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Taxes for Canadian Businesses in the USA – Tennessee

This is the thirty-second FAQ of this series on taxes for Canadian businesses in the USA.


What state taxes does a Canadian business pay in Tennessee?


Sales Tax

The Tennessee state sales tax rate is 7.0%. Depending on local tax jurisdictions, the total sales rate can be as high as 10%.

Use Tax

The Tennessee state use tax rate is 7.0%.

Unemployment Insurance (Payroll Tax)

If you have employees working in Tennessee, you must pay unemployment taxes on their gross wages up to the taxable wage base ($7,000 as of 2021). The tax rate varies from 0.01%-10%. Tennessee’s new employer rate is 2.7%.

Withholding (Payroll Tax)

There are no state taxes withheld from an employee’s payroll in the state of Tennessee.

Corporate Income Tax

Tennessee has a flat corporate income tax rate of 6.5% of taxable income.

Franchise Tax

Tennessee has a flat franchise tax rate of 0.25% of the greater of net worth or book value of property owned or used in Tennessee with a minimum franchise tax of $100.


If you remain under certain thresholds in this state, you are not responsible for taxes.


Availability of Treaty Benefits:

Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning, that if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.

Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state, you don’t pay tax again in Canada unless the Canadian rate is higher.

If you are a Canadian company considering business in Tennessee, including sales over $100,000 to residents and businesses in Tennessee, please contact a member of the EPR tax team by completing the contact form below. Our tax experts can advise on the best structure to reduce or minimize the impact of the taxes.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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