How to Start a Small Business in Tennessee

Tennessee sells itself on no personal wage income tax — and it is a genuinely good place to start a service business. But the state makes up for it with a tax structure that has three separate layers, and new owners who only plan for federal taxes get surprised. Here is the full picture, including the gross receipts tax that is uniquely Tennessee.

Step 1: Form your entity with the Tennessee Secretary of State

You file Articles of Organization for an LLC ($300) online through the Secretary of State business services portal, which also handles name reservations. Tennessee LLCs file a $50 annual report each year.

Sole proprietors operating under their own name need no state filing; a DBA can be registered with the Secretary of State or the county.

Step 2: Register with the Tennessee Department of Revenue

Start at tn.gov/revenue. Three state taxes may apply to you:

• Sales tax: the state rate is 7%, among the highest in the country, with local governments adding up to 2.75% more for combined rates up to 9.75%. Register before your first taxable sale.
• Franchise and excise tax: corporations and LLCs pay a 0.25% franchise tax on net worth and a 6.5% excise tax on earnings — but with standard deductions and a $100 minimum, many small startups owe only the minimum.
• Business tax — the Tennessee specialty: Tennessee levies a business tax on gross receipts, at rates that vary by business classification (roughly 0.02% to 0.25%). It is separate from sales tax and from franchise and excise tax, filed annually through the Department of Revenue, and it applies even to small businesses. Know your classification before your first filing season.

Step 3: Licenses and local registration

• Contractors: Tennessee requires a state contractor license for projects of $25,000 or more; residential work has its own path. Below the threshold, no license — one reason many TN service businesses start small.
• Electrical, plumbing, HVAC, cosmetology, real estate: each regulated by its own Tennessee board.
• Local business licenses: many cities and counties require their own license or registration — check with the county clerk where you operate.

What launching in Tennessee typically costs

• LLC filing: $300, plus $50 annual report
• Sales tax and Department of Revenue registrations: free
• Local business license: varies by city and county
• General liability insurance: commonly $50 to $150 per month for a solo service business

The 30-day version

Week 1: file the LLC and get your EIN. Week 2: Department of Revenue registrations (sales tax at minimum), local license check, and a business bank account. Week 3: pricing and invoice and estimate templates. Week 4: outreach to your first ten prospects.

Our 100-step course pairs this state checklist with the pricing calculator, lead tracking, and invoicing tools you will use weekly. This guide is general information, not legal or tax advice; confirm current requirements on the Tennessee Secretary of State and Department of Revenue sites.