Tennessee Economy Overview

Currency

US Dollar (USD)

Working hours

40 hours/week

Public/bank holidays

13 public holidays

Capital

Nashville

Languages

English 

Population

Approx. 7 million

Minimum hourly salary

$7.25 (USD)

Tax year

1st Jan – 31st Dec

Date format

MM/DD/YYYY

Misclassification penalties

Employers in Tennessee who misclassify workers as independent contractors may face tax penalties, back wages, and fines. Violations can also lead to legal action and liability for unpaid employment taxes.

Fun fact

Tennessee is home to the birthplace of country music, with Bristol officially recognized as the genre’s birthplace. Nashville, the state capital, is known as “Music City, USA” and houses the famous Grand Ole Opry and Country Music Hall of Fame.

International employers looking for rewarding expansion opportunities can benefit from Tennessee’s business-friendly environment and exceptionally talented labor force. The state appeals to global investors for its favorable tax laws, such as low to no taxes for business incorporation. Startups are offered financial incentives through local tax programs to create new jobs and stimulate economic growth. 

Tennessee offers quite a diverse economy supported by tourism, healthcare, and renewable energy. In addition to the state’s healthy economic growth, businesses looking to expand in Tennessee can invest in an active job market while accessing affordable housing. 

When doing business in Tennessee, employers have the freedom to hire a dedicated workforce without strict government regulations on labor practices. The most efficient way to expand your company in Tennessee is with the expertise of an Employer of Record (EOR) or global recruitment agency. To help your business, this guide breaks down Tennessee’s business and tax laws along with options for expansion and hiring top talent. 

Overview of Tennessee's Economy

Tennessee’s real GDP reached $425.4 billion in 2023, according to Statista. The state’s growth increased by approximately 3.2% between 2023 and 2024 due to its inflation-adjusted GDP and support in the manufacturing, real estate, and leasing sectors. The state’s economic growth includes tourism reaching $30.6 billion in 2023, increasing by 25% in only two years. 

Sector Contribution to Tennessee’s Economy
GDP Growth Tennessee’s real GDP reached $425.4 billion in 2023, growing by 3.2% between 2023 and 2024.
Manufacturing Sector Manufacturing contributed $57.71 billion to the economy in 2023, making it a key driver of economic growth.
Tourism Industry Tennessee’s tourism sector generated $30.6 billion in 2023, experiencing a 25% increase in just two years.
Renewable Energy & Hydroelectric Power The state ranks 6th in hydroelectric power generation and has secured $7 billion in energy investments.
Real Estate & Leasing Growth in real estate and leasing sectors played a significant role in Tennessee’s economic expansion.

Tennessee has a strong manufacturing sector that has improved the economy with a value of $57.71 billion in 2023. The state is recognized as the 6th major provider of hydroelectric power, securing up to $7 billion in energy investments.

Taxes

Employer Tax: Approximately 7.65% – 15%

Social Security (FICA)

6.2%

Medicare (FICA)

1.45% (on all wages, plus an additional 0.9% for wages exceeding $200,000)

Federal Unemployment Tax (FUTA)

6.0% on the first $7,000 of wages (can be reduced with state credits to as low as 0.6%)

State Unemployment Insurance (SUI)

Ranges from 0.01% to 10% based on employer experience rating

Employee Tax: 7.65%

Social Security

6.2%

Medicare (FICA)

1.45% (on all wages, plus an additional 0.9% for earnings above $200,000)

Income tax

Tennessee has no state income tax on wages and salaries.

Business Regulation in Tennessee

Doing business in Tennessee means establishing a legal presence and hiring a skilled workforce. To achieve this, employers must understand the following business regulations to avoid delays and penalties:

Company Registration

Registering a company starts with choosing a business structure, such as an LLC or a corporation. Secondly, a registered agent must be appointed to receive government notices on the company’s behalf. If registering an LLC, Articles of Organization must be filed, but if a corporation is registered, Articles of Association must be filed with the Tennessee Secretary of State. 

All international companies must file a Certificate of Authority to register a business in Tennessee. Lastly, businesses must register for tax with the Tennessee Department of Revenue and obtain an EIN. The necessary permits or licenses for operation depend on the company’s industry and location.

Investment Laws

Investments in Tennessee are governed by the Tennessee Securities Act. The purpose of this law is to protect the interests and rights of investors while regulating the state’s securities and capital markets. 

Furthermore, Tennessee has “Blue Sky Laws” for investor protection against fraud and misrepresentation. 

The Tennessee Investment Credit Program falls under investment law as it rewards new and existing businesses in expanded operations with credit for their electric bills. Businesses can save up to 20% on monthly power bills. 

All international companies must file a Certificate of Authority to register a business in Tennessee. Lastly, businesses must register for tax with the Tennessee Department of Revenue and obtain an EIN. The necessary permits or licenses for operation depend on the company’s industry and location.

Tax Policies

Tennessee possesses among the lowest state and local tax burdens nationwide and has two types of tax: state business tax and city business tax. Companies selling goods and services in Tennessee, whether they have an entity inside or outside of the state, must pay a state tax of 7%. If your company is in a city that has enacted a business tax requirement, then you must pay the additional city business tax of 6.5%.

New corporations in Tennessee can take advantage of the absence of personal tax and sales tax on raw materials. Tax benefits include no sales tax on any type of manufacturing equipment and a tax credit of 1% on capital equipment.

The Pass-Through Taxation policy prevents businesses that register as an S-corporation from paying income tax. S corporations benefit from Independent Life in Tennessee, which means that the passing of a stockholder does not disrupt the company’s operations.

