Why Choose Tennessee for Your LLC?
No personal income tax (Hall Tax fully repealed in 2021), Nashville's booming economy, growing tech sector, and a strong entertainment and healthcare industry.
No Personal Income Tax
Tennessee is one of only 9 states with no personal income tax, which means pass-through income from your LLC is not subject to state income tax. This can result in significant savings compared to high-tax states like California (13.3%) or New York (10.9%).
Tennessee Tax Overview
Understanding Tennessee's tax structure is essential for non-resident LLC owners. Here's a comprehensive breakdown of all applicable taxes.
| Tax Type | Rate | Applies to LLCs? |
|---|---|---|
| Personal Income Tax | None | No |
| Corporate/Entity Tax | 6.5% Franchise & Excise Tax | C-corps and entities with nexus |
| Sales Tax | 7% (highest state rate tied with Mississippi) | If selling taxable goods/services |
| Annual Fee | $300 annual report | Yes |
Personal Income Tax
Tennessee has no personal income tax. This means that if your LLC is taxed as a disregarded entity or partnership, the pass-through income is not subject to state-level income tax. This is a major advantage for non-resident entrepreneurs who structure their US business as a single-member LLC.
Corporate / Entity Tax
Tennessee imposes a corporate tax rate of 6.5% Franchise & Excise Tax. This applies to LLCs that have elected to be taxed as C-corporations. Single-member LLCs treated as disregarded entities for federal tax purposes are generally not subject to the state corporate income tax.
Sales Tax
Tennessee has a state sales tax rate of 7% (highest state rate tied with Mississippi). Local jurisdictions may impose additional sales taxes. If your LLC sells taxable goods or services in Tennessee, you'll need to collect and remit sales tax. Remote sellers may be required to collect Tennessee sales tax if they exceed the state's economic nexus thresholds (typically $100,000 in sales or 200 transactions).
LLC Formation Requirements
Forming an LLC in Tennessee involves the following steps and costs:
- Formation fee: $300 per member ($50 minimum)
- File with: Tennessee Secretary of State
- Registered agent: Required (must have a physical address in Tennessee)
- Operating agreement: Recommended but not always required to be filed with the state
- EIN application: Required for tax filing (Form SS-4)
Formation Tip for Non-Residents
As a non-resident entrepreneur, you'll need a registered agent service in Tennessee to receive legal and tax documents on your behalf. Registered agent services typically cost $50–$300 per year. You don't need to live in or visit Tennessee to form or maintain an LLC there.
Annual Requirements & Fees
After forming your Tennessee LLC, you'll need to maintain compliance with these ongoing requirements:
| Requirement | Details |
|---|---|
| Annual/Biennial Report | Due April 15 |
| Annual Fee | $300 annual report |
| Registered Agent | Must maintain continuously |
| State Tax Filing | No state income tax return required |
Important Note
Tennessee's Franchise & Excise Tax applies to most LLCs. The excise tax is 6.5% of net earnings, and the franchise tax is 0.25% of the greater of net worth or real/tangible property in Tennessee (minimum $100). Tennessee fully repealed its Hall Income Tax on interest and dividends as of January 1, 2021. Formation fee is $300 per member with a $50 minimum.
Federal Tax Obligations
Regardless of which state your LLC is formed in, non-resident LLC owners must comply with these federal requirements:
- Form 5472: Required for all foreign-owned single-member LLCs to report transactions between the LLC and its foreign owner. Penalty for non-filing: $25,000.
- Pro Forma Form 1120: Filed together with Form 5472 as an information return for disregarded entities.
- ITIN (Form W-7): Non-residents need an Individual Taxpayer Identification Number to file US tax returns.
- EIN (Form SS-4): Required for all LLCs to open bank accounts and file taxes.
- FBAR (FinCEN 114): Required if your US financial accounts exceed $10,000 at any point during the year.
Key Federal Deadlines
Form 5472 + 1120: Due April 15 (6-month extension available to October 15)
FBAR: Due April 15 (automatic extension to October 15)
Pros and Cons of a Tennessee LLC
Advantages
- No personal income tax
- Booming Nashville economy
- Growing tech and healthcare sectors
- Music and entertainment industry
- Moderate cost of living
Disadvantages
- $300 annual report fee
- Franchise & Excise Tax applies to LLCs
- 7% sales tax is highest in nation
- Formation cost is $300 per member
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