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Navigating Tennessee's Excise and Franchise Tax: A Comprehensive Guide by an Accountant in Murfreesboro

Updated: Jan 17


Accountant in Murfreesboro, TN

Introduction:

Tennessee, known for its rich musical heritage, stunning landscapes, and vibrant culture, is also a state that imposes certain taxes on businesses operating within its borders. Among these taxes are the Excise Tax and Franchise Tax, both of which play crucial roles in funding state services and infrastructure. In this blog, we'll delve into the details of Tennessee's Excise and Franchise Taxes, exploring what they are, how they are calculated, and what businesses need to know to stay compliant.

Understanding the Excise Tax:

The Excise Tax in Tennessee is a tax imposed on the privilege of doing business within the state. This tax is levied on the net earnings of a business, making it a key component of the state's revenue system. Businesses subject to the Excise Tax include corporations, limited liability companies (LLCs), and other entities engaged in business activities within Tennessee.

Calculation of Excise Tax:

The Excise Tax is calculated based on a business's net earnings, which is determined by subtracting allowable deductions from the gross earnings. Key factors in the calculation include the net earnings apportionment percentage, which is based on the ratio of the business's Tennessee property, payroll, and sales to its total property, payroll, and sales.

It's important for businesses to carefully track and report their income, deductions, and apportionment factors to accurately determine their Excise Tax liability. Failure to comply with these requirements can result in penalties and interest.

Understanding the Franchise Tax:

The Franchise Tax in Tennessee is another tax that businesses must contend with. Unlike the Excise Tax, which is based on net earnings, the Franchise Tax is a tax on the privilege of existing as a business entity in the state. This tax is imposed on the greater of a business's net worth or the book value of its real and tangible personal property owned or used in Tennessee.

Calculation of Franchise Tax:

The Franchise Tax is calculated using a tiered rate structure. The tax rates vary depending on the amount of a business's taxable capital. The formula involves multiplying the applicable tax rate by the amount of taxable capital to determine the Franchise Tax liability.

Businesses need to pay close attention to the rules governing the calculation of taxable capital, as this includes factors such as common stock, surplus, retained earnings, and tangible personal property.

Compliance and Reporting:

Both the Excise and Franchise Taxes require businesses to file annual reports with the Tennessee Department of Revenue. Timely and accurate filing is crucial to avoid penalties and interest. Additionally, businesses must keep thorough records of their financial activities, deductions, and apportionment factors to ensure compliance with state regulations.

Conclusion:

Tennessee's Excise and Franchise Taxes are integral components of the state's revenue system, providing funding for essential services and infrastructure. Businesses operating within Tennessee must be diligent in understanding and complying with these tax obligations to avoid penalties and ensure a smooth and successful operation in the Volunteer State. Seeking professional advice and staying informed about any changes to tax regulations will help businesses navigate the complexities of the Excise and Franchise Tax landscape in Tennessee.

Michael Gunckel, CPA

Succentrix Business Advisors

1740 Old Fort Pkwy #1228

Murfreesboro, TN 37129

Ph: 615-624-4544


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