conducted in Tennessee, as defined in Tenn. Code Ann. § 67-4-2007.

Authority:

• Repeal of property measure and confirmed net worth-only base: Tennessee Department of Revenue Important Notice FT-13 (2024), stating “for tax years ending on or after January 1, 2024, ... franchise tax will be based on a taxpayer’s net worth.”
• Election: Tenn. Code Ann. § 67-4-2123, as added by 2024 legislation.
• Implementing statute: Public Chapter 950 (2024) (SB2103/HB1893)

Source: FT-13 – Property Measure Repeal (2024) Source: Public Chapter 950 (HB1893/SB2103) 2024

Tennessee requires both "doing business" in the state and "substantial nexus" for franchise and excise tax liability. Physical presence is not required. A taxpayer has substantial nexus under bright-line presence standards if it has at least $50,000 of property or payroll in Tennessee, at least $500,000 of receipts in the state, or at least 25% of its total property, payroll, or receipts in Tennessee. A taxpayer may also have substantial nexus without meeting the bright-line thresholds if it engages in systematic and continuous business activity in the state that produces receipts attributable to Tennessee customers.

Source: Tenn. Dep't of Revenue, F&E-17 Physical Presence Not Required

Tennessee transitioned its apportionment formula for franchise and excise tax over several tax years following the enactment of the Tennessee Works Tax Act (Public Chapter 377, 2023).

For tax years ending on or after December 31, 2023 but before December 31, 2024:

• The transition formula was: (property factor + payroll factor + 5 × receipts factor) ÷ 7.

For tax years ending on or after December 31, 2024 but before December 31, 2025:

• The transition formula changed to: (property factor + payroll factor + 11 × receipts factor) ÷ 13. This transition step is required by statute and the Tennessee Department of Revenue's formal publications.

For tax years ending on or after December 31, 2025:

• Tennessee requires most taxpayers to apportion net earnings and net worth using a single sales factor: total Tennessee receipts ÷ total receipts everywhere. Limited exceptions continue to exist for certain industries, including telecommunications, which remain on special formulas (statutory exceptions summarized at Tenn. Code Ann. § 67-4-2012(a)(3)).

Authority and effective dates:

• The Tennessee Department of Revenue Franchise & Excise Tax Manual (June 2025, pp. 22–23) and Important Notice F&E Apportionment-9 confirm the transition formulas and effective dates. Public Chapter 377 (2023) as incorporated into the Tennessee Code provides the statutory authority.

Source: Tennessee Franchise & Excise Tax Manual, June 2025, pp. 22–23 Source: F&E Apportionment-9, Tenn. Dep't of Revenue (2023)

Tennessee's franchise tax is imposed on a taxpayer's net worth apportioned to Tennessee. Effective for tax years ending on or after January 1, 2024, the franchise tax base is computed solely on net worth; the alternative property-based minimum measure that existed before 2024 was repealed by Public Chapter 950 (2024) (SB2103/HB1893), signed May 13, 2024.

## Net worth definition — separate entity basis

For taxpayers filing on a separate entity basis, net worth is the difference between a taxpayer's total assets and its total liabilities, computed in accordance with generally accepted accounting principles (GAAP), measured at the close of business on the last day of the tax year. Tenn. Code Ann. § 67-4-2106(b) provides this definition.

If a taxpayer does not maintain its books and records in accordance with GAAP, net worth must be computed using the accounting method the taxpayer uses for federal income tax purposes, so long as that method fairly reflects the taxpayer's net worth for franchise tax purposes. The statute permits this fallback to federal reporting standards when GAAP is not applied.

## Consolidated net worth election

A taxpayer that is a member of an affiliated group may elect with its affiliates to compute franchise tax net worth on a consolidated basis. Under this election, net worth is defined as the difference between total assets and total liabilities of the affiliated group at the close of business on the last day of the tax year, as shown by a pro forma consolidated balance sheet that includes all members of the group. Tenn. Code Ann. § 67-4-2106(b) defines consolidated net worth.

The pro forma consolidated balance sheet must be prepared in accordance with GAAP, and transactions and holdings between members of the group and holdings in non-domestic persons must be eliminated. The Tennessee Franchise & Excise Tax Manual explains that the election must be filed prior to the statutory due date (including extensions) of the return for the period in which the election takes effect. The election is binding for a minimum of five years and remains in effect after the minimum period until revoked. Tenn. Code Ann. § 67-4-2109(e); Manual Ch. 9, p. 172.

## Minimum franchise tax

Regardless of the net worth calculation, Tennessee imposes a minimum annual franchise tax of $100. Tenn. Code Ann. § 67-4-2119 establishes this floor, which applies to all taxpayers subject to franchise tax.

## Short-period and final returns

When a return covers less than twelve months, including returns of taxpayers in final return status, the franchise tax is prorated to cover the proportionate part of the year. Tenn. Code Ann. § 67-4-2115(b). The statute excludes any return based on a fifty-two to fifty-three-week year from proration.