What Are the Benefits of Doing Business in Tennessee?

Investing in Tennessee offers companies several advantages, including the following:

  • Business Incentive Programs: Newly registered businesses in Tennessee have the benefit of the Valley Incentive Program, which offers different categories of economic incentives, including the Investment Credit Program and Loan Funds. The Loan Funds program aims to stimulate economic and job growth by offering financing to new companies.

    In 2017, the Tax Cuts and Jobs Act launched a new program in which certain low-income areas are designated as Opportunity Zones. Investors who reinvest capital gains into the so-called Opportunity Funds are provided federal tax benefits.
  • Reliable transportation infrastructure: Tennessee has invested in its transportation infrastructure to ease congestion and facilitate business operations with ease and efficiency. Companies can take advantage of improved logistics, expansion, and establishing a workforce with access to well-maintained roads, fully operational railways, and air transport.

    The state’s robust infrastructure has improved tourism, supported manufacturing and logistics industries, and created jobs in the construction and maintenance sectors.
  • Government reforms: The latest government reforms in Tennessee include reductions in franchise tax rates and the elimination of property measures from the calculation of taxes. The Tennessee House authorized the franchise tax reduction worth $700 million in rebates.

    The Certificate of Need (CON) reforms require a permit for the establishment of a healthcare facility. It regulates improvements in the standard and cost of healthcare in the state.

    The Tennessee Works Tax Act has included the reform of exempting a business’s first $500,000 in property from tax.

What Are the Downsides of Doing Business in Tennessee?

Despite the advantages, companies need to also consider the following downsides of doing business in Tennessee:

  • Tax regulations: While Tennessee offers numerous tax incentives and reforms, it can be difficult for new international businesses to understand and adhere to. From business tax to excise tax, relying on a professional to provide legal guidance ensures compliance with these regulations.
  • Environmental regulations: Tennessee has stringent regulations on managing water and air pollution and hazardous waste. The Small Business Environmental Assistance Program (SBEAP) provides guidelines businesses can follow to remain compliant.

International Expansion into Tennessee

Foreign businesses expanding in Tennessee can incorporate a subsidiary or work with service providers such as recruitment agencies, EORs, and PEOs to hire a qualified workforce.

The options for international business expansion are explored below: 

Tennessee Employer of Record (EOR)

An EOR in Tennessee is suited to international businesses that want to expand without registering a subsidiary. The EOR acts as the employer of the labor force, assuming legal liability. EOR services include payroll management, benefits administration, employee onboarding, and assistance in drafting a compliant employment contract.

Recruitment Agency

Professional recruiters access a large pool of talented and often pre-vetted job candidates, matching the ideal candidates to the job requirements. Partnering with a recruitment agency saves time and costs when hiring contract, temporary, or permanent staff, as the team selects and places potential employees.

Tennessee Professional Employer Organization (PEO)

A Tennessee PEO assists companies with a legal entity providing HR functions, payroll, and benefits administration. The PEO is a co-employer managing tax registrations and withholding; however, the client company is responsible for addressing employee liabilities and performance.

Subsidiary Incorporation

Incorporating a subsidiary in Tennessee starts with filing a For-Profit-Corporation-Charter with the local Secretary of State. A unique business name must be selected based on the incorporation of an LLC or corporation, and a registered agent appointed.

The next stage is to file Articles of Incorporation (if a corporation) or Articles of Organization (if an LLC). Once filed, the business must register for tax with the IRS and obtain an EIN.

Operating in certain cities requires obtaining a city business license, and once incorporated, the business must file annual reports.

Branch Registration

Businesses can register a branch in Tennessee to reduce expansion costs. Branch registration involves filing for a Certificate of Authority with the Secretary of State. A fee of approximately $600 must be paid for registration. Setting up a branch requires appointing a registered agent and filing the requested reports to the Secretary of State.

Staffing Agency

A staffing agency in Tennessee provides temporary and permanent staffing solutions for businesses looking to hire employees quickly. The staffing agency will screen candidates and provide suitable matches based on job descriptions and company requirements.

Business Opportunities in Tennessee

Tennessee is recognized as a right-to-work state, contributing to its business-friendly environment. The state does not issue personal income tax and has a fairly resilient and diverse economy.

Employers can take advantage of the availability of skilled employees in sectors like manufacturing, healthcare, logistics, and real estate along with an untapped market in renewable energy.

Business Opportunity Reason
Manufacturing & Industrial Growth Tennessee’s manufacturing sector contributes over $57 billion to the economy, supported by tax incentives and a skilled workforce.
Healthcare & Life Sciences Nashville is a major healthcare hub, home to more than 500 healthcare companies, driving job growth and innovation.
Logistics & Transportation With a central U.S. location, Tennessee offers top-tier infrastructure, major highways, rail access, and one of the busiest cargo airports in the world (Memphis).
Renewable Energy & Sustainability The state ranks 6th in hydroelectric power production and has secured $7 billion in energy investments for clean energy initiatives.
Real Estate & Commercial Development Growing urban centers and business-friendly policies make Tennessee a prime location for commercial real estate investments.

Business expansion in Tennessee requires adherence to local labor laws and regulations, from company registration to hiring a professional workforce. To save time and resources, international employers are encouraged to hire a trustworthy global recruitment agency.

Expand into Tennessee with RemotePeople

To achieve effective market entry and support for international workforce expansion, speak to RemotePeople. The experts in global talent acquisition provide unparalleled solutions with access to pre-vetted professionals and top-tier hires for all foreign businesses.

To learn more about expansion into Tennessee, get in touch with RemotePeople’s local business expansion experts.