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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A Tennessee manufacturer buys design software with a bundled maintenance plan, plus a long list of welding gases, gear, and shop supplies -- which of these qualify for the sales tax industrial machinery or industrial materials exemptions?
It's a mixed bag by item. The design software (and its bundled maintenance contract) is FULLY TAXABLE -- because it's used before raw materials reach the manufacturing process, it doesn't count as…
Are software 'configuration' consulting services -- setting toggles and building tables within already-installed software, without writing new code -- taxable in Tennessee, and can a vendor bill them tax-free separately from software development work?
No, software configuration services are NOT subject to Tennessee sales and use tax, as long as the consultants only set predefined toggles/switches and build tables within existing software --…
If a Tennessee municipality hires a construction management firm on an AIA B801 agency-CM contract, does that contract cause the municipality's own construction purchases to become taxable, or do they stay exempt as government purchases?
No. A Tennessee municipality's construction-related purchases stay exempt from sales and use tax under Tenn. Code Ann. § 67-6-329(a)(4) even when the municipality hires a construction management…
Is a prescription dermal filler injected by a doctor to treat facial wrinkles exempt from Tennessee sales and use tax, and does the seller need exemption certificates from the buying physicians?
Yes. The dermal filler is exempt from Tennessee sales and use tax as a prescription drug for human use under Tenn. Code Ann. § 67-6-320(a), because it meets the statutory definition of a 'drug'…
If a Tennessee limited partnership keeps doing business after the fixed termination date in its partnership certificate, does it become subject to franchise and excise tax as a general partnership, or does it stay exempt?
Once a Tennessee limited partnership formed before 1988 (still governed by the old Uniform Limited Partnership Act) passes the fixed termination date stated in its certificate, it automatically…
Does a Tennessee country club have to charge sales tax on the separate fees it bills members for locker rentals and golf bag storage?
Yes. Both the locker rental fees and the golf bag storage fees a Tennessee country club charges its members are subject to Tennessee sales tax, because the club is a "membership sports and…
Are an online vendor-referral website's charges -- for sales-lead referrals, used-product advertising space, phone-call tracking reports, and hosted vendor websites -- subject to Tennessee sales and use tax?
None of it is taxable. An online business runs a website where customers find vendors and submit purchase requests; it charges vendors for (1) new-product sales-lead referrals, (2) space to…
For an online database and a long menu of related Internet services accessed remotely over the web, which charges are subject to Tennessee sales and use tax?
Most of it is NOT taxable -- only the items the customer actually receives as tangible personal property are. The company sells an online database (with software tools, reports, and photos) plus a…
When a direct-selling company runs a party plan with hostess discounts and advisor award certificates, is Tennessee sales tax charged on the full price or only on the discounted price actually paid?
Genuine discounts reduce the taxable amount, but a separate fee paid to unlock a discount you must use right away is itself taxable. For a direct-selling company's party plan: (1) when a Hostess…
Are the membership dues and related fees (photo-ID activation, guest passes, towel/locker/equipment rentals, facility rentals) charged by a qualifying sports and fitness center exempt from Tennessee sales tax?
Yes. A sports and fitness center that meets the five statutory tests in Tenn. Code Ann. Section 67-6-330(a)(17) has its membership dues -- which would otherwise be taxed as…
When a company expands its Tennessee headquarters with more than $10 million invested and 100+ new high-wage headquarters jobs, can it claim the enhanced $5,000-per-job tax credit, what jobs count, and how much of its franchise and excise tax can it wipe out?
Yes -- a headquarters expansion that invests more than $10 million and creates at least 100 qualified jobs that are 'headquarters staff employees' paying at least 150% of Tennessee's average…
When a company expands and remodels its existing Tennessee headquarters, what counts toward the minimum investment threshold for the sales/use tax credit, when does the investment period start and end, and do aesthetic-only renovations like paint and carpet qualify?
A 7-part ruling clarifying the mechanics of Tennessee's qualified headquarters facility sales/use tax credit (Tenn. Code Ann. Section 67-6-224) as applied to an existing-headquarters expansion and…
Is the sale of customized shop drawings used by contractors to fabricate items taxable in Tennessee, and does it matter whether they're delivered as a printed booklet versus purely electronically?