For a taxpayer in final return status—defined as a taxpayer that has ceased doing business, begun liquidation, withdrawn from Tennessee, or otherwise ceased to be subject to the franchise tax—the franchise tax on a final return is computed using either the taxpayer's net worth immediately preceding liquidation or the average monthly values of net worth, depending on how the business actually liquidates. Average monthly value is determined by totaling the value of net worth as of the final day of each month of the tax period, then dividing that total by the number of months in the tax period. Tenn. Code Ann. § 67-4-2115(b); Manual Ch. 9, p. 178.

## Repeal of property-based minimum measure and transition election

Before tax years ending on or after January 1, 2024, Tennessee's franchise tax base was computed as the greater of net worth or the value of real and tangible property owned or used in Tennessee (excluding exempt inventory and exempt required capital investments under the prior version of Tenn. Code Ann. § 67-4-2108). This property-based minimum measure was repealed, effective for tax years ending on or after January 1, 2024, by Public Chapter 950 (2024) (SB2103/HB1893), signed May 13, 2024. See also Tennessee Department of Revenue Important Notice FT-13 (2024) and the June 2024 Franchise & Excise Tax Manual, which confirm that, from this date, only a net worth base remains for franchise tax purposes and that the property measure (Schedule G) is eliminated for all filers.

However, Tenn. Code Ann. § 67-4-2123 permits a taxpayer to elect annually to use the pre-2024 minimum tax base under the old § 67-4-2108 if (1) the election results in a higher tax for the tax period, and (2) the taxpayer waives any claim that the minimum tax base is unconstitutional by failing the internal consistency test. This election is optional and must be made year by year; it is not binding for future periods.

Source: Tenn. Code Ann. §§ 67-4-2106, 67-4-2108, 67-4-2109, 67-4-2115, 67-4-2119, 67-4-2123 Source: Tennessee Franchise & Excise Tax Manual, June 2024, Ch. 9–10 Source: FT-13 – Property Measure Repeal (2024) Source: Public Chapter 950 (HB1893/SB2103) 2024

Tennessee's 6.5% excise tax is imposed on a taxpayer's net earnings apportioned to Tennessee. The computation begins with federal taxable income, applies Tennessee-specific additions and subtractions, apportions the result, deducts net operating loss carryovers, and then subtracts a $50,000 standard deduction (for tax years ending on or after December 31, 2024) to arrive at net earnings subject to tax.

## Starting point: federal taxable income (entity-type dependent)

For C corporations and most entities taxed as corporations for federal purposes, "net earnings" is defined as federal taxable income or loss before the net operating loss deduction and before the special deductions for dividends received under I.R.C. §§ 241–247, subject to Tennessee-specific adjustments. Tennessee Franchise & Excise Tax Manual, June 2025, Ch. 12, p. 231 (citing Tenn. Code Ann. § 67-4-2006(a)(1)). This includes any taxpayer that files a federal Form 1120 or variation, except S corporations and unitary businesses.

For S corporations, net earnings is federal taxable income from the federal Form 1120S before the operating loss deduction, adjusted as described below. Manual, Ch. 12, p. 231 (citing § 67-4-2006(a)(2)).

For partnerships (including LLCs taxed as partnerships), net earnings is the partner's distributive share of ordinary business income from federal Schedule K-1 (Form 1065), adjusted. Manual, Ch. 12, p. 231 (citing § 67-4-2006(a)(4)).

For single-member LLCs treated as disregarded entities for federal purposes, net earnings is the net profit from all businesses as reported on federal Form 1040 Schedule C, including amounts subject to self-employment tax, less the amount subject to self-employment taxes (to avoid double taxation of that component). Manual, Ch. 12, p. 231 (citing § 67-4-2006(a)(7)).

Unitary groups of financial institutions compute net earnings on a combined basis. § 67-4-2006(a)(3); Manual, Ch. 12, p. 232.

Most taxpayers file excise tax returns on a separate-entity basis, even if they filed a consolidated federal income tax return with affiliates. Federal taxable income must be recomputed as if the taxpayer had filed its federal return separately. Manual, Ch. 12, p. 232 (citing Tenn. Code Ann. § 67-4-2007(e)(1)).

## Required additions to federal taxable income

Tennessee requires taxpayers to add back to federal taxable income:

• Intangible expenses paid to affiliates that were deducted federally (§ 67-4-2006(b)(1)(K)). The add-back is subject to disclosure requirements and may have limited exceptions if the taxpayer demonstrates the transaction meets economic-substance or tax-parity conditions. Manual, Ch. 12, p. 234.

