Coyote Blog

Tennessee is one of those states that prides itself on not having an income tax.  And I will say that in general, Tennessee has been a very good place for us to do business.

However, for entrepreneurs whose income is mostly derived from a self-owned company, the whole "no income tax" thing in Tennessee is misleading.   In fact, I just had to prepare and pay 10 different quasi income tax submissions in TN -- the state Excise tax on businesses, the state Franchise tax on businesses, and county business tax in 8 counties.  Some of these are not actually income taxes but are taxes as a percentage of revenue, but in some sense these are even worse than income taxes as they must be paid even if the company is losing money.  Only California with its $800 minimum tax just for existing do we see a worse setup for a startup or money-losing entity.

In most states I pay state income tax based on my company's earning in that state (as an S-corp the corporate earnings pass through to my personal income taxes).  But in TN, despite the fact it is not our largest state and supposedly has no income tax, I am going to end up with one of our highest state tax bills.

My company is moving into Tennessee as a campground operator.  I was disappointed to see Tennessee is one of only a couple of states that double tax s-corporation earnings.  The state takes a straight 6.5% cut of all corporate earnings, even of an S-corp, and then charges regular income tax rates on the same income as it passes through to the individual.  This makes Tennessee one of the few states where, from a state tax perspective, S-corps are worse than C-corps, because if you are going to be double taxed, at least with the C-corp you can indefinitely delay taxation by not issuing dividends.
PS- TN lodging tax rates are horrendous.  Whenever I see tax rates higher than comparable rates in CA, I know they are too high.