Tennessee
Updates
What You’ll Learn
If you’re a nonprofit in Tennessee, or you’re a nonprofit considering fundraising or other activities in Tennessee, you must understand the requirements that Tennessee has established for nonprofits operating in the state.
How can you become familiar with these laws? Where should you start?
Start here. This state profile includes the basic requirements nonprofits must consider. Reading the profile and implementing appropriate compliance measures will help you prepare your organization for success in Tennessee.
Getting to Know the State Nonprofit Corporation Law
Background
*Important primarily for nonprofits incorporated in Tennessee
Emma Woodhouse, handsome, clever, and rich, with a comfortable home and happy disposition, seemed to unite some of the best blessings of existence; and had lived nearly twenty-one years in the world with very little to distress or vex her. She was the youngest of the two daughters of a most affectionate, indulgent father; and had, in consequence of her sister’s marriage, been mistress of his house from a very early period. Her mother had died too long ago for her to have more than an indistinct remembrance of her caresses; and her place had been supplied by an excellent woman as governess, who had fallen little short of a mother in affection.
- Emma, Jane Austen
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Corporate Governance
Conflict Transactions: Tenn. Code Ann. § 48-58-701, et. seq.; Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.
Director Standards of Conduct: Tenn. Code Ann. § 48-58-301; Need a refresher on the role of directors? See Bylaws Module 6: Directors.
Members: Eligibility and Statutory Powers: Tenn. Code Ann. § 48-56-101; Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.
Indemnification: Tenn. Code Ann. § 48-58-501, et seq.; Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: Tennessee’s nonprofit corporation law expressly: (a) acknowledges an option for nonprofit corporations to incorporate for religious purposes and (b) includes specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs. The law does not include an option to incorporate expressly as a nonprofit religious corporation. See Tenn. Code Ann. § 48-67-101; Tenn. Code Ann. § 48-67-102; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Tennessee law permits a director to rely on guidance from religious figures within his or her faith tradition in the fulfillment of the director’s fiduciary duties. Tenn. Code Ann. § 48-58-301
Understanding Religious Liberty in this State
Case Study
*Important for all nonprofits doing business in Tennessee, whether incorporated in Tennessee or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws listed below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Tennessee has enacted a RFRA that protects the religious free exercise of all individuals and entities by requiring government burdens on religious exercise to satisfy strict scrutiny. These protections originate in a statute rather than the state constitution. Tenn. Code Ann. § 4-1-407; Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
State Constitutional Protection of Free Exercise: The Tennessee Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. Tenn. Const. art. I, § 3, 4, & 6; art. XI, § 15
State Blaine Amendment: The Tennessee Constitution does not contain a Blaine Amendment but also does not expressly protect faith-based organizations’ freedom to participate in public benefit programs on the same terms as similarly situated secular institutions. Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Tennessee currently has a statewide public accommodation law that has no express protections for religious organizations operating according to their sincerely-held religious beliefs. Be sure you understand this and any local regulations that may apply to your organization.
Religious Freedom and Public Accommodation Laws: Tennessee’s nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide no meaningful religious accommodations or exemptions. Tenn. Code Ann. § 4-21-501; Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Tennessee law provides absolute statutory protection for religious worship. Tenn. Code Ann. § 58-2-107
Key Employment Laws and Regulations
In addition to tracking with the protected classes in the federal anti-discrimination employment law (race, color, religion, sex, and national origin), Title VII of the Civil Rights Act of 1964, Tennessee prohibits employers from discriminating on the basis of age and creed. An employer includes any person who has eight or more employees within the state. No religious exemptions apply to this requirement. Local governments may also have employment-related regulations. An attorney can help you understand what requirements apply to your organization.
Religious Freedom for Faith-Based Employers: Tenn. Code Ann. § 4-21-401; Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here.
Religious Freedom for Employees: Not Present
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Tennessee but incorporated elsewhere
If you are fundraising or conducting activities in this state, you must consider whether you need to register as a foreign nonprofit corporation. The state law requires entities that are transacting business in the state to register. An attorney can help you decide whether you need to register based on the type and volume of activities you have in this state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for both Tennessee and Foreign Nonprofits
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
This state has a narrow religious exemption for:
- Churches or established physical places for worship within Tennessee, at which nonprofit religious services and activities are regularly conducted and carried on, and
- Groups without a physical presence in Tennessee which are exempt from filing the IRS Form 990, such as churches.
For these groups, the exemption is automatic. Depending on their activities in this state, other religious organizations, not exempt from the IRS Form 990 requirement, may need to complete a charitable registration, despite their religious identity.
This state defines solicitation very broadly, however the state does have a streamlined exemption available through an annual application to organizations which intend to solicit and do solicit less than $50,000 annually, similar to the federal exception from filing the IRS Form 990.
