Tennessee gives you a real head start with no state income tax, but it still licenses contractors and runs strict deadlines on getting paid, so "no income tax" is not the same as "no rules." Here is what actually changes when you work here.
Each section below points to a tool that runs your exact numbers for Tennessee.
Tax in Tennessee
Tennessee has no state income tax, so the only income tax on your trade profit is federal. That means no state return, no state estimated payments, and no state tax to set aside. You still owe federal income tax and self-employment tax and still have to make quarterly federal estimated payments, so do not treat the state tax you are not paying as spare cash.
On sales tax, Tennessee follows the usual rule for the trades: your labor is not taxed, and you pay sales tax on your materials when you buy them rather than charging it to the customer. Some install services taxable.
Work out what to hold back on the Tax Set-Aside Calculator, which runs the federal and self-employment numbers for Tennessee.
Getting paid: liens and retainage
A mechanic's lien is the tool that actually gets a Tennessee contractor paid, and Tennessee runs it on a notice-driven schedule rather than a simple countdown. Record the sworn statement within 90 days of the improvement being completed or abandoned (66-11-112(a)). WATCH FOR A NOTICE OF COMPLETION: once the owner records one, your window collapses to 10 DAYS on 1-4 family residential, or 30 days on anything else, and the statute says your lien rights expire (66-11-143(e)(2)). Miss the window and you usually lose the lien entirely, so the dates matter.
Enforcing it has its own clock. A prime contractor's lien lasts 1 year from completion or abandonment (66-11-106). A remote contractor's lasts only 90 DAYS from serving its Notice of Lien (66-11-115(b)). AND EITHER CAN BE CUT SHORT: on written demand from the owner, their agent or the prime contractor you must commence proceedings within 60 days or the lien is forfeited (66-11-130). Work out your dates on the Lien Deadline tool, and if they are close, get an attorney to confirm them against the statute (Tenn. Code 66-11-106, 66-11-112, 66-11-115, 66-11-130, 66-11-143, 66-11-145, 66-11-146).
On money held back as retainage, this is our plain-English summary for Tennessee. NOT VERIFIED. Tenn. Code §66-34-103 and §66-34-104 are cited but the row has never been read against them here. The 5%, the mandatory escrow and the 90 days are all indicative.
- Private work: 5%.
- Public work: 5% (held in a mandatory escrow).
- Release (unconfirmed): About 90 days.
Check the Retainage Calculator before you sign a contract that holds back more.
There is no Tennessee retainage letter on this site, and the NOT VERIFIED line above is why. A letter that tells the party holding your money what to hand over only gets written over a row that has been read against the statute in full. The Document Hub carries the forms that do not turn on a state rule.
Do you need a license in Tennessee?
Tennessee requires a state contractor license to take building work on. The threshold that triggers it: $25,000 or more for general and named specialty trades; masonry above $100,000; Home Improvement registration above $3,000. Working unlicensed when your job needs a license is the expensive mistake here. The owner-builder exemption is capped: outside the largest county, no more than one permit application or one single residence within any two years, with a rebuttable presumption of commercial intent if exceeded. The license comes from Tennessee Board for Licensing Contractors, under the Department of Commerce and Insurance. Tennessee accepts the NASCLA commercial exam, useful if you work across state lines.
Trade licenses for electrical, plumbing and HVAC are usually separate and often required even where a GC license is not. See what applies to your trade on the Contractor License Checker.
Building codes and permits
Tennessee has no single statewide building code, so the edition you build to and whether you need a permit depend on your city or county. Do not assume the town next door adopted the same code or the same amendments.
- Homes: 2018 (effective 16 July 2020) / 2021 IBC for commercial since 17 April 2025
- Electrical: 2017 (effective 19 March 2018 per the fire marshal's own record)
- Energy: 2018 residential provisions (effective 16 July 2020) / 2021 for commercial (effective 17 April 2025)
- Plumbing: 2021 IPC for commercial since 17 April 2025 / the 2018 IRC's own plumbing chapters for one- and two-family dwellings
Tennessee does not run one edition across the whole job, and the energy code is where it splits: 2018 residential provisions (effective 16 July 2020) / 2021 for commercial (effective 17 April 2025). That matters more than the number itself. If you work on houses, the residential edition is your book, and the single figure quoted in most adoption charts is the commercial one.
