Tennessee State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Tennessee, with full citations and the original source on every page.
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Which receipts of a human-resource vendor manager were subject to Tennessee business tax: retained administrative fees or supplier pass-through amounts?
Only the retained administrative fees were taxable. Customer payments the taxpayer was contractually required to transfer to staffing suppliers were pass-through funds and not subject to business tax.
Is specialized modular farm equipment (and its software, installation, and warranties) subject to Tennessee sales tax when sold and installed for a farmer?
Four answers for a portable, modular farming-equipment 'System' sold and installed by dealers. (1) The equipment is TANGIBLE PERSONAL PROPERTY, not an improvement to real property — it's…
How is a monthly car-subscription service taxed in Tennessee — is the whole fee a taxable motor-vehicle lease, and does the 3% rental car tax apply?
Two answers. First, the car-subscription service is a taxable lease of a motor vehicle, and ALL of its fees — the one-time activation fee, the monthly subscription fee, hold (suspension) fees, late…
Is selling and installing a modular cleanroom subject to Tennessee sales tax — and how do you tell whether an installed item stays taxable personal property or becomes a nontaxable fixture?
Yes — selling and installing a modular cleanroom is subject to Tennessee sales and use tax, because the cleanroom REMAINS tangible personal property (TPP) after installation rather than becoming a…
When several financial institutions jointly fund a loan to refinance affordable housing in Tennessee, which of them can claim the franchise & excise community investment tax credit, and how is it divided?
It depends on the loan structure. The 'community investment tax credit' (Tenn. Code Ann. § 67-4-2109(h)) lets a financial institution offset its Tennessee franchise & excise tax when it makes a…
Does Tennessee sales tax apply to a subscription information-database service, its email alerts and data licenses, and a bundled system that includes physical equipment?
Mostly no, with one exception. The company runs a web-based subscription information database and sells several related services. The Department ruled that the core database subscription is NOT…
How does Tennessee's excise tax treat a company's federal Subpart F income from foreign subsidiaries — is it a dividend, and when can the company deduct it?
Two answers. (1) YES — for Tennessee excise tax, a company's 'Subpart F income' (the foreign-subsidiary earnings the federal tax code makes a U.S. parent report currently) is treated as a DIVIDEND,…
Does an online event-ticketing platform owe Tennessee sales tax on the fees it charges, and who has to collect sales tax on the tickets — the platform or the event organizer?
Three things. First, the online event-ticketing company's own charges — its Service Package fees and its Payment Processing fees — are NOT subject to Tennessee sales tax. They pay for nontaxable…
A company tracks visitors to its customers' websites and apps and gives them analytics reports through a dashboard. Is that data-analytics service subject to Tennessee sales and use tax, even though it relies on software the customers access?
No — the data-analytics service is not taxable. The company collects data about the users of its customers' websites and apps (via tracking code the customer installs or data the customer sends),…
A company imports printed gift cards into a Tennessee warehouse and ships them to restaurants and retailers across the country. Does it owe Tennessee sales or use tax on the cards, and can it buy them tax-free for resale?
It depends on where the cards end up. The company imports printed gift cards from an out-of-state vendor, stores them in a third-party Tennessee warehouse, and ships them to its restaurants and…
A 501(c)(3) nonprofit runs an on-demand vehicle-share program in a Tennessee city. Are its membership fees, single-use rental fees, and penalty fees exempt from sales tax because it's a nonprofit — or are they taxable?
All of the fees are taxable. A 501(c)(3) nonprofit runs an on-demand shared-vehicle program (vehicles parked in city hubs, rented for 60-minute periods). The Department ruled: (1) the Membership…
If a company installs energy-saving equipment it owns in a customer's building and bills only a monthly share of the energy saved, is that 'pay-from-your-savings' arrangement subject to Tennessee sales and use tax?
Yes. The company's agreements to furnish and remotely monitor energy-saving power equipment are subject to Tennessee sales and use tax as a lease of tangible personal property (§ 67-6-204). The…
If a public REIT owns Tennessee rental-property LLCs and limited partnerships through a partnership, and those entities are disregarded for federal tax, can they deduct from Tennessee excise tax the earnings the partnership distributes up to the REIT?