• Bonus depreciation in excess of that allowed under I.R.C. § 168 as it existed immediately before the Job Creation and Worker Assistance Act of 2002, for assets purchased on or before December 31, 2022 (§ 67-4-2006(b)(1)(H)). Tennessee decoupled from most post-2002 federal bonus-depreciation expansions for these assets. Manual, Ch. 12, p. 235.

• Tennessee excise tax deducted on the federal return (to prevent circularity, since excise tax is itself a deduction for federal purposes). Manual, Ch. 12, p. 245 (citing § 67-4-2006(b)(1)(M)).

• Pass-through losses or expenses allocated to the taxpayer from a pass-through entity that itself is subject to and files an excise tax return (§ 67-4-2006(b)(1)(J)), to prevent double deduction. Manual, Ch. 12, p. 242.

• Gain on the sale of a distributed asset when a taxpayer distributes an asset to a non-taxable entity or individual and the asset is sold within twelve months (§ 67-4-2006(b)(1)(I)). Manual, Ch. 12, p. 242.

The statute lists additional required additions; these are among the most common. Manual, Ch. 12, p. 231–246.

## Required subtractions from federal taxable income

Tennessee allows taxpayers to subtract from federal taxable income:

• Dividends from 80%-or-more-owned subsidiaries (§ 67-4-2006(b)(2)(A)). If the taxpayer owns 80% or more of another corporation's outstanding capital stock, dividends received from that subsidiary are excluded from Tennessee net earnings. Manual, Ch. 12, p. 247.

• Amounts included in federal taxable income but not taxable under Tennessee law (§ 67-4-2006(b)(2)(B)). Manual, Ch. 12, p. 247.

• Excess bonus depreciation subtraction, for taxpayers who added back bonus depreciation on prior returns and whose actual federal depreciation in later years is less than Tennessee depreciation (§ 67-4-2006(b)(2)(I)). Manual, Ch. 12, p. 250.

• Reserve for bad debts adjustments for certain financial institutions (§ 67-4-2006(b)(2)(J)). Manual, Ch. 12, p. 251.

The statute provides additional subtractions; these are the most commonly applied. Manual, Ch. 12, p. 247–252.

## Apportionment, NOL deduction, and $50,000 standard deduction

After computing net earnings or loss with the above adjustments, a taxpayer doing business both inside and outside Tennessee apportions that amount to Tennessee using the applicable apportionment formula (single sales factor for most taxpayers for tax years ending on or after December 31, 2025, as discussed in the apportionment-formula section of this guide). Manual, Ch. 12, p. 253 (citing § 67-4-2006(c)(1)).

The taxpayer then deducts any net operating loss (NOL) carryovers from prior tax years. Tennessee permits a taxpayer to carry forward NOLs incurred in fiscal years ending on or after July 1, 1999, for a period of fifteen years (increased from seven years by 2016 legislation). Manual, Ch. 12, p. 253 (citing § 67-4-2006(c)(2), (c)(3)). NOL is defined as the excess of allowable deductions over total income allocable to Tennessee for the year of the loss. Unitary groups of financial institutions determine NOLs on a combined basis; all other taxpayers compute NOLs on a separate-entity basis, and—except in narrow circumstances—NOLs do not transfer when a predecessor merges into a successor. § 67-4-2006(c)(3); Manual, Ch. 12, p. 254.

Finally, for tax years ending on or after December 31, 2024, the taxpayer subtracts a $50,000 standard deduction from apportioned net earnings (after the NOL deduction). This deduction cannot reduce net earnings below zero. Public Chapter 377 (2023), codified at Tenn. Code Ann. § 67-4-2007(d); Manual, Ch. 12, p. 256. The standard deduction is part of the Tennessee Works Tax Act small-business relief package.

The result after these steps is net earnings subject to excise tax, to which the 6.5% rate applies.

Source: Tennessee Franchise & Excise Tax Manual, June 2025, Ch. 12 (Schedule J – Computation of Net Earnings Subject to Excise Tax)

For tax years ending on or after January 1, 2024, Tennessee's default franchise tax base is net worth. However, under Tenn. Code Ann. § 67-4-2123, a taxpayer may annually elect to compute franchise tax based on the minimum property measure as defined in prior Tenn. Code Ann. § 67-4-2108 (pre-2024 law), but only if this election produces a higher tax for that period and the taxpayer waives any constitutional claim as to the property base.

How to Make the Election:

• The election is made annually, and is not binding for future tax years.
• The taxpayer must make the election by filing Tennessee's "Schedule G Minimum Property Measure Election" with its original, amended, or late franchise tax return for the applicable taxable year.
• Schedule G must be filed for each year the election is made; there is no blanket/automatic carry-forward to future returns.
• Taxpayers must complete the Schedule G form in full, attaching supporting calculations of the property measure base and a signed waiver statement as specified in the instructions. The form and waiver are submitted with the FAE-170 (Franchise and Excise Tax Return).
• The Department of Revenue requires this statement and supporting calculations as part of the return filing process; the election is not effectuated simply by a narrative statement, but by timely submission and completion of Schedule G.

