Key figures
Tennessee advisory
2026, with sources
- Personal income tax
- NoneNo tax on wages; the Hall tax on investment income is repealed.
No wage tax, plenty of entity tax
Tennessee is attractive to founders and employees because it does not tax wages, and payroll carries no state withholding. The taxes land on the entity instead: franchise and excise tax, the gross-receipts business tax, and a sales tax that reaches SaaS. Choosing an LLC instead of a corporation does not avoid them, since LLCs pay franchise and excise tax too.
An example
A Nashville SaaS startup with $1.5 million of revenue, 15% of it from Tennessee customers, and $3 million of net worth after its seed round. Its excise tax is 6.5% of apportioned earnings after the $50,000 standard deduction, and nothing while it is in losses. Its franchise tax is 0.25% of 15% of $3 million, $1,125. It collects sales tax on its Tennessee subscriptions, and because its receipts in Nashville pass $100,000, it files the business tax there as well.
Where founders go wrong
Most mistakes in Tennessee come from the “no income tax” headline.
- Assuming no income tax means no corporate return: franchise and excise tax apply from the first day of business.
- Missing the business tax once receipts in a city or county reach $100,000.
- Not charging sales tax on SaaS sold to Tennessee customers.
- Forgetting that corporate officers count toward the five-employee workers’ comp threshold.
The federal baseline
This page covers what Tennessee adds. The federal rules underneath it apply here too.
Common questions
Is Tennessee really tax-free for a startup?
The founders’ wages and gains are not taxed by Tennessee, so state questions like QSBS conformity do not arise for them. The company is a different story: a corporation or LLC doing business here pays franchise and excise tax, and once gross receipts in a city or county pass $100,000 it files the gross-receipts business tax as well.
What does Tennessee’s SaaS tax mean for us?
Tennessee taxes remotely accessed software used in the state, so a SaaS company with Tennessee customers collects sales tax once it crosses $100,000 of sales into the state, and a Tennessee startup buying SaaS from vendors that do not charge tax owes use tax. A purchaser with users in several states can get a direct pay permit and pay tax on the Tennessee share of users.
Advisory next door
- ALAlabama advisoryAlabama is easy on federal conformity and deducts federal tax, but its self-administered local taxes, seven-day new-hire rule and unsettled treatment of SaaS are where startups trip.
- ARArkansas advisoryArkansas incentives are application-based through AEDC. Ten-year NOLs and no bonus depreciation make Arkansas losses something to model, not assume.
- GAGeorgia advisoryGeorgia’s research credit can be applied against payroll withholding, which matters for a pre-profit company; the 2026 rate cut and conformity changes need to reach the tax provision.
- KYKentucky advisoryKentucky’s state rates are moderate, but local occupational license taxes on wages and profits, a sales tax that reaches SaaS and a $175 minimum LLET catch startups, and 2026 conformity skips Section 174A.
- MOMissouri advisoryMissouri’s research credit is capped and allocated by the Department of Economic Development. Since 2025, individuals pay no Missouri tax on capital gains.
- MSMississippi advisoryMississippi is cutting its individual rate to 4.0% in 2026 and 3.0% by 2030, repealing its franchise tax from 2028, and since 2023 exempting SaaS hosted outside the state; its quirks are throwback and its own 1099 threshold.
- NCNorth Carolina advisoryNorth Carolina’s rates are among the lowest and still falling, but there is no state R&D credit, the 2026 conformity change reaches back to 2025 returns, and E-Verify applies from 25 employees.
- VAVirginia advisoryVirginia’s R&D credit is refundable but small and capped. The bigger planning items are scheduled minimum wage increases through 2028 and a new paid family leave program collecting from April 2028.
Founder guides on this
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
- RunwayBurn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.
- 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.
More of the Tennessee guide
- AccountingAccounting and state tax in TennesseeCorporate tax, conformity to federal rules, apportionment and what it does to your books
- 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
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Tennessee DOR — Schedule G (property measure) refunds, Public Chapter 950 (2024)
- Tennessee DOR — Notice 23-04, excise tax $50,000 standard deduction
- Tennessee DOR — Notice 22-03, research and experimental expenditures
- Tennessee DOR — Application for Remotely Accessed Software Direct Pay Permit
- Tennessee DOR — Business Tax Registration and Licensing
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.