Yes. The single-owner LLCs and limited partnerships (the 'Taxpayers') qualify for Tennessee's excise-tax deduction under § 67-4-2006(a)(5)(A) for net earnings the partnership distributes — directly…
If a Tennessee restaurant puts pay-to-use entertainment tablets on its tables, does it owe the coin-operated amusement machine tax, and is the premium-content fee — or the rental it pays for the tablets — subject to sales tax?
Three answers. (1) The tabletop tablets are NOT subject to Tennessee's coin-operated amusement machine tax: a machine only counts if it delivers amusement upon depositing a coin, token, or object up…
Which advertising-agency media-placement receipts were subject to Tennessee business tax: amounts remitted to media outlets or retained fees and commissions?
Amounts remitted to media outlets and not retained were not taxable. Fees, commissions, and any other media-placement receipts the advertising agency ultimately retained were subject to business tax.
A company sells subscriptions to a library of pre-recorded online training videos, with discussion boards and other features included. Is a monthly or annual subscription to these pre-recorded courses subject to Tennessee sales tax?
Yes. The company's monthly and annual subscriptions to its library of pre-recorded online training courses ARE subject to Tennessee sales and use tax — but under a different rule than live or…
An online education company sells two kinds of courses: self-study online courses a student works through alone, and live webinars taught by an instructor in real time. Are these subject to Tennessee sales tax?
It depends on the format. (1) SELF-STUDY online courses ARE subject to Tennessee sales tax — the student works through the material by interacting with a computer program (reading text, answering…
A company invested heavily in software it built to deliver its own services and created new jobs. Does that investment make it a 'computer services' business eligible for Tennessee's franchise and excise job tax credit?
No — building software to run your own business isn't a 'computer services' enterprise, so it doesn't earn the job tax credit. Tennessee's franchise & excise job tax credit ($4,500 per qualified…
A company sells an annual subscription to its cloud-based employee-scheduling platform, which customers access remotely. Is that subscription subject to Tennessee sales and use tax?
Yes — the subscription is taxable because the true object is remotely accessed software. The company develops and hosts a cloud-based employee-scheduling platform (the 'Interface') and sells…
A single-member LLC owned by a partnership has no Tennessee activity and just does securitization. Does it qualify for Tennessee's franchise and excise exemption for partnerships and trusts?
Yes — a disregarded SMLLC owned by a partnership is treated as a partnership for this exemption. Tennessee exempts certain asset-backed securitization entities from franchise & excise (F&E) tax if…
A corporate group makes a consolidated net worth election for Tennessee franchise tax, and some affiliates are exempt from the tax. Are the exempt affiliates still included in the group, and do their assets count?
Include them in the group, but leave their numbers out. The taxpayer heads a corporate group making a consolidated net worth election for Tennessee franchise tax (§ 67-4-2103(d)), and some…
A utility's customers buy electricity tax-exempt as manufacturers or nonprofits, and some have multiple meters or sites. Do they need a separate exemption certificate for each location?
Yes — one certificate per location, but not per building or per meter. The taxpayer sells electricity to manufacturers (who buy energy fuels at a reduced 1.5% rate or exempt) and to not-for-profits…
A contractor builds a fiber-optic network for a telecom company, installing cable and conduit on leased poles and in easements. Is the lump-sum charge for that construction subject to Tennessee sales and use tax?
Yes — the whole turnkey charge is taxable, because the fiber network stays tangible personal property. The contractor handles engineering, procurement, and construction (EPC) of a fiber-to-the-home…
An out-of-state for-hire trucking company drives through Tennessee and sometimes picks up or delivers there. When does it owe Tennessee franchise and excise tax?
It depends on what the trucks actually DO in Tennessee, not just that they drive through. An over-the-road, for-hire trucking company based in another state — with no Tennessee office, property, or…
A governmental pension trust that is exempt from federal income tax owns a single-member LLC that operates in Tennessee. Is that LLC disregarded for Tennessee franchise and excise tax, and is the exempt trust taxed on the LLC's earnings?
Yes, the LLC is disregarded — but the exempt owner can still owe tax on unrelated-business income. A governmental pension trust (exempt from federal income tax under I.R.C. § 501(a)) is the sole…
A financial institution files a combined Tennessee franchise and excise return with its unitary affiliates, and some of those affiliates are tax-exempt securitization trusts. Does it still include the exempt trusts in the group, and do their income, net worth, and receipts count?
