Tennessee S‑Corporations | What Owners Must Know

Overview
Tennessee taxes corporations at the entity level regardless of federal S corporation status, so S‑Corp owners should expect to file and pay Tennessee franchise and excise taxes. The franchise tax is based on net worth (with an annual minimum), and the excise tax is based on net earnings with specific state adjustments. Tennessee provides detailed filing requirements, apportionment options, elections, credits, and penalties that apply to S corporations and their owners. The sections below summarize the key Tennessee‑specific requirements and benefits, with links to the Tennessee Department of Revenue’s official forms and instructions (forms and filing overview). Franchise & Excise Tax Overview; FAE170 (2024) return; FAE170 Instructions (2024)

Entity‑level taxes that apply to S corporations

• Franchise tax

  • Base and minimum: The franchise tax is based on net worth (assets minus liabilities) and is subject to an annual minimum of $100. Taxpayers may also compute the franchise tax using a property measure in certain cases; the tax is 25¢ per $100 (or major fraction thereof) of the greater of net worth or the property measure. The minimum tax applies even if the company is inactive but registered to do business in Tennessee (see Overview, and FAE170 Schedule A and the separate Schedule G property measure election). Franchise & Excise Tax Overview; FAE170 (2024) — Schedule A and Schedule G link; Schedule G – Minimum Property Measure Election

• Excise tax

  • Base and rate: The excise tax is imposed on net earnings for the tax year. Tennessee completes this calculation on Schedule J; S corporations begin with Schedule J3 (federal Form 1120‑S ordinary income) and then apply Tennessee‑specific additions and deductions. The excise tax is computed at 6.5% and carried from Schedule J to Schedule B. Detailed adjustments (e.g., depreciation decoupling, intangible expense disclosures, donations, dividends, and pass‑through interaction) appear in the return schedules and instructions. FAE170 (2024) — Schedules B, J & J3; FAE170 Instructions (2024) — General Information

Filing obligations, deadlines, and penalties

• Who must register and file
  Corporations (including S corporations), limited partnerships, limited liability companies, and business trusts chartered, qualified, or registered in Tennessee—or doing business in the state—must register and pay franchise and excise taxes. Registration and filing are required even for inactive registrants (minimum franchise tax applies). Franchise & Excise Tax Overview

• Return and due date
  Use Form FAE170 (Franchise & Excise Tax Return) for most corporations, LLCs, and LPs (financial institutions and captive REITs use FAE174). The return is due on the 15th day of the fourth month following the period end date shown on the corresponding federal return (e.g., April 15 for calendar‑year filers). Extensions are available (see FAE173). FAE170 Instructions (2024) — General Information; FAE170 (2024); Franchise & Excise Tax Forms hub

• Electronic filing
  Electronic filing and payment are required unless you receive a hardship exemption (e.g., no computer access or religious prohibition). Estimated payments can be made using Form FAE172. FAE170 Instructions (2024) — General Information; Form FAE172 — Estimated Tax Payments

• Penalties and interest

  • Late filing penalty: 5% per 30‑day period (or portion) the return is delinquent, up to 25% of the delinquent amount; minimum penalty is $15. FAE170 Instructions (2024)

  • Interest: Accrues on any tax paid after the statutory due date; the current interest rate is posted on the Department’s website. FAE170 Instructions (2024)

  • Estimated payment penalties: 2% per month (or portion) on deficient or delinquent estimated payments, up to 24%, plus interest. FAE170 Instructions (2024)

Tennessee adjustments and elections relevant to S corporations

• Subchapter S computation
  S corporations compute net earnings using Schedule J3, which starts with federal Form 1120‑S ordinary income, adjusts for Tennessee‑specific additions and deductions, and then carries to Schedule J for excise tax computation. FAE170 (2024) — Schedule J3

• Bonus depreciation decoupling
  Tennessee decouples from federal bonus depreciation for assets purchased on or before December 31, 2022. Schedule J includes add‑backs and corresponding deductions to reconcile state and federal basis and depreciation differences. FAE170 (2024) — Schedule J Lines 16–17; FAE170 Instructions (2024)

• Intangible expenses disclosure
  Tennessee requires disclosure and adjustments related to intangible expenses paid to affiliates; use Form IE (Intangible Expense Disclosure) and make corresponding additions/deductions on Schedule J. Form IE — Intangible Expense Disclosure; FAE170 (2024) — Schedule J Lines 23–24

• Donations deduction
  Tennessee allows a deduction for donations to qualified public school support groups and certain nonprofit organizations; see the certification form and the corresponding Schedule J deduction. Certification — Excise Tax Deduction for Donation; FAE170 (2024) — Schedule J Line 19

