The legal requirements that matter most to a Nashville business are Tennessee’s franchise and excise tax, three April filing deadlines, a Davidson County business license, and a noncompete law that changed on July 1, 2026. Industry rules add another layer for health care, hospitality and music companies. This guide covers each one in plain English, as of October 2026.
Tennessee franchise and excise tax: why entity choice matters
Tennessee has no personal income tax on wages. The state collects business tax at the entity level instead, through the franchise and excise tax (F&E). That makes your entity choice a tax decision, not just a liability decision.
Which Nashville businesses pay F&E
According to the Department of Revenue’s Franchise and Excise Tax Manual, F&E generally applies to entities that give owners limited liability. That includes:
- Corporations, including S corporations
- LLCs, including most single-member LLCs
- Limited partnerships and similar entities
Sole proprietorships and general partnerships aren’t subject to F&E. The tradeoff is real, though: those owners have no liability shield.
Two points surprise many owners. First, Tennessee doesn’t follow the federal “disregarded entity” treatment for most single-member LLCs. The main statutory exception is an LLC whose single member is a corporation. Second, an S election doesn’t avoid excise tax. Tennessee computes excise tax as if the S election didn’t exist.
Some family-owned entities with mostly passive income, such as rental or investment holding companies, may qualify for the FONCE exemption. It requires an annual application on Form FAE183.
How F&E is calculated in 2026
The two taxes are filed together on one return:
| Tax | Base | Rate |
|---|---|---|
| Excise tax | Tennessee net earnings, after a standard deduction of up to $50,000 | 6.5% |
| Franchise tax | Tennessee net worth | 0.25%, with a $100 minimum |
Here’s a simple example. A Nashville LLC has $400,000 in Tennessee net earnings and $600,000 in net worth. Excise tax is 6.5% of $350,000 ($400,000 minus the $50,000 deduction), or $22,750. Franchise tax is 0.25% of $600,000, or $1,500. Real returns involve adjustments, so treat this as an illustration only.
Recent F&E changes to know
Several changes in the last few years affect the math:
- Property measure repealed. Before 2024, franchise tax was the greater of net worth or the value of Tennessee real and tangible property. Public Chapter 950 (2024) repealed that property measure for tax years ending on or after January 1, 2024. Businesses with lots of property relative to net worth were the most exposed to the old measure. The related refund window closed November 30, 2024.
- $50,000 excise standard deduction. The Tennessee Works Tax Act added this deduction for tax years ending on or after December 31, 2024.
- Single sales factor. For tax years ending on or after December 31, 2025, multistate businesses apportion income using sales only.
If you’re forming a new company or restructuring, talk to your lawyer and CPA together. The operating agreement checkup is a good place to start for existing LLCs.
The Nashville business compliance calendar
For a calendar-year company, three state deadlines land within two weeks of each other.
| Filing | Agency | Due date (calendar year) |
|---|---|---|
| Annual report | Tennessee Secretary of State | April 1 |
| F&E return | Tennessee Department of Revenue | April 15 |
| Business tax return (if $100,000+ in receipts) | Tennessee Department of Revenue | April 15 |
The annual report is due on the first day of the fourth month after fiscal year-end. LLCs pay $50 per member, with a $300 minimum and $3,000 maximum. Corporations pay $20. Skipping it can lead to administrative dissolution.
F&E and business tax are both due on the 15th day of the fourth month. F&E filers can get a seven-month extension. Quarterly F&E estimates apply once combined liability reaches $5,000 in both the prior and current year.
Davidson County business license and business tax
Nashville and Davidson County share a consolidated Metro government. The Davidson County Clerk issues business licenses for both.
- Fee. The license costs $30 inside the Urban Services District and $15 in the rest of Davidson County.
- Minimal activity license. Businesses with $3,000 to $100,000 in gross receipts get this license and don’t file a business tax return.
- Standard license. At $100,000 or more in receipts, you also register and file the state-administered gross receipts business tax. That threshold rose from $10,000 under the Tennessee Works Tax Act.
Metro’s Roadmap to Starting a Business also points to zoning checks, use and occupancy permits, and home occupation permits for home-based businesses that receive clients.
Sales tax in Davidson County
If you sell taxable goods or services, the state rate is 7%. Davidson County’s local rate rose to 2.75% on February 1, 2025, after voters approved a transit surcharge. That puts the general combined rate at 9.75%. Lower rates apply to some items, such as groceries.
