What taxes apply to a new small business?

Taxes for New Small Businesses in Tennessee

When starting a small business in Tennessee, understanding your tax obligations is essential for smooth operations and compliance. Below are the key taxes that typically apply to new businesses in the state.

State Taxes Applicable to Small Businesses

• Franchise and Excise Taxes: Tennessee imposes franchise and excise taxes on most businesses. The excise tax is based on net earnings, while the franchise tax is based on the greater of net worth or real and tangible property owned or used in Tennessee.
• Sales and Use Tax: If your business sells tangible personal property or certain services, you must collect and remit Tennessee sales tax. Additionally, use tax applies to items purchased out-of-state for use in Tennessee without paying sales tax.
• Business Tax: Certain types of businesses may be subject to Tennessee’s business tax, which is a privilege tax based on gross receipts from business activities within the state.
• Employment Taxes: If you hire employees, you are responsible for withholding and remitting state income tax (Tennessee does not have a state income tax on wages but does tax interest and dividends), unemployment insurance taxes, and complying with federal employment tax requirements.

Operational Considerations

• Register for Taxes: Register your business with the Tennessee Department of Revenue to obtain necessary tax accounts and permits.
• Recordkeeping: Maintain accurate records of sales, expenses, payroll, and tax filings to ensure compliance and ease of reporting.
• Tax Filing and Reporting: Understand the filing frequencies for each tax type (monthly, quarterly, or annually) and set up reminders or automation tools to meet deadlines.
• Consult Payroll and Accounting Systems: Implement payroll systems that handle withholding and reporting for employment taxes and integrate bookkeeping software to track franchise, excise, and sales taxes.

As of 2026, tax rates and requirements may change, so regularly check updates from the Tennessee Department of Revenue and consider consulting a tax professional to optimize your business tax strategy.