Include them in the group, but leave their numbers out. The taxpayer is a savings association that files a combined Tennessee franchise & excise (F&E) return with its unitary financial-institution…
Were receipts from selling separated renewable identification numbers included in the seller's Tennessee business-tax gross receipts?
No. Tennessee treated separated renewable identification numbers as intangible personal property, so their sale was not a taxable business activity and the receipts were excluded.
Two companies under a common corporate parent want to move internally developed software — and software-repair services — from one to the other. Is that transfer subject to Tennessee sales and use tax?
No — both are exempt. Tennessee has a specific exemption for intercompany software dealings between affiliated companies. (1) One affiliate's transfer of title to software it developed in-house, to…
A Tennessee company licenses speech-recognition software to run a transcription service and charges its clients a fee per report. Are the fees it charges clients taxable, and is the software the company itself buys taxable or exempt as a purchase for resale?
Two different answers. (1) The report fees the company charges its CLIENTS are NOT subject to Tennessee sales tax — the true object is a nontaxable transcription and storage service, and the small…
A company runs a cloud document-storage product and an optional add-on, both accessed through a web portal that is itself software. Are its charges subject to Tennessee sales and use tax, or is the real product a nontaxable data-storage service?
No. The company's charges for its cloud 'Basic Product' and optional 'Add-On Component' are NOT subject to Tennessee sales and use tax. Both run on the company's proprietary software, and the…
A Tennessee corporation will convert several subsidiaries that do business in Tennessee into single-member LLCs disregarded for federal income tax, effective December 31, 2016. How do those conversions affect its Tennessee franchise and excise tax returns and consolidated net-worth election?
It depends on the tax year. For the tax year ending December 31, 2016 (the reorganization is effective that day), the corporation and each converting entity are still SEPARATE entities, so they file…
A company sells access to a web-based interface that lets users send, receive, and manage text messages and other communications from one screen. Are its charges for that interface subject to Tennessee sales and use tax?
Yes. The company's charges for its web-based messaging interface are subject to Tennessee sales and use tax — as the sale of 'ancillary services,' a specifically enumerated taxable service (§…
A company buys software, hosts it on its own servers outside Tennessee, and has its Tennessee employees access it remotely to do their work and to support its affiliates. Are its software purchases or its affiliate support fees subject to Tennessee sales and use tax?
No to both questions. (1) The fees the company charges its Affiliates for support services are NOT taxable, because those services aren't specifically enumerated under Tennessee law — and it is the…
A Tennessee company assembles a manufacturer's products from parts the manufacturer supplies, drop-ships them, and also provides technical support and warranty support. Which of those charges are subject to Tennessee sales and use tax?
It depends on the charge. (1) The company's fees for ASSEMBLING the manufacturer's products — including the related Materials Fees and Shipping Fees — ARE taxable as fabrication of tangible personal…
An organization sells printed educational booklets — with reading passages and questions tied to school standards — almost entirely to schools, teachers, and homeschooling parents. Are those booklet sales exempt from Tennessee sales tax as textbooks?
Yes. The organization's booklet sales are exempt from Tennessee sales and use tax. Although printed materials are tangible personal property and generally taxable, Tennessee exempts sales of…
A qualified data center processes customers' data using its own and third-party software, and also charges affiliated companies for remote access to that software. Are its data-processing service charges — and its software-access charges to affiliates — subject to Tennessee sales tax?
No to both. (1) The qualified data center's charges for the services it performs are NOT taxable — they are nontaxable information and data processing services, and the fact that the center uses…
A company sells eleven different edible products. Which ones are taxed at Tennessee's lower 'food and food ingredients' rate, and which count as 'candy' (or dietary supplements) and are taxed at the higher general sales-tax rate?
It depends on each product. Of the eleven edible products, nine qualify as 'food and food ingredients' and are taxed at Tennessee's reduced food rate (5% state at the time of the ruling), plus local…
A company delivers electronically generated products for its clients and gives them a web-based interface (with a layout-design tool) to manage orders and view reports. Are its 'Basic Package' charges subject to Tennessee sales tax when the whole service runs on the company's software?
