How to Avoid or Reduce Tennessee Franchise & Excise Tax: A Guide for Small Business Owners

If you’re running a business in Tennessee—or thinking about moving your business there—you’ve probably heard that Tennessee is a tax-friendly state with no personal income tax. While that’s true for individuals, business owners need to be aware of a key tax that can take them by surprise: the Franchise & Excise (F&E) Tax.

At BizBud, we work with hundreds of influencers, small businesses, and entrepreneurs all across Tennessee—especially in Nashville. Many new business owners relocating to the state are surprised to learn about the Franchise & Excise Tax, so let’s break down what it is, how it works, and how you can minimize the tax you’ll owe. 

What Is the Tennessee Franchise & Excise Tax?

The Franchise Tax is based on the greater of your business’s net worth or the value of your business assets in Tennessee. It is assessed at 0.25%, with a minimum of $100 per year.

The Excise Tax is a 6.25% tax on your business’s net income. For example, if your net income is $100,000, you would owe $6,250 in excise tax—in addition to the franchise tax.

This tax mainly impacts S-corporations, C-corporations, and certain multi-member LLCs. Sole proprietors and single-member LLCs typically do not owe F&E Tax because they already pay self-employment tax (Social Security Tax and Medicare Tax) on their net income. Tennessee now provides an extra $50,000 excise tax deduction. This means that if your business has $100,000 in net income, you will only pay excise tax on $50,000 of that income—saving you $3,125.

Should You Still Become an S-Corp in Tennessee?

S-Corporations are a popular tax strategy to reduce self-employment tax as typically you save thousands of dollars, but in Tennessee, you must weigh the savings against the F&E Tax.

• Self-employment tax is 15.3%

• Excise tax is 6.25%

Even with the excise tax, S-Corps can still be a smart move—but only if your net income is around $80,000-90,000 or higher. Below that range, the extra tax plus accounting costs of maintaining an S-Corp may not make sense.

As with the $50,000 excise tax deduction, S-Corp & C-Corp owners owners benefit even more, since a portion of their income is automatically exempt from excise tax.

Is There a Way to Avoid Franchise & Excise Tax?

Yes—there are exemptions that can eliminate your excise tax. One of the most effective strategies is to restructure your business so that it’s owned by a Tennessee Investment Services Trust (TIST). Each LLC member taxed as an S-Corp or C-Corp would need their own TIST.

Setting up a TIST requires an experienced attorney, and BizBud partners with trusted attorneys who charge about $6,500 per trust. Because of the cost, this strategy only makes sense if your annual excise tax liability is expected to exceed that amount. Most clients find it worthwhile when their net income is $130,000 or more.

To use this strategy, the LLC’s ownership must be transferred to the TIST before the tax year you want the exemption to apply. For example, to be exempt in 2026, you’d need to set up the TIST and transfer ownership by late 2025. Once established, you’ll file Form FAE‑183 each year to claim the Obligated Member Entity (OME) exemption.

BizBud can guide you through this process from start to finish. If you’d like to explore whether this approach is right for you, schedule a call with us—we’d be happy to help.---

How to File and Pay Franchise & Excise Tax

Businesses must file annually through the Tennessee Taxpayer Access Point (TNTAP). You’ll need to create an account, obtain a franchise and excise tax account number, and submit your return and payment online or FAE 183 form online to be exempt.

Key Takeaways for Tennessee Business Owners

✅ Sole proprietors and single-member LLCs: No F&E Tax if you pay self-employment tax on your net income.
✅ S-Corp owners: Be aware of the 6.25% excise tax—run the numbers before electing S-Corp status.
✅ Net income over $80,000–$90,000: An S-Corp can still provide tax savings, even with the excise tax.
✅ Potential savings strategy: Entity restructuring with Tennessee Investment Services Trust ownership to qualify for the OME exemption and not pay Franchise & Excise Tax.

Related BizBud Resources

• Should You Switch to an S-Corp? Tax Savings Explained

• Tennessee Small Business Tax Checklist

• How to Pay Yourself as a Business Owner

Ready to Save on Taxes?

At BizBud, we help small business owners in Tennessee make smart tax decisions, avoid surprises, and maximize their profits. If you’re thinking about forming an S-Corp or moving your business to Tennessee, schedule a free tax intro call with us today—we’ll help you determine the best strategy for your situation and even explore ways to reduce or eliminate your F&E Tax.

👉 Book Your Tax Strategy Session Now

BizBud is your trusted bookkeeping, accounting, and tax advisory partner for content creators, digital nomads, and small business owners in Tennessee and across the U.S. and world. Let us help you be free to create again and win at the tax game.