Supporting Documentation:

• The Schedule G election requires itemized supporting calculations and a signed waiver. All documentation is subject to audit.
• The Department's Franchise & Excise Tax Manual (Dec. 2025, pp. 122–123) confirms these requirements and refers practitioners to official forms and instructions for further detail.

Source: Tennessee Franchise & Excise Tax Manual, December 2025, pp. 122–123 (Schedule G Election Procedure)

Tennessee requires combined franchise and excise tax (Form FAE‑170) returns to be filed by the 15th day of the fourth month following the close of the taxable year. For calendar-year taxpayers (Jan 1–Dec 31), that deadline is April 15 (for example, April 15, 2026, for the 2025 tax year).

Taxpayers may obtain an automatic seven‑month extension to file the return (making the extended deadline November 15 for calendar-year filers). This extension applies only to the filing of Form FAE‑170; it does not extend the payment deadline, and any unpaid tax remains subject to penalties and interest from the original due date.

Tennessee mandates estimated tax payments if a taxpayer’s combined franchise and excise tax liability (after credits) is at least $5,000 in both the current tax year and the prior tax year—short tax years must be annualized for this threshold determination. The four quarterly payments are due on the 15th day of:

• the 4th month of the current tax year (e.g. April 15 for calendar-year), • the 6th month (June 15), • the 9th month (September 15), and • the 1st month of the following year (January 15).

Late or deficient estimated payments are subject to a penalty of 2% per month, up to a maximum of 24%, plus interest on the unpaid amount.

These filing and payment deadlines ensure timely compliance, while the automatic filing extension does not eliminate the need for timely payment. Application of penalties and interest begins from the original due dates regardless of extensions or estimated payment status.

Source: Tennessee DOR – Due Dates and Tax Rates Source: Tennessee DOR – F&E‑5 Due Date for Filing Form FAE170 and Online Filing Requirement Source: Tennessee DOR – F&E‑11 Threshold for When Estimated Tax Payments are Required Source: Tennessee DOR – F&E‑13 Estimated Tax Payments Due Dates and Penalty

Tennessee law provides a detailed list of entity-level exemptions from the state's franchise and excise (F&E) tax, governed primarily by Tenn. Code Ann. § 67-4-2008. Entities must generally file Form FAE-183 annually with the Department of Revenue to confirm or renew their exempt status.

Key Exemption Categories (Tenn. Code Ann. § 67-4-2008):

• Regulated Investment Companies (RICs) and Unit Investment Trusts: Exempt if at least 75% of asset value consists of government bonds as specified in subsection (a)(3).
• REMICs and FASITs: Exempt when organized and operated solely for asset-backed securitization of debt obligations, as detailed in subsection (a)(10).
• Venture Capital Funds: Exempt if organized as an LLC, LP, LLP, or business trust, investing primarily in non-publicly traded companies and with most capital from unaffiliated investors (subsection (a)(5)).
• Diversified Investing Funds: Exempt if at least 90% of assets and income are from qualifying investment securities and most capital comes from unaffiliated investors (subsection (a)(12)).
• Affordable Housing Entities: Exempt if awarded federal § 42 low-income housing credits and maintaining the appropriate extended use agreement (subsection (a)(8)).
• Obligated Member Entities (OMEs): Exempt for entities with members who waive limited liability and meet detailed statutory criteria (subsection (a)(9)).
• Other specific exemptions: These include certain credit unions, industrial development corporations, meeting place associations, insurers as defined under Tenn. Code § 56-1-102, TNInvestco recipients, historic property preservation entities, entities owned by branches of the U.S. military (with >50% of income from services to federal installations), and owners or lessees of qualified low-income community historic structures. Each is outlined in subsection (a), paragraphs (1), (2), (4), (13)–(17).

Family-Owned Noncorporate Entities (FONCEs) — FONCE Exemption Expanded Effective July 1, 2026: The family-owned noncorporate entity exemption (FONCE) under Tenn. Code Ann. § 67-4-2008(a)(11) has been materially expanded by Public Chapter 616 (SB1910), effective July 1, 2026. The amendment:

• Broadens “family-owned” to include not only interests held directly by qualifying relatives but also those held through trusts for their benefit and estates of deceased relatives.
• Expands “qualified relatives” to include those related by blood, marriage, or adoption, including lineal descendants, spouses, former spouses, and persons descended from a common ancestor as close as first cousins.
• Updates the statutory test so that, effective July 1, 2026, trusts (not just individuals or directly held estates) may be counted for the required 95% ownership.

Entities relying on FONCE exemption must ensure they meet these broadened requirements from July 1, 2026 onward. Document eligibility carefully for all trust and estate interests.