Tennessee's state codes are a floor rather than a fixed mandate. A municipality may certify that it will adopt and enforce its own codes instead, provided they are at least as strict and no more than seven years behind the newest edition, and it may also vote by a two-thirds majority to exempt one- and two-family dwellings from the state standards altogether, in which case no state residential baseline applies there. Where a jurisdiction has done nothing, the fire marshal enforces the state code directly. The gap between the residential and commercial tracks is unusually wide: a house is on 2018-era building and energy codes and a commercial job on 2021, because an April 2025 rulemaking advanced seven codes at once and deliberately left the residential ones alone.
Source: Tenn. Comp. R. & Regs. chapter 0780-02-02, State Fire Marshal's Office, under T.C.A. §§68-120-101 et seq., with the local certification and exemption mechanism at §68-120-101. Read against that source on 2026-08-25.
Check a specific job on the permit tool.
Pay and workers' comp
The minimum wage in Tennessee is the federal $7.25 an hour. Tennessee has NO state minimum wage law. The $7.25 reaches you only through the federal FLSA, so it binds only FLSA-covered employment. Whether it binds a particular job turns on whether the FLSA reaches that employment, which is the part most people miss. Check a rate on the minimum-wage tool.
Workers' comp rates in Tennessee are not published as a single figure; they turn on your trade's class code and your payroll. Get a realistic range on the Workers' Comp Estimator, then get a real quote.
If a client will not pay
If a client will not pay, you can sue for up to $25,000 in Tennessee's General Sessions Court. That covers most unpaid-invoice disputes for a small outfit; a bigger claim goes to regular civil court where you will probably want an attorney. Walk through whether filing is worth it on the Small Claims checker.
The clock runs the other way too: a client generally has 6 years to sue you over the work under a written contract in Tennessee, with an absolute cutoff 4 years after the job is substantially complete. Work out your exposure on the Warranty & Claim Deadline tool.
Common questions
Does Tennessee have a state income tax?
No. Tennessee has no state income tax, so the only income tax on your trade profit is federal. You still owe federal income tax and self-employment tax and still make quarterly federal estimated payments.
Do I need a contractor's license in Tennessee?
Yes. Tennessee requires a state contractor license. The threshold: $25,000 or more for general and named specialty trades; masonry above $100,000; Home Improvement registration above $3,000. It is issued by Tennessee Board for Licensing Contractors, under the Department of Commerce and Insurance.
What is the small claims limit in Tennessee?
You can sue for up to $25,000 in Tennessee's General Sessions Court. The filing fee is typically $75 to $250. Larger claims go to regular civil court.
How long do I have to file a mechanic's lien in Tennessee?
Tennessee does not run a simple countdown. Record the sworn statement within 90 days of the improvement being completed or abandoned (66-11-112(a)). Work the exact dates out on the Lien Deadline tool and confirm them against the statute before you rely on them.
What is the minimum wage in Tennessee?
$7.25 an hour, the federal floor. Tennessee does not set a higher rate of its own, so that floor reaches a worker through federal FLSA coverage rather than through state law. Check a specific job on the minimum-wage tool.
What building code does Tennessee use?
There is no single statewide building code in Tennessee: the edition, and whether you need a permit at all, are set by your city or county. Homes: 2018 (effective 16 July 2020) / 2021 IBC for commercial since 17 April 2025. Do not assume the next town over adopted the same thing.
The honest bit
These are the 2026 rules for Tennessee as they stood when this guide was written, and they change: legislatures move thresholds, deadlines and rates every year. Treat this as general guidance to point you in the right direction, not legal, tax or financial advice. Verify anything you rely on at the source (the IRS, the Tennessee tax and licensing agencies, and your local building department) or with a professional. Where Tennessee does something unusual, the detail is called out above rather than glossed over.
Related: Tax Set-Aside Calculator · Mechanic's Lien Deadline · Contractor License Checker · Small Claims checker · Working in Your State
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Templates you might need
Sources
- Commerce & Insurance (TDCI) · Tennessee contractor licensing authority. Who must hold a contractor or trade license in Tennessee, and the licensing instrument (https://www.nascla.org/commercial-exam-participating-state-agencies/tennessee-board-licensing-contractors)
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