In Tennessee the 6.5 percent sits on the company you are selling, not on your income.

The escrow account, the principal broker, and the buyer who has neither

Tennessee puts most of the licensing weight on the firm rather than on the individuals inside it. A licensed real estate firm must name a principal broker, must maintain a fixed location with adequate facilities, and must open and prove an escrow account, unless it files a Waiver of Escrow on the basis that it will handle no third-party funds. A company holding tenant security deposits and owner disbursements is not filing that waiver. Managing property for others for compensation is licensed activity, and Tenn. Code Ann. 62-13-103 requires a license of anyone performing a broker act for compensation, so a buyer cannot run the acquired book on the seller’s credential. What that comes to in Tennessee is a named principal broker and a proved trust account, both standing on the closing date, which pushes an unlicensed financial buyer into either keeping your principal broker or recruiting one.

A buyer that intends to recruit can be asked which broker it will name on Form TREC-1 or TREC-2, and when. Whether the firm license itself rides along with the equity is a different question, and the Tennessee Real Estate Commission publishes no change-of-ownership transfer procedure for one. Firm licensure runs through the principal broker named on that form, and only the Commission can say what a change of control does to it.

Two exemptions decide who else can bid, and both are narrower than they look. The resident-manager exemption at Tenn. Code Ann. 62-13-104(a)(1)(E) covers a resident manager for a broker or an owner, or an employee of a broker, running an apartment building, duplex or residential complex, but only where the duties stop at supervision, exhibiting residential units, leasing, and collecting security deposits and rents, and only where that person negotiates neither the amounts nor the leases. The line is drawn at negotiating authority, so staffing gets read role by role. The owner exemption runs the other way, putting a buyer that manages only real estate it owns outside the Act altogether, so an owner-operator buyer and a third-party manager close on different conditions. The Attorney General read that one tightly in Opinion 19-15: a business entity other than a corporation qualifies, if at all, only under the owner exemption at 62-13-104(a)(1)(A), a partial owner is exempt only as to the portion it owns, a lessee is an owner only as to its leasehold, and an individual or entity owning a percentage of an LLC that owns the real estate does not qualify at all. Tiered ownership is where the exemption a buyer assumed it had disappears.

Tennessee issues no license that would reach the sale itself. The Commission’s categories run from Acquisition Agent to Vacation Lodging Service with no business-brokerage category among them, and the Tennessee Real Estate Broker License Act of 1973 defines a broker by acts keyed to real estate, improvements on real estate and time-share intervals rather than to going concerns. Wraith therefore represents Tennessee sellers directly on a sale of the business itself, with no licensed real estate firm standing in the middle. One line runs around that. The same Act defines a transaction to include a business opportunity, so a fee measured by the value of Tennessee real property conveyed alongside the business sits inside the licensing requirement rather than outside it.

Which entity is standing when the assets change hands

The Hall income tax never reached an owner’s capital gain on a business sale. It reached interest from bonds and notes and dividends from stock, capital gains were exempt, and it was repealed for tax periods beginning on or after January 1, 2021, with the Tennessee Department of Revenue now instructing taxpayers not to file for any year starting on or after that date. Nothing about a seller’s personal position changed in 2021.

The state taxes the entity instead, through the franchise and excise tax. Excise tax runs at 6.5 percent of net earnings, after a standard deduction equal to the lesser of net earnings or $50,000 that the Tennessee Works Tax Act introduced for tax years ending on or after December 31, 2024, and franchise tax runs at 25 cents per $100 of net worth. In an asset sale the gain lands in the entity’s net earnings and is taxed there before anything reaches the owner. Only the Tennessee-apportioned share is taxed, so the Tennessee number on a Memphis, Chattanooga or Clarksville book that reaches into Mississippi, Arkansas, Georgia or Kentucky is not the whole gain. In an equity sale the entity recognizes no gain and the transaction carries no excise tax at all. Asset sale or equity sale is a 6.5 percent question in Tennessee before it is anything else.

Limited liability decides which entities sit inside the tax, not federal treatment. General partnerships and sole proprietors are outside it because they offer their owners no limited liability protection, and a single-member LLC gets no relief from being disregarded federally unless its single member is a corporation. Tennessee then provides seventeen statutory exemptions at Tenn. Code Ann. 67-4-2008, and an operating property management company organized as an LLC, LP or LLP usually looks at two of them. The Obligated Member Entity election, under which every direct owner accepts full liability for the entity’s debts and files with the Secretary of State, takes the entity out of the tax. The Family-Owned Noncorporate Entity exemption is the other, carrying a 95 percent family-ownership test and a 66.67 percent passive-investment-income test. The gain on the sale can itself defeat that passive-investment-income test, so an exemption a family-owned entity has held for years is not automatically available in the year it sells.

