How is the Tennessee franchise tax computed for an entity holding real estate in the state?

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, including rented Tennessee property at a multiple of rent. 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, 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 no longer applies, and the franchise tax is computed on net worth alone. 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)). Proration cannot reduce the tax below the $100 minimum, and it does not apply to a return based on a 52 to 53 week year. 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 records.

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, and single-member limited liability companies that federal law disregards, unless the single member is a corporation, as discussed below. 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 Revenue Ruling #98-33). A single-member LLC that is disregarded for federal purposes and owned by an entity classified as a corporation, including an S corporation or a REIT, is also disregarded for franchise and excise tax, and its activity is reported on the member's return (T.C.A. §§ 67-4-2007(d), 67-4-2106(c)). An SMLLC owned by an individual, a partnership, or another noncorporate entity files its own return, so the Tennessee treatment of each tier deserves its own analysis, particularly in the first year the structure touches the state.

Practice notes

For any 2024 or later year, confirm that the franchise tax computation runs on Schedule F net worth alone and that no Schedule G computation carries forward from the old regime. For open pre-2024 years, the property measure still governs, so an examination of those years is tested against the law as it stood then. In a real estate structure, map each tier by owner type before the first Tennessee return is due: a disregarded SMLLC under a corporate owner, a REIT included, reports on the owner's return, while one under a partnership or an individual files on its own. G&G State Tax Group provides Tennessee franchise and excise tax analysis for real estate structures alongside its state and local tax practice.