REITs: Tennessee does not provide a standalone exemption for REITs. However, captive REIT affiliated groups are required to file on a combined basis for franchise and excise tax purposes under Tenn. Code Ann. § 67-4-2007(e)(3), with joint and several tax liability among group members.

Filing Requirements: Entities claiming exemption (including FONCEs under the amended law) must file Form FAE-183 annually by the 15th day of the fourth month following the close of their tax year to maintain exemption. The Department of Revenue imposes a $200 late penalty for non-filing. Exempt entities should also maintain documentation supporting the statutory basis for exemption, as eligibility is subject to audit review.

Source: Tenn. Code Ann. § 67-4-2008 Source: Public Chapter 616 (SB1910) — 2026 Amendment Expanding FONCE Definition Source: Tennessee DOR — Franchise & Excise Tax Exemptions Source: Tennessee DOR – Application for Exemption / Renewal Form FAE-183

Tennessee franchise and excise tax returns (filed on Form FAE-170) are due on the 15th day of the fourth month after the close of the taxpayer’s taxable year. For calendar-year filers, the standard due date is April 15. This deadline is established in Department of Revenue guidance and current summary pages (see below).

Automatic filing extension: Tennessee provides an automatic seven‑month extension to file the franchise & excise tax return for tax years beginning on or after January 1, 2021. To qualify for the extension, taxpayers must, by the original due date, request the extension (either through the TNTAP online portal, approved forms, or checking the appropriate box on the return), and pay at least 90% of the current year’s liability or 100% of the prior year’s liability. This extension applies only to the filing of the return—not to payment of tax. Any liability unpaid after the original due date accrues penalty and interest, regardless of the extension. No payment is due if no tax will ultimately be owed for the year.

Summary of dates:

• Original return due: 15th day of fourth month after year-end (April 15 for calendar-year filers)
• Maximum automatic extension: seven months (extended due date becomes November 15 for calendar year)

These deadlines and rules apply to both franchise and excise tax under Tennessee’s single return system. Extensions are not granted for payment purposes—late or underpaid tax is subject to penalty and interest from the original due date irrespective of any extension.

Source: Tennessee DOR – Due Dates and Tax Rates Source: Tennessee DOR – F&E-9: Extension for Filing the Franchise and Excise Tax Return

Direct answer: In Tennessee, a business whose only activity in the state is the solicitation of orders for sales of tangible personal property (with orders approved and shipped from outside the state) is protected from Tennessee excise tax liability by federal Public Law 86-272, but is still subject to franchise tax.

Why: Public Law 86-272 (15 U.S.C. §§ 381-384) shields out-of-state sellers (including corporations and other entities) from state taxes measured by net income if their only in-state activity is solicitation of orders for tangible personal property, fulfilled from outside the state. Tennessee's excise tax is measured by net earnings (net income) and therefore is subject to this federal limitation. Tennessee's franchise tax, however, is measured by net worth, not by net income, so PL 86-272 does not provide protection from franchise tax liability. The Tennessee Department of Revenue, official F&E Manual, and Attorney General all confirm this distinction.

Source support:

• Official DOR guidance (F&E-19) states that if a company qualifies for PL 86-272 protection, it need only file a franchise tax return in Tennessee and is not required to file an excise tax return (Tennessee DOR F&E-19).
• The Tennessee Franchise & Excise Tax Manual explicitly states that "PL 86-272 does not apply to the franchise tax, as it is not an income tax" (Tennessee Franchise & Excise Tax Manual, June 2025, p. 160).
• Tennessee Attorney General Opinion 04-159 (November 8, 2004) explains that PL 86-272 only applies to taxes measured by net income, not those measured by net worth (Tenn. AG Op. 04-159).

Caution / review status: Human confirmed by SALT reviewer as of 2026-06-16. Requires periodic review if Tennessee changes the measure or composition of either tax, or if federal guidance regarding PL 86-272 or its applicability evolves.

Tennessee allows a range of nonrefundable credits against franchise and excise tax liability, subject to detailed statutory definitions, thresholds, and limitations. Key credits in effect as of June 2026 include:

1. Job Tax Credit (§ 67-4-2109(b)) Businesses locating or expanding in Tennessee and making the required capital investment—plus creating at least the specified number of new full-time jobs—can claim a job tax credit. The standard is $4,500 per qualifying job, with a minimum of 25 jobs for businesses in Tier 1 or 2 enhancement counties, 20 jobs in Tier 3, and 10 in Tier 4 (see § 67-4-2109(b)(2), which incorporates the ECD tier map by reference). This credit is generally limited to 50% of combined franchise and excise tax liability for the year, but for a “headquarters facility or hub” (as defined in § 67-4-2109(b)(3)(E)), the offset can reach 100% with approval by both the Commissioner of Revenue and Commissioner of Economic & Community Development. Unused job tax credit may be carried forward up to 15 years (25 years if earned after January 1, 2008).