The obvious workaround is closed, and it has a twelve-month tail. Where a Tennessee taxpayer distributes an asset and a non-taxable owner sells it at a gain within twelve months, the gain is generally added back on the distributing entity’s own return under Tenn. Code Ann. 67-4-2006(b)(1)(I). Tenn. Code Ann. 67-4-2007(f) then shifts the 6.5 percent onto the individual or otherwise non-taxable seller in four situations, the common one being that the company was liquidated and no longer exists to be taxed. Liquidating does not make the tax disappear; it changes who signs the return. That individual, who owes Tennessee nothing on income of any other kind, files Form FAE170 and pays excise tax on the gain, and failing to report it may result in a 50 percent negligence penalty. The election that would have kept the entity outside the tax has its own clock: an Obligated Member Entity election has to be on file with the Secretary of State on or before the first day of the taxable period, and 67-4-2007(f) reaches a seller that qualified as an obligated member entity within twelve months of the sale.

Nothing in Tennessee law clears that 6.5 percent for a buyer. The purchase-money withholding duties here are written tax by tax. Tenn. Code Ann. 67-4-721 sits in the business tax part of the code and reaches business tax, and Tenn. Code Ann. 67-6-513 is the parallel provision for sales and use tax. Neither reaches franchise and excise tax, which is usually the largest single Tennessee number in the transaction. There is no certificate to request for it and no withholding duty to release, so it is carried by an indemnity, a holdback and a specific tax representation, or it is not carried at all.

Public Chapter 934 arrived with no case law behind it

The act that governs Tennessee restrictive covenants was passed on April 20, 2026, took effect on July 1, 2026, and wrote the state’s covenant rules into statute by adding two new sections to the code. For a covenant enforced against the owner or seller of all or a material part of a business, its assets or its equity, a court shall presume reasonable in time a restraint running the longer of five years or the period during which payments are made to that seller; employees and independent contractors carry a two-year presumption. What the act presumes is time. It says nothing about geographic scope or the scope of restricted activity, which are still tested under ordinary reasonableness.

The provision that reaches furthest into a management company is the compensation floor. An employer may not require, request or enforce a noncompete agreement against an employee whose annualized compensation is less than $70,000, and an agreement executed in violation of that section is void and unenforceable as a matter of public policy. For an hourly employee, annualized compensation is the hourly rate multiplied by 40 and then by 52. Leasing agents, portfolio administrators and maintenance staff at a Tennessee management company commonly sit under that line, and they are the people a buyer is counting on to stay.

What the act reaches is unsettled in both directions. Section 3 provides that it takes effect July 1, 2026 and applies to proceedings occurring and agreements entering into, renewed, or amended, on or after that date. Those are two hooks, not one. A covenant signed before that date was not executed in violation of a statute that did not yet exist, but a suit brought to enforce it afterwards is a proceeding occurring after the date, and no Tennessee court has resolved which controls. So a buyer cannot underwrite retention on legacy covenants over sub-threshold staff as though they were grandfathered, and a seller cannot give a flat representation that they are enforceable. Re-papering carries its own risk: amending or renewing a noncompete for a sub-$70,000 employee on or after July 1, 2026 pulls it squarely inside the floor and voids it.

The instrument buyers reach for instead is the non-solicit, and the ground under it is softer than the carve-out makes it look. The carve-out preserving confidentiality and nondisclosure agreements, client or customer nonsolicitation agreements and employee nonsolicitation agreements sits in Tenn. Code Ann. 50-1-210, the presumptions section, and by its own terms governs only that section. The compensation floor at Tenn. Code Ann. 50-1-211 carries no equivalent language and does not define what a noncompete agreement is, so whether a broadly drafted customer non-solicit falls inside the $70,000 bar has not been answered by anyone with authority to answer it. The modification power is scoped the same way: a Tennessee court may modify a covenant governed by the presumptions section to render it reasonable and enforceable, which is generally read as codifying the practice Tennessee courts already followed, and it reaches covenants governed by that section rather than agreements the compensation floor has declared void.