Key figures
Tennessee accounting
2026, with sources
Two taxes on one return
Tennessee has no individual income tax on wages, but corporations, LLCs and most other entities with limited liability pay two taxes on Form FAE170: an excise tax of 6.5% on net earnings and a franchise tax of 0.25% on net worth, with a $100 minimum. The return is due on the 15th day of the fourth month after year end; Form FAE173 extends the filing date but not the payment date.
The excise tax starts from federal taxable income, and since the Tennessee Works Tax Act it allows a standard deduction of the lesser of net earnings or $50,000 for tax years ending on or after December 31, 2024. For a startup just turning profitable, that means the first $50,000 of Tennessee earnings carries no excise tax.
The 2023 and 2024 changes
Two laws reshaped the tax in quick succession. The Tennessee Works Tax Act of 2023 phased apportionment from a triple-weighted sales formula to a single sales factor, reached for tax years ending on or after December 31, 2025, and brought excise tax into line with federal bonus depreciation for assets bought on or after January 1, 2023.
Public Chapter 950 in 2024 then removed the franchise tax’s property measure, which had taxed the greater of net worth or the value of Tennessee property. Net worth, apportioned on the same single sales factor, is now the only base, which makes the franchise tax far smaller for asset-light companies.
Separate entity, 15-year losses
Tennessee taxes each entity separately rather than as a combined group, with an optional consolidated net worth election for the franchise tax only. Net operating losses carry forward for up to 15 years. A startup with $2 million of accumulated federal losses and only a Tennessee subsidiary’s activity should look at which entity actually generated the Tennessee loss, because a loss stays with the entity that incurred it.
Deadlines
- 15th day of the 4th month after year end (April 15)Franchise and excise tax return (calendar year)Form FAE170
- The original due dateExtension of time to file; tax is still due by the original dateForm FAE173
The federal baseline
This page covers what Tennessee adds. The federal rules underneath it apply here too.
Common questions
Is the Tennessee franchise tax still based on our property?
No longer. Public Chapter 950, signed May 10, 2024, removed the property measure, so the franchise tax is 0.25% of apportioned net worth with a $100 minimum. Companies that paid on the property measure for earlier years could claim refunds, but that window closed in December 2024.
Can we deduct R&D costs for Tennessee excise tax?
Yes, and it has been since 2022. Tennessee applies Section 174 as it stood before the 2017 tax act when computing net earnings for excise tax, so research costs that had to be amortized federally from 2022 to 2024 were deducted currently in Tennessee. That created a Tennessee book-tax difference in the other direction from most states.
What apportionment formula applies in 2026?
A single sales factor, for tax years ending on or after December 31, 2025, after a two-year phase-in from the old three-factor formula. A company with net earnings can elect the older triple-weighted formula for a year if it produces a higher Tennessee ratio, which is mainly a planning point for companies whose customers are mostly in Tennessee.
Accounting next door
- ALAlabama accountingAlabama taxes corporations at 6.5% with a deduction for federal income tax, apportions on a single sales factor, and conforms to federal changes automatically, so it follows federal R&D expensing and bonus depreciation.
- ARArkansas accountingArkansas taxes corporate income on a graduated scale topping out at 4.3%, apportions by a single sales factor with market sourcing under Act 719, and allows no bonus depreciation.
- GAGeorgia accountingGeorgia taxes C-corporations at a flat 4.99% for 2026, apportions on gross receipts alone, adds a net worth tax capped at $5,000, and decouples from bonus depreciation and Section 174A.
- KYKentucky accountingKentucky taxes corporations at 5% plus a limited liability entity tax with a $175 minimum, requires unitary combined returns, apportions on single sales factor, and decouples from bonus depreciation and Section 174A.
- MOMissouri accountingMissouri taxes corporations at a flat 4% on income apportioned by a single sales factor, with services sourced to the customer. There is no franchise tax.
- MSMississippi accountingMississippi taxes corporate income at 0% on the first $5,000, 4% on the next $5,000 and 5% above, keeps a throwback rule, and is phasing out its franchise tax: $0.50 per $1,000 of capital in 2026, repealed from 2028.
- NCNorth Carolina accountingNorth Carolina taxes C-corporations at 2.00% for 2026 on a single, market-sourced sales factor, but its 2026 conformity update decoupled from federal R&D expensing and it still adds back 85% of bonus depreciation.
- VAVirginia accountingVirginia taxes corporations at a flat 6% with a double-weighted sales factor and cost-of-performance sourcing. It conforms to the IRC as of December 31, 2025 but decoupled from the 2025 R&D expensing and from bonus depreciation.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- US GAAPUS GAAP for early-stage startups, in plain EnglishAccrual accounting, revenue recognition (ASC 606), leases (ASC 842), stock compensation and capitalized software: what each means for a small company.
- The closeWhy startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.
More of the Tennessee guide
- ReceivablesReceivables and sales tax in TennesseeSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in TennesseePaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in TennesseeWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in TennesseeRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in TennesseeCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Tennessee DOR — Franchise and Excise Tax Return (FAE170) instructions
- Tennessee DOR — Schedule G (property measure) refunds, Public Chapter 950 (2024)
- Tennessee DOR — Notice 23-11, Tennessee Works Tax Act changes to franchise and excise taxes
- Tennessee DOR — Notice 23-04, excise tax $50,000 standard deduction
- Tennessee DOR — Notice 22-03, research and experimental expenditures
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.