2. Industrial Machinery Credit (§ 67-4-2009(3)) Taxpayers may claim a nonrefundable credit equal to 1% of the purchase price of qualified industrial machinery, with a cap of 50% of current franchise and excise tax liability. Unused credit carries forward up to 15 years. If machinery is disposed of before its useful life ends, recapture is required (§ 67-4-2009(3)(D)).

3. Qualified Production (Film and Digital Media) Credit (§ 67-4-2109(j)) For qualified productions commencing after July 1, 2021, the credit is 40% of qualifying payroll (50% for payroll in “enhancement counties,” meaning counties classified by ECD as economically distressed for that year per § 67-4-2103). The credit is generally capped at 50% of annual combined liability, with a carryforward of 25 years (§ 67-4-2109(j)(3)).

4. Self-Insurer Gross Premiums Tax Credit (§ 67-4-2009(1)) Applies to self-insured insurance entities: a credit of 4% of gross premiums (excluding surcharges) paid on business in Tennessee, to offset franchise or excise tax liability for qualifying insurers (life and certain other lines as defined in § 67-4-2009(1)).

5. Credit Carryover, Transfer, and Successor Limitation (§ 67-4-2009(6); § 67-4-2109(e)) Statute requires credits be claimed only by the entity that earned them. If an entity holding credits is merged or consolidated into another, unused credits ordinarily do NOT survive except for "shell survivor" transactions as outlined in § 67-4-2009(6)(B). The Department of Revenue interprets this narrowly in F&E Credit-1.

The above credits represent the principal statutory incentives. Brownfield, hospital/medical equipment, green energy, and other specialty credits may exist, but confirmed statutory references for those could not be located in the primary sources as of 2026-06-16.

Source: Tenn. Code Ann. § 67-4-2109 Source: Tenn. Code Ann. § 67-4-2009

Not yet human confirmed. Unable to confirm brownfields or other narrow credits as of 2026-06-16. Practitioners should verify against current statutes for the most recent specialty credits.

Direct answer: As of June 2026, Tennessee does NOT permit partnerships or S corporations to make an election to pay excise tax at the entity level in lieu of partner/shareholder-level taxation (i.e., Tennessee does not offer an optional pass-through entity (PTE) tax regime akin to the entity-level PTE tax elections available in some other states post-TCJA/SALT cap).

Why: Tennessee's franchise and excise taxes are already imposed at the entity level on most business entities—including S corporations, partnerships (except those qualifying for exemption under Tenn. Code Ann. § 67-4-2008), and LLCs—regardless of federal income tax treatment. Both taxes, therefore, apply to the entity itself. There is no statute, regulation, official guidance, or ruling authorizing a special elective PTE-level excise tax, nor any SALT cap workaround regime as of June 2026. Instead, partners and S corporation shareholders are generally not subject to Tennessee income tax individually, since Tennessee imposes no state personal income tax on ordinary income. Income, franchise, and excise tax is assessed at the entity level according to Tennessee's standard rules.

Source support:

• Tennessee Department of Revenue Franchise & Excise Tax Manual, June 2025 (see Ch. 1, pp. 6–8, "Entities Subject to Tax", and Chapter 6).
• Tenn. Code Ann. § 67-4-2007 and § 67-4-2006 (definitions and imposition provisions).
• Official Tennessee DOR PTE Tax Q&A (https://www.tn.gov/revenue/taxes/franchise---excise-tax/faq.html), confirming no separate PTE workaround regime as of the current date.

Caution / review status: Not yet human confirmed. Confirm with latest statutes and guidance, as PTE-level optional excise tax regimes are subject to legislative activity in other states and could be enacted or proposed with little lead time in Tennessee.

Source: Tennessee Franchise & Excise Tax Manual, June 2025, Ch. 1 and Ch. 6 Source: Tenn. Code Ann. §§ 67-4-2006, 67-4-2007 Source: Tennessee DOR — Franchise & Excise FAQ (confirming no elective PTE-level excise tax)

Tennessee franchise and excise tax returns (filed via Form FAE-170) are due on the 15th day of the fourth month following the close of the taxpayer’s tax year. For calendar-year filers, this is April 15 of the year following the tax year (e.g., April 15, 2026, for a tax year ending December 31, 2025). This single return covers both the franchise and excise tax obligations required under Title 67, Chapter 4 of the Tennessee Code.

Taxpayers may obtain an automatic seven-month extension to file the return by making a timely extension request. However, the extension applies only to the filing of the return—not to payment. To secure the extension without late filing penalties, the taxpayer must pay, by the initial due date, either 90% of the current year’s tax liability or 100% of the prior year’s liability. Any balance unpaid after the original due date accrues penalty and interest, regardless of an approved extension.

