Tennessee Excise Tax
Tennessee’s excise tax, which effectively is an income tax, is a flat 6.5% tax on net earnings from doing business in the state. Only general partnerships and sole proprietorships are exempt from the excise tax. The excise tax applies to net earnings of corporations, foreign and domestic, arising from business done within Tennessee.
Exemptions and Filing
You can file for an exemption using the Tennessee Taxpayer Access Point (TNTAP) without creating a logon. Seventeen different types of entities are exempt from the franchise and excise taxes, including family-owned noncorporate entities and LLCs.
Penalties and Considerations
Tennessee follows federal tax rules for capital gains. The small business excise tax applies to businesses with total receipts under $3 million, while the franchise and excise tax applies to businesses over that amount. The Tennessee Department of Revenue may impose penalties on small businesses that do not file their tax returns on time or correctly, including failure-to-file and failure-to-pay penalties, interest charges, and audits. Buyers should hire competent professionals to determine the impact of excise and franchise taxes before starting a business.