• Dividends and pass‑through interaction

  • Dividends received from corporations at least 80% owned are deductible on Schedule J. FAE170 (2024) — Schedule J Line 18

  • To prevent double taxation, Tennessee’s return framework provides subtraction of income passed through to a corporate owner from a Tennessee‑taxed pass‑through entity (and conversely add‑back for losses) via the Schedule J additions/deductions lines; see the return layout for pass‑through interaction entries. FAE170 (2024) — Schedule J

• Nonbusiness earnings and apportionment

  • Nonbusiness earnings allocated directly to Tennessee are reported on Schedule M and carried to Schedule J. FAE170 (2024) — Schedule M and Schedule J

  • Apportionment: Multi‑state taxpayers apportion business income and franchise tax base using the applicable schedules. The return references apportionment schedules (N, O, P, R, or S), and elections such as manufacturer single sales factor or triple‑weighted sales. Consolidated net worth apportionment schedules (170NC/170SF) are available when the consolidated net worth election is made. FAE170 (2024) — apportionment references & schedules; Consolidated Net Worth Apportionment Schedules (170NC/170SF); FAE170 Instructions (2024) — Elections

Credits and incentives accessible to S corporations

Tennessee offers a number of credits that can reduce franchise and excise tax, subject to specific statutory requirements and documentation. Schedule D lists many available credits and coordinating schedules:

• Industrial Machinery Credit (Schedule T)

• Job Tax Credit (Schedule X)

• Additional Annual Job Tax Credit (Schedule X)

• Brownfield Property Credits (Schedule BP)

• Qualified Production Credit (Schedule QP)

• Employer Credit for Paid Family and Medical Leave (Schedule PL)

• Broadband Internet Access Tax Credit (carryovers, where authorized pre‑repeal)

• Gross Premiums Tax Credit (for insurers; coordinate add‑back on Schedule J)

See the return and forms hub for the latest schedules and instructions; credits generally cannot reduce liability below the total franchise and excise tax due unless a specific provision allows it. FAE170 (2024) — Schedule D; Franchise & Excise Tax Forms hub (Schedules X, BP, PL, QP, etc.)

Practical compliance checklist for Tennessee S‑Corp owners

• Register for franchise and excise taxes if chartered, qualified, registered, or doing business in Tennessee; note the $100 minimum franchise tax for registered entities, even if inactive. Franchise & Excise Tax Overview

• File Form FAE170 by the 15th day of the fourth month after period end; pay electronically unless you have a hardship exemption; make timely estimated payments using Form FAE172 where required. FAE170 Instructions (2024) — General Information; Form FAE172

• Compute excise tax using Schedule J (and Schedule J3 for S corps), applying Tennessee additions and deductions (e.g., depreciation decoupling; intangible expenses with Form IE; donations; 80% dividends deduction; pass‑through interaction). FAE170 (2024) — Schedules J & J3; Form IE; Donation certification

• Determine franchise tax using net worth (Schedule F1 or F2) or, if applicable, the property measure (Schedule G); apply apportionment where appropriate using the specified schedules/elections. FAE170 (2024) — Schedules A, F1/F2, G & apportionment schedules

• Review eligibility for credits (industrial machinery, job creation, brownfields, production, paid family leave, etc.) and attach required schedules and certifications to claim them. Franchise & Excise Tax Forms hub; FAE170 (2024) — Schedule D

• Avoid penalties by tracking deadlines, maintaining required disclosures (e.g., Form IE for intangible expenses), and reconciling Tennessee and federal adjustments (including depreciation decoupling for eligible assets). Form IE; FAE170 (2024) — Schedule J Lines 16–17, 23–24

Key Tennessee‑specific takeaways for S‑Corp owners

• Tennessee imposes franchise and excise taxes at the entity level on S corporations, with a minimum franchise tax of $100 and an excise tax computed on net earnings with state‑specific adjustments. File Form FAE170 and pay electronically unless a hardship exemption applies. Franchise & Excise Tax Overview; FAE170 Instructions (2024); FAE170 (2024)

• Tennessee provides apportionment schedules and elections (e.g., manufacturer single sales factor and triple‑weighted sales elections), consolidated net worth apportionment options, and a property‑measure franchise tax election, allowing taxpayers to align state liability with their operating footprint. FAE170 (2024); Consolidated Net Worth Apportionment Schedules (170NC/170SF)

• S corporations can access multiple credits and deductions (industrial machinery, job tax credits, brownfields, production, donations, paid family leave) if statutory criteria are met, potentially reducing Tennessee tax burden. Franchise & Excise Tax Forms hub; FAE170 (2024) — Schedule D

This essay is not tax advice. Always consult a qualified tax professional for your specific situation.