Estimated tax payments are mandatory when a taxpayer’s total franchise and excise tax liability (after credits) for both the previous and current year equals or exceeds $5,000, with short tax years annualized to test the threshold. When required, estimated payments are made in four installments, due on the following dates for calendar-year taxpayers:

• 15th day of the 4th month (April 15)
• 15th day of the 6th month (June 15)
• 15th day of the 9th month (September 15)
• 15th day of the 1st month of the subsequent year (January 15)

Late or insufficient estimated payments are assessed a penalty equal to 2% per month (up to a maximum of 24%), in addition to statutory interest, until paid. The statutory basis for these deadlines and requirements is Tenn. Code Ann. § 67‑4‑2015, as confirmed in Department of Revenue guidance on due dates and extensions.

Source: Tennessee DOR — F&E Tax Due Dates

Note: The prior official PDF link for the statute text is unavailable as of this update (2024-06-17), but the cited statute remains current and applicable. No material changes to deadlines or requirements were detected since the prior update.

Tennessee law defines "doing business" for franchise and excise tax purposes as broadly as any activity carried on within the state for gain, benefit, or advantage, whether direct or indirect. This broad test applies in addition to, and sometimes independent of, the bright-line substantial nexus thresholds. The core statutory definition is found at Tenn. Code Ann. § 67-4-2004(15).

Statutory Definition: Tenn. Code Ann. § 67-4-2004(15) defines "doing business" to include “any activity purposefully engaged in within Tennessee for the object of gain, benefit or advantage, whether direct or indirect, to the taxpayer or to others represented by or associated with the taxpayer.” This includes not only companies organized or qualified in Tennessee, but also foreign entities carrying on activities exceeding mere passive investment.

Illustrative Activities – Statute and DOR Manual: The Department of Revenue’s Franchise & Excise Tax Manual (June 2025, Ch. 1, pp. 7–10) explains that "doing business" includes, but is not limited to:

• The ownership or leasing of real or tangible personal property in Tennessee;
• Maintaining an office, place of business, or outlet;
• Having employees, agents, or independent contractors conducting business activities in the state;
• Performing personal services or engaging in sales, service, or solicitation within the state;
• The use of Tennessee-based property in a trade or business.

The statute and Manual confirm that the presence or regular use of property, employees, or representatives for profit is generally sufficient.

Exclusions and Boundaries: Certain activities do not by themselves constitute "doing business." Notable exclusions include:

• Mere ownership of a limited partnership interest by itself is not “doing business” under Tennessee law unless the limited partner materially participates. (Manual, Ch. 1, p. 9)
• Purely passive investment activities where the taxpayer exercises no operational control are not “doing business.”
• Activities protected by Public Law 86-272 (solely solicitation of tangible goods, with order approval and fulfillment outside Tennessee) are not considered "doing business" for excise tax purposes, but still trigger franchise tax. (Manual, Ch. 1, p. 10)

Departmental Guidance: The Department applies a facts-and-circumstances approach but considers "doing business" to be present where the taxpayer's activities are systematic, regular, and more than completely passive. Occasional, isolated transactions might not constitute doing business for annual franchise and excise tax, but ongoing relationships or property presence usually will. The Manual at Ch. 1, pp. 7–10, offers additional interpretive guidance and examples.

Certificate of Authority: Tennessee courts and the DOR have explained that merely obtaining or being required to obtain a "certificate of authority" to do business under Tenn. Code Ann. § 48-25-101 et seq. is a strong indicator, but not a prerequisite, for "doing business" for tax purposes; the two regimes overlap but are not strictly coextensive.

Source: Tenn. Code Ann. § 67-4-2004(15) Source: Tenn. Code Ann. § 67-4-2105(a) Source: Tennessee Franchise & Excise Tax Manual, June 2025, Ch. 1, pp. 7–10

Estimated payment obligation and threshold:

Tennessee requires corporations and other entities subject to franchise and excise tax to make estimated tax payments if their combined franchise and excise tax liability (after credits) is $5,000 or more for both the current tax year and preceding tax year. Short-period years must be annualized for threshold determination. (Tennessee DOR F&E-11).

Quarterly due dates: Estimated payments are made in four equal installments, due on:

• 15th day of the 4th month (typically April 15 for calendar-year taxpayers),
• 15th day of the 6th month (June 15),
• 15th day of the 9th month (September 15), and
• 15th day of the 1st month of the following year (January 15)

(Tennessee DOR, Due Dates & Tax Rates; F&E-13).

Computation method (safe harbor): Estimated payments may be based on either:

• 25% of the current year's liability, annualized where appropriate, or
• 25% of the prior year's liability (the "safe harbor" method), provided the prior year was a full 12-month tax year and reflected tax due.

See F&E-11 and the Department's estimated payments worksheet. If a taxpayer bases payments on prior year liability but ultimately owes substantially more, no underpayment penalty applies as long as the installment equals at least 25% of the prior full-year liability.

