Tennessee does not tax general partnerships or partners on partnership income; franchise and excise taxes reach limited-liability entities

# Summary

Tennessee imposes no income tax on a general partnership or on any partner's distributive share. With the Hall income tax repealed as of January 1, 2021, individuals pay no Tennessee tax on income of any kind, so partnership income arrives in a partner's hands free of Tennessee tax — and a general partnership itself files no Tennessee income-type return at all.

The exception is Tennessee's franchise and excise (F&E) tax regime, and the line it draws is limited liability: partnerships and other entities that shield their owners — LLCs, limited partnerships, LLPs — are subject to both taxes at the entity level. Form of organization, not the label "partnership," decides the answer.

# The Department's own line-drawing

From the Franchise & Excise Tax Manual, chapter 2 (Entities Not Subject to Franchise and Excise Tax): a general partnership is "a partnership in which all partners, as defined by state law, are fully liable for the debts of, or the claims against, the partnership" (Tenn. Code Ann. § 67-4-2004), and "GPs are not subject to franchise and excise tax because they do not provide their owners limited liability protection." Sole proprietorships sit in the same excluded category.

The manual also describes the obligated member entity (OME) election, which lets an LLC or LP escape F&E tax if every member — direct and indirect — accepts full personal liability; a single limited-liability owner anywhere in the chain defeats the election.

# What limited-liability partnerships pay instead

A partnership organized as an LLC, LP, or LLP is a taxable "person" for F&E purposes and files Form FAE170: the excise tax at 6.5 percent of Tennessee net earnings, and the franchise tax at $0.25 per $100 (0.25 percent) of the greater of net worth or the minimum measure, with a $100 minimum. That is an entity-level income-and-net-worth regime, not a tax on the partner: even where F&E applies, the partner's distributive share bears no Tennessee tax at the individual level.