An entity that is not domiciled within Tennessee must register in accordance with the law of Tennessee, unless exempt from the registration requirements, if:
- Its non-Internet activities alone would be sufficient to require registration;
- The entity solicits contributions through an interactive Web site; and
- Either the entity:
- Specifically targets persons physically located in Tennessee for solicitation, or
- Receives contributions from Tennessee on a repeated and ongoing basis or a substantial basis through its Web site; or
- The entity solicits contributions through a site that is not interactive, but either specifically invites further offline activity to complete a contribution, or establishes other contacts with Tennessee state residents, such as sending e-mail messages or other communications that promote the Web site, and either specifically targets persons physically located in Tennessee for solicitation or receives contributions from Tennessee on a repeated and ongoing basis or a substantial basis through its Web site.
County and Municipal Registration Requirements
Note that Tennessee’s Charitable Solicitation Act does not prevent counties or municipalities from creating more stringent registration requirements for charitable organizations. Therefore, it is important to contact an attorney and/or local governing bodies to determine if there are any applicable local ordinances that impact your organization.
If You're Fundraising In Multiple States, Make Sure You Understand the URS
In this state, organizations which are required to register have the option of registering through the Unified Registration Statement, which is a standardized charitable registration accepted in many states. Using the URS, rather than a state-specific registration form, has pros and cons. The URS typically must be submitted by mail. Tennessee has an online filing system, and it may be more efficient to use that system, rather than complete and mail the URS manually.
Additionally, creating the online profile will save the organization time in preparing future annual reports, which are processed using the same system.
Evaluate Whether You'll Need a Registered Agent
Some states require organizations to appoint a “registered agent” in the state as part of the organization’s charitable registration. This state does not currently have this requirement, and the Secretary of State is automatically appointed as the agent for accepting service of process for out-of-state organizations.
Follow the Rules About Communicating with the Public
This state does not require organizations to post specific language when conducting charitable solicitations unless they are using a paid solicitor.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Tenn. Code Ann. § 48-101-504(c) and (d) and Tenn. Code Ann. § 48-101-506
Audit Requirements: As a condition of maintaining authorization to fundraise in the state, Tennessee generally requires the submission of reviewed or audited financials for organizations with annual contributions greater than $500,000. Tenn. Code Ann. § 48-101-506
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Tennessee, whether incorporated in Tennessee or elsewhere
In this state, organizations which have received federal income tax exemption are also exempt from the state income tax. However, to receive this exemption, organizations should apply by sending a request to the Tennessee Department of Revenue, including a copy of their determination letter. Note that, although an organization may be exempt, if it has unrelated business taxable income (UBTI) that is subject to federal taxation, that UBTI will be subject to Tennessee’s income tax. See Tenn. Code Ann. § 67-4-2007(a).
In Tennessee, almost all business entities, even out-of-state business entities, must pay an annual franchise tax. However, entities operated exclusively for religious purposes (such as a faith-based nonprofit) are exempt from this tax with respect to profits from the sale of items contributed to the organization. See Tenn. Code. Ann. § 67-4-712(b)(5).
It is also important to consider whether your organization might be eligible for sales and use tax or property tax exemption. In this state, federal § 501(c)(3) status does not automatically provide an exemption from sales, use and property taxes. More information about the sales and use tax exemptions and applications is available on the Tennessee Department of Revenue website and in Tennessee administrative rules. An accountant or attorney can provide answers to specific questions regarding your organization’s eligibility for exemption.
Corporate Income Tax Statute
Tennessee imposes a corporate income tax but automatically exempts organizations with federal 501(c)(3) exempt status. Tenn. Code Ann. § 67-4-2105
Corporate Franchise Tax Statute
Tenn. Code Ann. § 67-4-2104; Tenn. Code Ann. § 67-4-2103 (exemptions)
Corporate Gross Receipts Tax: Tennessee Business Tax, Tenn. Code. Ann. § 67-4-712(b)(5)
What You Need to Know About Sales Tax
Sales and Use Tax: Tennessee imposes a sales and use tax on religious organizations’ sales and only provides limited exemptions for certain items. Tennessee imposes a sales and use tax on religious organizations’ purchases but generally provides a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ purchases upon application. Tenn. Code Ann. § 67-6-322
State Tax Treatment of Unrelated Business Income: Tenn. Code Ann. § 67-4-2007(a)
Property Tax: Tennessee imposes property tax but, upon application, generally provides an exemption to religious organizations for property used for religious and/or charitable purposes. Tenn. Code Ann. § 67-5-212
State-Specific Special Requirements
Miscellaneous
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Legal Disclaimer
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington