What to Know About the Professional Privilege Tax
Holding a professional license may create a distinct tax obligation. This guide clarifies the professional privilege tax and its specific compliance process.
A professional privilege tax is an annual amount levied by a state on individuals for the right to hold an active professional license and practice specific occupations. This tax is paid in addition to federal and state income taxes or any gross receipts taxes. The liability for the tax is triggered by holding an active license on a specific date each year, regardless of whether the professional earned income from that profession in the state.
The tax is a flat fee, with a common amount being $400 per year, due on or before June 1st annually. This payment covers the upcoming year, meaning it is paid in advance. If a professional holds licenses for multiple taxable professions, they are required to pay the single flat tax amount only once per year.
Professions Subject to the Tax
The obligation to pay the professional privilege tax is limited to a specific list of professions defined by state law, such as Tennessee Code Annotated Section 67-4-1702. Recent legislative changes have narrowed the list of professions required to pay it.
The tax is levied on the following professions:
Attorneys
Securities agents
Broker-dealers
Investment advisers
Lobbyists
Holding an active license for one of these professions on June 1st of a given year makes an individual liable for the tax for that year. The professional privilege tax is being phased out and is set to be fully repealed for all tax years beginning on or after June 1, 2026.
Available Exemptions
Certain conditions allow a licensed professional to be exempt from the professional privilege tax. The most common exemption applies to individuals not actively engaged in their profession within the state. To claim this, a professional must formally change their license status to “inactive” or “retired” with their state licensing board, which may require submitting a certified affidavit.
Simply not practicing or earning income is insufficient to avoid the tax; the license itself must be officially designated as inactive. Once the licensing board processes this change, the individual is not liable for the tax in subsequent years, provided the status remains inactive.
Another basis for exemption can be employment status. Professionals employed by certain governmental or non-profit entities may not be required to pay the tax. Individuals should verify with their employer and the state’s department of revenue whether their employment situation qualifies for an exemption.
Required Information and Forms for Registration
Before filing the professional privilege tax, individuals must gather specific personal and professional information. This includes the professional’s full legal name, current mailing address, and a unique identification number, which is the individual’s Social Security Number (SSN) or a Federal Employer Identification Number (FEIN). The professional license number issued by the state licensing board is also required.
The primary document for this process is the Professional Privilege Tax Return. State departments of revenue provide access to this form on their official websites, often in a dedicated section for the tax. Individuals can download the form directly from these government portals to ensure they are using the current version. For those unsure of their professional privilege tax account number, many state revenue departments offer an online search tool to look it up.
The Filing and Payment Process
State law mandates electronic filing for this tax through the state’s online tax portal. The standard payment method is an electronic funds transfer, which allows for a direct debit from a bank account. In limited circumstances, a paper return may be permissible and submitted via mail with an enclosed check for the full amount of the tax.
The annual deadline for filing the return and paying the tax is June 1. Failure to meet this deadline results in penalties and interest charges on the unpaid amount. If the tax was delinquent and a license renewal was held, the department of revenue will issue a tax clearance letter to the licensing board, typically allowing the license to be renewed within a few business days.