No. The company's 'Basic Package' charges are NOT subject to Tennessee sales tax. The package runs on the company's software — including a web-based interface clients access from Tennessee — and…
A Tennessee company gives customers free web access to their account information, separately sells access to a rebranded third-party online platform, and uses remotely accessed software to run its own operations. Which of these are subject to Tennessee sales tax, and how does it handle software its employees use both inside and outside Tennessee?
It depends on which charge. (1) FREE website access the company bundles with its services is NOT taxable — the website is software, but its true object is the underlying nontaxable service, so the…
A company uses software in three ways — licensed from foreign affiliates and hosted abroad, subscribed from third-party vendors and hosted out of state, and bought and installed on its own servers in and out of Tennessee. Which of those charges are subject to Tennessee sales and use tax?
It depends on where the software lives and where it's used. (1) Affiliate-hosted software — licensed from foreign affiliates and bundled with hosting, support, and backup for one price — is taxable…
A company sells data-processing, storage, document, and payment services delivered through web portals, and also sells and buys remotely accessed software used by people in several states. Which of these charges are subject to Tennessee sales and use tax, and how is the multi-state software portion figured?
It depends on what's being sold. The company's six Service Offerings — information management, remote storage, electronic delivery, payment management, and two web-based information services — are…
A company hosts proprietary software and offers it two ways: a subscription where the client logs in and uses the software, and an outsourcing package where the company does the work and the client rarely touches the software. Which charges are subject to Tennessee sales and use tax?
It depends on the package. The Subscription Package — where the client logs in and uses the company's hosted software itself — IS taxable as remotely accessed software (Tenn. Code Ann. §…
A company pays third-party vendors for software the vendors build and host to convert and translate data between two incompatible records-management systems. The company and its clients never access or control that software. Are those charges subject to Tennessee sales and use tax?
No. The charges the company pays its records-management vendors are not subject to Tennessee sales and use tax, because the vendors are providing the nontaxable service of converting digital…
An Irish private limited company that owns property in Tennessee will elect to be a disregarded entity for U.S. federal income tax. Will it still be a separate taxpayer for Tennessee franchise and excise tax, or can it be disregarded?
It will be a separate taxpayer — it cannot be disregarded for Tennessee franchise and excise (F&E) tax. Tennessee follows federal entity classification, but with one key exception: a federally…
A company takes online orders and uses its own drivers to deliver goods to Tennessee customers on behalf of disclosed third-party vendors, collecting the sales tax and remitting it to the vendors. Must the company itself collect and remit Tennessee sales tax on those sales?
No. The company is not liable to collect or remit Tennessee sales tax on these sales. Under Tennessee's longstanding 'Rule 1' (Tenn. Comp. R. & Regs. 1320-5-1-.01), when a person sells tangible…
A retailer sells a custom home-improvement product that rests on the floor and is secured to walls only by small anti-tip brackets or finishing nails, then assembles and installs it at the customer's location. Are the sale and installation subject to Tennessee sales and use tax?
Yes. The sale and installation of the product are subject to Tennessee sales and use tax because the product remains tangible personal property after it is installed. Installing tangible personal…
An S corporation's shareholders are selling their stock and making a federal § 338(h)(10) election (treating the stock sale as an asset sale), with part of the price paid as a later earn-out. Is that gain — including the earn-out — counted in the company's Tennessee excise-tax net earnings?
Yes. When an S corporation's owners sell their stock and make a federal I.R.C. § 338(h)(10) election (which treats the stock sale as a deemed sale of the company's assets), the gain the S…
A Tennessee blood and plasma processor must run federally required disease tests on the blood it turns into products for sale. Are the chemical reagents used in that testing exempt from Tennessee sales and use tax?
Yes, with conditions. The chemical reagents the company uses to run federally required disease tests on donated whole blood and source plasma are exempt from Tennessee sales and use tax as…
A Tennessee firm rents out IT contract workers by the hour for software projects — business analysts, systems analysts, programmers, QA testers, database administrators, project managers. Which of those hours must it charge Tennessee sales tax on?
