Tennessee is among the most business-friendly states in the US, thanks to a lean regulatory framework and its lack of a state income tax on wages. In a survey of over 650 executives by Chief Executive magazine, Tennessee was ranked the third-best state in the nation for conducting business.
What you’ll learn
What you’ll learn
Key takeaways for Tennessee entrepreneurs
- Tennessee has no state income tax on wages, but your business may still owe sales and other business taxes.
- To create a business, complete registration with the Tennessee Secretary of State.
- Set up a Tennessee Taxpayer Access Point (TNTAP) account to obtain a sales tax license and process business taxes.
- Apply for an Employer Identification Number (EIN) and Tennessee unemployment insurance if you plan to hire employees.
- Tennessee business license requirements depend on your industry and the local authority.
While launching a new venture is exciting, a lot goes into building a foundation. To help you approach your launch with confidence, we’ve mapped out the process below — starting with choosing the entity type that fits your long-term goals.
Choose a business structure and register your company
Of all the choices you make when starting a business in Tennessee, one of the most important is the type of business structure you select. Your decision will impact:
- How much tax you pay
- The amount of paperwork you’re required to do
- The personal liability you face
- Your ability to raise money for the business
Here’s a quick comparison of the most common forms of business entities with details for decision-making.
| Business structure | Liability protection | How the entity is taxed | TN registration requirements |
| Sole proprietorship | None (personal assets at risk) | The owner reports profits/losses through personal tax returns. | No state registration required, local license required |
| Partnership | None (unless structured as a limited partnership) | Partners report their share of profits/losses through personal tax returns. | No state registration required, local license required |
| Limited Liability Company (LLC) | Personal assets protected | Owners report income through personal tax returns unless the LLC elects corporate taxation. | File Articles of Organization
Obtain a business license and tax accounts |
| S Corp | Personal assets protected | Shareholders report allocated income through personal tax returns. | Form an LLC or corporation
Register for state tax accounts and business license |
| C Corp | Personal assets fully protected | The corporation pays tax on profits, and shareholders also pay taxes on dividends. | File Articles of Incorporation
Register for state tax accounts and business license |
Other Tennessee business tidbits
- If you’ve settled on starting an LLC in Tennessee or a corporation, complete registration with the Tennessee Secretary of State through the Tennessee Charity and Business (TNCaB) filing portal.
- Before filing, use the Tennessee Secretary of State’s business search to confirm your name’s availability, as each registered name must be unique.
- You’ll need to file Form SS-4402 for a trade name registration if you plan to operate under a different name from your legal entity name. The application costs $20, and the name will be valid for five years.
- To start an LLC business in Tennessee, you’ll incur a formation cost of $300 to $3,000. Forming a corporation requires filing for a Charter For-Profit Corporation, which starts at $100 and scales based on authorized shares.
Now that we better understand different business structure options, let’s get up to speed on taxes you’ll need to keep track of.
Understand Tennessee tax and payroll requirements
Once you’re done with the Tennessee Secretary of State’s business registration, it’s time to look at tax and payroll requirements. In 2021, the state eliminated its Hall income tax on investment and dividend income, so there’s no state income tax on personal earnings. What your business will owe depends on your entity structure and business activities.
Business tax
If your business will make $100,000 or more in annual sales, Tennessee requires you to register for and remit business tax. The rate varies by business classification and county. If your business is in a city that has enacted a business tax, you will also pay the city business tax.
Sales tax
You must register for a sales tax license if you plan to sell taxable goods and services. Tennessee sales tax includes a state and local portion. The state’s general sales tax rate is 7%, with the local tax rate varying by county and city.
- To register for business and sales tax, go to the Tennessee Taxpayer Access Point (TNTAP) tax portal.
- From the platform, create an account
- Register a new business.
State unemployment insurance (SUI)
Planning to hire at least one employee? You’ll be required to register with the Tennessee Department of Labor and Workforce Development to pay state unemployment insurance (SUI) taxes. You’ll contribute to the SUI programs through quarterly payroll taxes with rates assigned by the state based on your industry and experience rating.
Now that we’ve tallied up some of the taxes to keep in mind, let’s see what documents are on the docket.
Get licenses, permits, and an EIN
Before the official launch, you’ll need licenses and permits for your location and industry. You’ll also need a federal tax ID to complete other administrative requirements.
Employer Identification Number (EIN)
Apply for an EIN through the IRS online, which will function as your business’s federal tax ID. Even if you don’t plan to hire employees, you’ll need an EIN to:
- Open a business bank account
- Apply for licenses
- File business taxes
Applying for an EIN is free, and you’ll receive the number almost immediately.
State licenses
Tennessee business license requirements vary depending on your industry and activity. The state requires you to obtain a professional license if you operate in some professions, such as:
- Accountant
- Healthcare provider
- Electrician
- Real estate agent
To verify applicable state licenses for your business, check the Tennessee Department of Commerce and Insurance Licensing and Regulation page and find your profession.
Local permits
In addition to state requirements, most Tennessee cities and counties require a local business permit to operate within their jurisdictions. Every local authority, including Nashville, Memphis, Knoxville, and Chattanooga, has a unique permit process. Confirm with your city or county clerk to determine which permits and licenses you need.
Cost-effective and saves times
“OnPay saves us time and money, and the people are great to deal with. Our previous payroll system was costly and confusing. OnPay makes things simple and only charges for each employee you pay that week.”
— Valerie Jackson, SnapSpace Solutions
Finalize your financial and operational setup
With registration and tax accounts formation complete, set up your financial and operational framework to make running your business easier in the coming months. Here are a few steps to help put your business on a solid operational footing:
- Open a dedicated bank account to separate personal and business finances and maintain liability protection.
- Secure the state-mandated Tennessee workers’ compensation insurance if you have five or more employees.
- Use our Tennessee payroll calculator to get your paychecks right, or get payroll software to automate most of your payroll workflows and save you significant time.
Automate back-office operations for a faster launch
When you reach the milestone of hiring and setting up payroll for the first time, we’re here to help with heavy lifting. OnPay makes it easy to manage unlimited monthly pay runs while automatically calculating, withholding, and filing your federal, state, and local taxes each pay cycle. Whether you need an automated system to handle payroll for an S Corporation or are looking for a service that offers HR tools, state new hire reporting, and integrated employee benefits, we help keep your operations running smoothly. Reach out to us today, and we will set up your first pay run so you can focus completely on growing your Tennessee business. We look forward to hearing from you!
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.