Tennessee Mileage Deduction 2026: No Income Tax, But an Entity Tax

Tennessee has no personal income tax, but that is not the whole story if you formed an LLC. Tennessee levies franchise and excise tax at the entity level, so an LLC driver has a state tax the sole proprietor next to them does not. At 20,000 business miles the deduction is $14,850, worth about $5,539 federally before any state effect.

Source: Tennessee Department of Revenue: excise tax at 6.5% of net earnings and franchise tax at $0.25 per $100 of net worth or real and tangible property in Tennessee. Verified August 2026.

The LLC question is the whole question here

A Tennessee sole proprietor reporting on Schedule C pays no state tax on that income at all. Form a single-member LLC and the entity becomes subject to franchise and excise tax, which is 6.5% of net earnings plus a franchise component. Drivers who incorporate for liability reasons frequently discover this after the fact.

The mileage deduction is the main lever against the excise half. Net earnings for excise purposes start from federal taxable income, so every mile you log reduces the 6.5% base along with the federal base. A complete mileage log is doing double duty for an LLC in a way it is not doing for a sole proprietor.

The franchise half does not respond to mileage

Franchise tax is measured on net worth or on the value of real and tangible property in Tennessee, whichever is greater. It is a balance-sheet tax, not an income tax, so no amount of deducted mileage reduces it. A driver whose only meaningful asset is a vehicle should expect the franchise component to be small but nonzero, and should not be surprised when the mileage deduction fails to move it.

Filing in Tennessee

Deduct business miles on federal Schedule C, Line 9 at 76¢ (the rate from 1 July 2026; 72.5¢ before that). If you file as a sole proprietor there is no Tennessee return for this income. If you operate through an LLC, corporation, or partnership, file Form FAE 170 and expect the mileage deduction to flow into the excise computation through federal taxable income.

FAQ

I formed an LLC for my delivery work. Do I owe Tennessee tax?

Generally yes. Franchise and excise tax applies to LLCs doing business in Tennessee, including single-member LLCs, unless a specific exemption applies. This is the main reason the state is not as tax-free as its reputation suggests.

Should I dissolve the LLC to avoid it?

That trades a tax cost for a liability exposure, which is a legal decision rather than a tax one. What is worth doing is comparing the actual annual F&E figure against what the entity buys you, rather than assuming either side is negligible.

Is tracking mileage still worth it with no income tax?

Yes, and the federal side is where nearly all of the money is. On 20,000 miles the federal benefit is roughly $5,670. The absence of a personal income tax changes nothing about that.

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