It depends on the role. The firm rents out IT staff by the hour, and Tennessee taxes the hours of its Programmers and Database Administrators — because their work is the creation or programming of…
A Tennessee firm resells ERP software and separately offers optional consulting services — training, configuration, project management, data conversion, documentation, testing, and report writing. Which of those services must it charge Tennessee sales tax on?
Mostly no. Of the firm's optional consulting services, only Report Writing is taxable on its own — and only when it includes software coding or programming that isn't merely incidental, which makes…
A Tennessee retailer sells trail mixes, glucose tablets, electrolyte drinks, non-alcoholic beer, coupon books, hearing aid batteries, and propane. Which are taxed at the lower 5% food rate, which at the full 7% rate, and which are exempt?
It depends on the item. Most of the retailer's edible products — non-alcoholic cocktail mixes and beer, all three trail mixes, fiber drink mix, food thickener, all the oral electrolyte…
In a stack of affiliated REITs and LLCs, which entities are 'captive REITs,' which are 'public REITs,' and who has to add back the dividends-paid deduction and file a combined Tennessee franchise and excise tax return?
It depends on each entity's ownership and how its shares trade. A REIT is a 'captive REIT' if it has a federal REIT election, is at least 80% owned (directly or indirectly) by one entity or…
A company's stock was bought in a deal where the parties made a federal § 338(h)(10) election, so the company was 'deemed' to acquire its own manufacturing assets. Can it claim Tennessee's franchise & excise industrial-machinery credit on those assets?
No. A company whose stock was bought in a deal where the buyer and seller jointly made a federal I.R.C. § 338(h)(10) election cannot claim Tennessee's franchise & excise industrial-machinery credit…
A company sells a hosted 'cloud collaboration' service that instructs and augments a customer's phone equipment for voice, video, messaging, presence, and conferencing, keeping all hardware and software on its own out-of-state servers. Is that service subject to Tennessee sales and use tax, and how is it sourced and rated?
Yes — it's taxable, but as telecommunications, not software. The company's Cloud Collaboration Service (hosted voice, video, messaging, presence, and conferencing that instructs and augments a…
Were fees for vascular-access services, on-site consultations, and IV-therapy certification classes exempt from Tennessee business tax?
Yes. Tennessee exempted the vascular-access and on-site consultation fees as allied health services and the IV-therapy certification-class fees as educational services.
A tiered multinational group with corporations, LLCs, and disregarded single-member LLCs wants to compute its Tennessee franchise-tax net worth on a consolidated basis. Which entities are disregarded, who is in the affiliated group, and how are foreign holdings and disregarded SMLLCs treated in consolidated net worth?
Three answers. (1) The group's single-member LLCs that are disregarded for federal income tax and owned by a corporation (here, LLCs taxed as corporations) are ALSO disregarded for Tennessee…
A company sells a wearable, continuous-use medical device — a portable pack, a worn component, and ancillary parts — at one monthly price to treat a disease. Is the device exempt from Tennessee sales and use tax as a prosthetic device?
Yes. The wearable medical device is exempt from Tennessee sales and use tax as a 'prosthetic device' (Tenn. Code Ann. § 67-6-314(1)). To qualify, a device must be (1) for human use, (2) a…
A buyer and seller will make a federal I.R.C. § 338(h)(10) election treating a stock sale as a deemed asset sale, after the target pre-distributes assets to the seller in a tax-free liquidation. How do the resulting federal gains (and non-gains) flow into net earnings for Tennessee excise tax?
Tennessee excise-tax 'net earnings' start from federal taxable income, so the federal election's results flow straight through. (1) The gain the target recognizes on the deemed asset sale under the…
Were hotel reservation, management, and related fees subject to Tennessee business tax, and could receipts for services received outside Tennessee be deducted?
Yes. Reservation, management, elective-service, and related fees were taxable Classification 3 receipts. Under the law effective for periods beginning on or after January 1, 2014, receipts could be…
Can a company that invests $50M+ to expand its Tennessee headquarters and consolidate out-of-state operations claim Tennessee's headquarters-facility sales-and-use-tax credit — and which equipment and which jobs count?
Yes — with conditions, and not every job counts. The Department ruled that a company qualifies for Tennessee's 'qualified headquarters facility' SALES AND USE TAX CREDIT (Tenn. Code Ann. §…
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These are official tax letter rulings and advisory opinions issued by Tennessee's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.