How is the Tennessee franchise tax computed for an entity holding real estate in the state?
Edvin Givargis Published 3 minute read
The short answer
For tax years ending on or after January 1, 2024, the Tennessee franchise tax is computed solely on the taxpayer's apportioned net worth, at a rate of 0.25 percent ($0.25 per $100), with a minimum tax of $100. The alternative property measure, which for decades set the book value of Tennessee real and tangible property as a floor on the tax base, was repealed by Public Chapter 950 (2024). An entity holding substantial Tennessee real estate against modest net worth, the profile most exposed under the old regime, now pays on net worth alone.
The old regime, and why it still matters
Through tax years ending on or before December 31, 2023, Tennessee imposed the franchise tax on the greater of two bases: apportioned net worth, computed on Schedule F of the franchise and excise return, or the actual value of real and tangible property owned or used in Tennessee, computed on Schedule G (former T.C.A. § 67-4-2108(a)(1)). The property measure functioned as a minimum tax base, and it fell hardest on real estate entities: a property-heavy, leverage-heavy structure could show minimal net worth yet owe franchise tax on the full depreciated cost of its Tennessee holdings. Property was valued at cost less accumulated depreciation determined under generally accepted accounting principles, with tax basis permitted where the taxpayer's books were not kept on that basis, and construction in progress not yet utilized was excluded from the measure.
The old regime still matters for three reasons. First, audits and notices for open pre-2024 periods apply the law of those years, so the property measure governs any examination of returns for tax years ending on or before December 31, 2023. Second, the repeal arrived with a refund program: franchise tax paid on the property measure, for tax years ending on or after March 31, 2020 with returns filed on or after January 1, 2021, was refundable to the extent it exceeded the net worth computation, but only on claims filed between May 15 and November 30, 2024. That window is closed, and property-measure tax that went unclaimed is now, absent unusual circumstances, simply history. Third, understanding what changed is the fastest way to spot a stale compliance setup: a Tennessee return prepared for a 2024 or later year that still computes Schedule G is following the old law.
The current computation
For tax years ending on or after January 1, 2024, the franchise tax base is apportioned net worth, meaning assets less liabilities as computed under the statute and apportioned to Tennessee. Schedule G is omitted from the return entirely. The rate remains 0.25 percent and the minimum tax remains $100. For real estate structures, the practical consequence is that Tennessee-specific asset intensity no longer drives the franchise tax; the drivers are now the balance sheet and the apportionment factors.
Short years and first-year entities
An entity that begins doing business in Tennessee mid-year files a short-period return, and the franchise tax is prorated to the portion of the year covered (T.C.A. § 67-4-2115(a)). For an acquisition or a new investment entering the state partway through a year, the proration applies from the date Tennessee activity begins, which makes establishing that date, and documenting it, worth deliberate attention in the first-year file.
Structural points for real estate ownership
Tennessee's franchise and excise taxes apply at the entity level to a broader population than most states reach, including limited liability companies and limited partnerships that federal law treats as pass-throughs or disregards entirely. Each entity with substantial nexus in Tennessee generally stands on its own unless a specific exemption applies and is affirmatively claimed. Two structural notes recur in real estate practice. A business trust does not escape the tax: Tennessee treats a business trust as a taxable entity subject to the franchise tax (Tennessee Legal Ruling 98-33). And a structure of disregarded entities under a parent does not consolidate away the filing obligations; the Tennessee treatment of each tier deserves its own analysis, particularly in the first year the structure touches the state.
This article states the law as of September 10, 2026
Statutes, rates, thresholds, and agency practice change, and a different set of facts can change the answer. Before acting on anything discussed above, contact G&G State Tax Group to confirm what has changed since this was written and how the rules apply to a specific situation.
G&G State Tax Group, LLC is a state and local tax advisory firm. The firm provides state and local tax consulting and representation in state and local tax controversies. G&G does not prepare or file tax returns, perform attest services, or provide bookkeeping, and is not a CPA firm.