Alternatively, taxpayers may use the IRS annualized income installment method if their income is uneven throughout the year, but must attach the applicable worksheet to their return.

Penalty for underpayment: If required estimated payments are late or underpaid, Tennessee assesses a penalty of 2% per month (not to exceed 24%) on the underpaid amount, plus statutory interest until full payment is made. (Tennessee DOR F&E-13).

Summary:

• Estimated payments are required if combined F&E tax after credits is at least $5,000 in both the prior and current year.
• Four installments are due for calendar-year filers: April 15, June 15, September 15, January 15.
• "Safe harbor" allows use of prior year liability if conditions are met.
• 2%/month penalty applies to late/underpaid estimates, plus interest.

Source: Tennessee DOR – F&E-11 Threshold for When Estimated Tax Payments are Required Source: Tennessee DOR – F&E-13 Estimated Tax Payments Due Dates and Penalty Source: Tennessee DOR – Due Dates and Tax Rates

Not yet human confirmed. This section summarizes Department guidance as of 2026-06-16. Review statutory changes and DOR updates for future compliance.

For tax years ending on or after December 31, 2025, most Tennessee franchise and excise taxpayers must use a single sales factor apportionment method. However, a narrow set of industries are statutorily excepted and must continue to use specialized formulas, principally the three-factor formula (property + payroll + three times receipts, divided by five). This regime is defined by explicit statute and confirmed by Department of Revenue (DOR) guidance.

Industries and taxpayer types retaining three-factor (or other special) apportionment formulas:

• Telecommunications ("Qualified Members" of a "Qualified Group"): Tenn. Code Ann. § 67-4-2012(a)(7) defines a “qualified member” as an entity that provides telecommunications services, internet access, video programming, or direct-to-home satellite service described in 47 U.S.C. §§ 151, 152, 153, and related federal provisions, where the group has more than 50% common ownership or control. These taxpayers must continue to apportion under the three-factor formula: (property + payroll + 3 × receipts) ÷ 5. See § 67-4-2012(a)(7)(A)–(C).

• Common carriers (Transportation and Freight): Air carriers, railroads, and motor carriers continue to use specialized formulas set out in Tenn. Code Ann. § 67-4-2013, which prescribes a version of the three-factor method tailored to transportation income and presence, with industry-specific factor sourcing rules. See § 67-4-2013(b)–(d).

• Financial Institutions: Financial institutions, as defined in Tenn. Code Ann. § 67-4-2104 and addressed in apportionment rules at § 67-4-2108, continue to use a three-factor formula specific to financial income. Financial institution unitary groups use a combined group formula, as detailed in those statutes and in the DOR manual.

The 2025 Franchise & Excise Tax Manual, at p. 23, confirms that “all taxpayers except those identified in Tenn. Code Ann. §§ 67-4-2012(a)(7), 67-4-2013, and 67-4-2108 will apportion net earnings/net worth using a single sales factor for tax years ending on or after December 31, 2025.”

No additional industries are listed in the current Manual or Tennessee statutes as exceptions to single sales factor as of June 2026.

Source: Tenn. Code Ann. § 67-4-2012(a)(7) Source: Tennessee Franchise & Excise Tax Manual, June 2025, p. 23 Source: Tenn. Code Ann. § 67-4-2013 Source: Tenn. Code Ann. § 67-4-2108

Not yet human confirmed. Departmental guidance and Tennessee statutes should be periodically checked for further industry-specific formula carve-outs or definitions.

Tennessee's bright-line presence thresholds for establishing substantial nexus under the franchise and excise tax statutes—$50,000 of property in Tennessee, $50,000 of payroll, or $500,000 of receipts, or 25% of any such factor—are set as fixed statutory dollar amounts.

No Indexation or Statutory Adjustment: The governing statute, Tenn. Code Ann. § 67‑4‑2004(49), explicitly defines these nexus thresholds by dollar figure. There is no provision in the statute, regulations, or official Department of Revenue guidance providing for annual adjustment, inflation indexing, or update by administrative action. These fixed amounts have remained unchanged since their effective date (January 1, 2016, per 2015 Tenn. Pub. Ch. 514), and any change requires legislative amendment of the underlying statute.

Confirmation in Department Guidance: Department of Revenue Important Notice F&E-17 and official nexus publications restate the $50,000/$500,000/25% standards as static figures, with no reference to adjustment or annual review. Neither the Tax Manual nor the relevant administrative forms or schedules reference an update mechanism—these figures are directly cited as binding until further legislative action.

Current Effective Law:

• The statutory thresholds of $50,000 for property/payroll, $500,000 for receipts, and 25% factor will remain in force until Tennessee amends the law. Tennessee has not adopted any automatic adjustment or inflation escalation for these amounts.

Source: Tenn. Code Ann. § 67-4-2004(49) Source: Tennessee DOR Important Notice F&E-17