Locum Tenens Taxes in Tennessee

Tennessee's franchise and excise taxes apply to corporations, LLCs, and limited partnerships that are organized in Tennessee or doing business there. Two pieces: the excise tax, 6.5% of the entity's Tennessee net earnings, and the franchise tax, 0.25% of the entity's net worth with a $100 annual minimum. The entity files its own return, Form FAE170, every year.

Here is the asymmetry that makes this a trap: a physician earning $250,000 of 1099 income as a sole proprietor owes Tennessee nothing. The same physician, same income, routed through a member-managed Tennessee LLC, has created a taxpayer. The LLC owes excise tax on its earnings, franchise tax on its net worth, and an annual filing, all for income that state law never taxed at the individual level. Tennessee is one of the few states where forming an entity creates state tax rather than merely reshuffling it.

Recent legislation softened the edges: the Tennessee Works Tax Act added a standard excise deduction of up to $50,000 of net earnings, and the franchise tax base now runs off net worth (the old alternative property measure was repealed for tax years ending on or after January 1, 2024) with an exclusion for the first $500,000 of the base. For a service business with little balance-sheet net worth, the franchise side often lands at or near the $100 minimum. The excise side is where the money is.

Illustrative example, not a specific client outcome. A Tennessee locum physician runs $250,000 of net earnings through a single-member Tennessee LLC (no S-corp election, no payroll):

Business tax: Tennessee also runs a gross-receipts business tax at the state and county/city level, but the statute exempts a list of professional services that includes medical, dental, and allied health services to human beings. Clinical locum receipts therefore generally sit outside the business tax. The exemption follows the service, not the person, so a physician business with non-clinical revenue streams (consulting arrangements, product sales, medical directorships depending on their character) should confirm each stream separately.

Professional privilege tax: Tennessee's flat annual tax on certain licensed professionals used to include physicians, and older forum posts still scare people with it. Physicians were removed from the tax several years ago; it now applies to a short list of professions (attorneys, lobbyists, certain securities professionals). A locum physician licensed in Tennessee owes nothing here.

And because Tennessee has no individual income tax, there are no nonresident filing thresholds, no reciprocity questions, and no withholding or estimated-payment obligations on your personal locum earnings. For a sole proprietor, Tennessee compliance is genuinely close to zero.

Illustrative example, not a specific client outcome. A Tennessee-resident emergency physician earns $300,000 of 1099 income as a sole proprietor: $240,000 from Tennessee assignments and $60,000 from a winter stretch at a Massachusetts hospital.