Tennessee is famous for having no state income tax. That is true — for individuals. The Hall Income Tax on interest and dividends was repealed effective January 1, 2021, and there is no state tax on personal wages.
Then people form an LLC, and a letter arrives from the Department of Revenue.
Tennessee’s franchise and excise tax is a separate, business-level tax, and it catches new owners off guard every year. Here is how it works, what it costs, and the one rule that generates more penalty notices in Montgomery County than any other.
Who owes franchise and excise tax
Franchise and excise (F&E) tax applies to corporations, LLCs, limited partnerships, and business trusts that are registered in Tennessee or doing business in Tennessee (Source: Tennessee Department of Revenue).
Note what is on that list: the LLC. Choosing an LLC because it is simpler than a corporation does not exempt you. Note also what is not the trigger — profit. Registration and activity are what create the obligation, not income.
The two taxes and their rates
| Tax | Rate | Base | Minimum |
|---|---|---|---|
| Franchise tax | 0.25% | Net worth apportioned to Tennessee | $100 per year |
| Excise tax | 6.5% | Taxable income apportioned to Tennessee | None |
The excise tax behaves the way most people expect a tax to behave: no taxable income, no excise tax. The franchise tax does not.
The $100 minimum: the rule that costs people the most
Read this one twice.
The franchise tax carries a $100 annual minimum, and it is owed even if the business is completely inactive — as long as the entity remains registered with the Tennessee Secretary of State.
This is the single most common and most avoidable problem we see. The pattern is always the same:
- Someone forms an LLC for a business idea.
- The idea does not go anywhere. No revenue, no expenses, no bank activity.
- They assume the LLC “went away” because they stopped using it.
- It did not. It stayed registered with the Secretary of State.
- Years later they receive a bill for accumulated minimum franchise tax, plus penalties and interest, plus unfiled-return exposure.
Zero income does not mean zero filing. A registered Tennessee LLC with no activity at all still owes the $100 minimum franchise tax and still has to file the F&E return.
If you have an LLC you no longer use, you have two real options: keep it registered and pay the $100 every year, or formally dissolve it with the Secretary of State. What does not work is ignoring it. The clock keeps running for as long as the entity exists on the state’s books.
Deadlines and estimated payments
For a calendar-year entity, the F&E return is due April 15. Tennessee allows a seven-month extension, to November 15.
An extension gives you more time to file — not more time to pay. Interest and penalties build on unpaid balances regardless of the extension.
Estimated payments are required when the combined franchise and excise liability was $5,000 or more in both the prior year and the current year. When required, they are due on the 15th day of the 4th, 6th, and 9th months of the fiscal year, plus the 1st month of the following year. For a calendar-year filer, that means April, June, September, and January.
The FONCE exemption
Tennessee provides several F&E exemptions. The one that matters most to families is the FONCE exemption — Family-Owned Non-Corporate Entity.
It is designed for entities owned by family members that primarily hold passive investments or residential rental property, and it can eliminate the F&E obligation entirely for a qualifying entity. The requirements are specific, they cover both who owns the entity and where its income comes from, and they must be met for the year in question.
Two practical points. First, FONCE is not automatic — an entity that qualifies has to claim it correctly. Second, qualification is tested year by year. An entity that qualified last year can fall out of the exemption when its income mix or ownership changes. If you hold rental property in an LLC with relatives, this is worth a specific conversation rather than an assumption.
The related piece: your Montgomery County business license
F&E tax is a state obligation. Your business license is a county one, and it runs on a completely different set of thresholds. Both apply.
| Annual gross receipts | License required | Cost | Business tax return? |
|---|---|---|---|
| $0 – $3,000 | None | — | No |
| $3,001 – $99,999 | Minimal Activity License | $15 initial + $15 annual renewal | No |
| $100,000 and above | Standard Business License | $15 | Yes — filed with the TN Department of Revenue |
A few details worth knowing:
- Changing information on your account costs $5.
- Partnerships, LLCs, corporations, and trusts need a FEIN before applying.
- Businesses located inside city limits may also need a municipal license in addition to the county one.
- The business tax return is due on the 15th day of the 4th month after your fiscal year closes.
Applications go through the Montgomery County Clerk, 350 Pageant Lane Suite 502, Clarksville, TN 37040, (931) 648-5711, open Monday through Friday from 8:00 a.m. to 4:30 p.m.
What the state charges to keep your LLC alive
One more line item owners forget when they budget for an entity (Source: Tennessee Secretary of State fee schedule):
| Filing | Form | Fee |
|---|---|---|
| Articles of Organization (LLC) | SS-4270 | $300 minimum |
| Charter, For-Profit Corporation | SS-4417 | $100 |
| Certificate of Authority, foreign LLC | SS-4233 | $300 minimum |
| Assumed Name (DBA) | SS-4402 | $20 |
| Annual Report, LLC | — | $300 minimum, up to $3,000 (adds $50 per member above 6) |
| Annual Report, corporation | — | $20 |
Add it up for an inactive single-member LLC: $300 annual report plus $100 minimum franchise tax. That is $400 a year to keep an entity that does nothing. Sometimes that is worth it because you plan to restart. Often it is not.
Frequently asked questions
My LLC made no money this year. Do I still have to file?
Yes. As long as the LLC is registered with the Tennessee Secretary of State, it owes the $100 minimum franchise tax and must file the franchise and excise return. Inactivity does not suspend the obligation — only dissolution does.
I thought Tennessee had no income tax. Why does my business owe 6.5%?
The repeal of the Hall Income Tax, effective January 1, 2021, ended the state tax on individual interest and dividend income. It has no effect on the business-level excise tax, which is 6.5% of taxable income apportioned to Tennessee and applies to LLCs, corporations, limited partnerships, and business trusts.
Does a single-member LLC owe franchise and excise tax?
Generally yes. A single-member LLC that is disregarded for federal income tax purposes is still a separate entity for Tennessee F&E purposes when it is registered or doing business in the state. Being disregarded federally does not make it disregarded in Tennessee.
How do I stop owing the $100 every year?
Formally dissolve the entity with the Secretary of State and close out your final F&E filing. Simply abandoning the business or closing the bank account leaves the registration — and the liability — in place.
Get your entity compliant before it compounds
Franchise and excise notices get more expensive the longer they sit. If you are not sure whether your LLC is current, whether FONCE applies to you, or whether an unused entity should be dissolved, it is a short conversation with a clear answer.
Jimenez Consulting Tax Services works with LLC and small business owners across Clarksville and Montgomery County on entity setup, F&E filings, and business licensing. Call (931) 802-8620 or visit us at 2225 Lowes Dr W Ste B, Clarksville, TN 37040. Bilingual service available.