Tennessee’s new noncompete law
Tennessee overhauled its noncompete rules in 2026. The law, House Bill 1034, added Tenn. Code Ann. §§ 50-1-210 and 50-1-211. It took effect July 1, 2026.
What the 2026 statute does
- $70,000 floor. Employers can’t require, request or enforce a noncompete against an employee earning under $70,000 in annualized compensation. Hourly pay is annualized at 40 hours a week for 52 weeks, so overtime doesn’t count. The figure isn’t indexed for inflation.
- Duration presumptions. Restrictions of two years or less on employees and contractors are presumed reasonable. Franchise, dealer and licensee relationships get three years. Business sales get the longer of five years or the seller’s payment period.
- Carve-outs. Confidentiality agreements and customer and employee nonsolicitation agreements remain permitted.
- Reformation. Courts may still modify an overbroad covenant to make it enforceable.
The law applies to agreements entered into, renewed or amended on or after July 1, 2026. Some commentators read it to reach older agreements litigated after that date, too. That point is unsettled. Restrictive covenants also matter when you buy or sell a company; see preparing your business for sale.
Health care noncompetes in Nashville
Nashville’s health care sector has its own rules. Tenn. Code Ann. § 63-1-148 treats provider noncompetes as reasonable if they last two years or less and stay within a 10-mile radius or the county of practice. In Upperline Healthcare, P.C. v. Hoover (June 24, 2026), a Nashville federal court held that the statute doesn’t automatically void a broader restriction. That decision doesn’t bind state courts. How the new $70,000 law interacts with the health care statute is also an open question.
Industry-specific issues for Nashville companies
Music, media and the ELVIS Act
Tennessee’s ELVIS Act took effect July 1, 2024. It added voice to the state’s right of publicity law, covering real and simulated voices. It can reach businesses that use a person’s voice or likeness without permission. It can also reach anyone who distributes a tool whose primary purpose is reproducing a specific person’s voice or likeness. Agencies, studios and brands using AI-generated audio should review their consent and licensing terms. Brand protection matters too; see our trademark basics.
Hospitality and alcohol licensing
Restaurants and bars usually deal with two licensing tracks. Beer permits come from the Metro Beer Board. Liquor-by-the-drink licenses come from the Tennessee Alcoholic Beverage Commission. A change in ownership can affect both, which makes alcohol licensing a key item in any hospitality deal.
Hiring and E-Verify
Private employers with 35 or more full-time equivalent employees must use E-Verify under the Tennessee Lawful Employment Act. Smaller employers may use E-Verify or keep approved identity documents. For a first knowing violation, the penalty is $500 plus $500 for each worker not verified. Worker classification creates separate risk; see employee vs. independent contractor.
Getting ongoing legal help in Nashville
Most of these issues come up gradually: a new hire, a lease, a new location, an acquisition offer. A legal subscription lets you handle them as they arise. Flex Business Lawyer includes up to 5 attorney hours a month for $1,997. You can see how the subscription is priced, learn about our Nashville business lawyer services, or start your subscription.
Frequently asked questions
Does an LLC in Tennessee pay franchise and excise tax?
Generally, yes. Tennessee taxes LLCs, corporations and limited partnerships, and it doesn’t disregard most single-member LLCs the way federal tax law does. The main exception is an LLC whose single member is a corporation. Certain family-owned entities with mostly passive income can apply for an exemption.
What changed with Tennessee franchise tax in 2024?
Tennessee repealed the property measure, sometimes called the minimum measure, for tax years ending on or after January 1, 2024. Franchise tax is now based on net worth alone, at 0.25%, with a $100 minimum. Businesses could claim refunds for certain earlier years, but that claim window closed November 30, 2024.
Is the Tennessee excise tax standard deduction available to small businesses?
Yes. For tax years ending on or after December 31, 2024, taxpayers deduct the lesser of their net earnings or $50,000 before applying the 6.5% excise rate. The deduction can’t create or increase a net loss.
Do Tennessee's new noncompete rules apply to health care practices?
That question is unsettled. Health care providers already had their own statute, Tenn. Code Ann. § 63-1-148. Commentators disagree on how the 2026 general noncompete law interacts with it, so practices should have their agreements reviewed against both.
What is the ELVIS Act?
The ELVIS Act is a 2024 Tennessee law that added voice protection to the state’s right of publicity statute. It covers real and simulated voices, including AI-generated ones. It can create liability for businesses that use or distribute someone’s voice or likeness without authorization.