It depends entirely on the delivery medium. The Department ruled that the Taxpayer's customized shop drawings are subject to Tennessee sales and use tax when transferred to the customer in a…
When a custom millwork company sells and installs cabinetry and similar products, is the sale and installation taxable -- and does it matter whether the finished product stays movable personal property or becomes permanently attached to the building?
It depends entirely on whether the finished product stays personal property or becomes part of the building -- with a separate rule for lump-sum jobs mixing both. The Department ruled: (1) when the…
When a qualified data center expands with new capital investment and new jobs, how does Tennessee's franchise and excise job tax credit treat positions temporarily filled by contract employees, multi-facility job counts, and prior-round jobs that shouldn't double-count?
An 8-part ruling on Tennessee's franchise and excise (F&E) job tax credit (Tenn. Code Ann. Section 67-4-2109(b)) as applied to a major data center expansion. Key holdings: the company qualifies for…
When a qualified data center makes a large new capital investment in Tennessee, what counts toward the 'required capital investment' for the enhanced industrial machinery franchise and excise tax credit, does custom software qualify, and how much of the company's F&E tax bill can the credit offset?
A 5-part ruling on Tennessee's enhanced industrial machinery franchise and excise (F&E) tax credit (Tenn. Code Ann. Section 67-4-2009(4)(I)), which scales from 3% to 10% of qualifying purchase price…
When a company operating a Tennessee qualified data center expands its facilities with a new round of investment, does it qualify again for the headquarters-facility sales/use tax credit, and can it keep using its existing industrial machinery exemption certificate for the expansion?
Yes to all four questions, assuming statutory requirements are met. The Department ruled that the Taxpayer's planned facility expansion will be treated as a new 'qualified headquarters facility'…
What does a film or TV production company have to do -- in terms of headquarters status, spending thresholds, and documentation -- to claim Tennessee's 15% production incentive credit, and does the $1 million spending threshold apply once or to every production?
A 7-part ruling walking through the full eligibility framework. The Department confirmed the Taxpayer qualifies as a Tennessee 'headquarters facility' for purposes of the 15% movie/episodic-TV…
What does a company have to show to qualify as a 'bona fide Tennessee advertising agency' so that a film or TV production company's payments to it count toward Tennessee's 15% movie/TV production tax incentive?
Yes, the venture qualifies — and the Department laid out the test for any similar agency. Payments by a qualified film/TV production company to a Tennessee advertising agency count as 'qualified…
Were service receipts earned within a Tennessee nonprofit's federally recognized charitable mission exempt from Tennessee business tax?
Yes. The nonprofit qualified as a charitable organization, and its service receipts were exempt because all described activities stayed within the charitable mission underlying its Section 501(c)(3)…
Does Tennessee sales and use tax apply to a carrier's DSL Internet-access sales to end users, its Layer 2 data-link sales to non-ISP customers with their own point of presence, and the telecommunications services it buys to build its own DSL network?
Mixed. DSL Internet access sold directly to end users is exempt under the federal Internet Tax Freedom Act; Layer 2 data-link transmission service sold to a non-Internet-service-provider that owns…
When a software vendor separately invoices each of three $25,000 software packages plus a maintenance agreement covering all three, does Tennessee's $1,600 single-article cap apply once per package or once to the whole sale, and does the maintenance agreement get the same cap?
Because each $25,000 software package is separately itemized on the invoice, the $1,600 local-option cap and the $1,600-$3,200 state single article tax apply separately to EACH package (not once to…
Is an automated, interactive after-hours telephone answering service that routes calls, takes messages, and pages physicians a taxable telecommunications or ancillary service in Tennessee?
No. Even though the answering system transmits voice and data over telephone lines, the true object of the service is answering and routing calls (not transmitting communications), so it doesn't…
Is a bundled weight-loss program that includes an on-site fitness center, personal training, meal-plan coaching, and a motivational newsletter subject to Tennessee sales tax as health club dues?
Yes, mostly taxable. The weight-loss program is taxed as recreation club dues/fees because it bundles fitness-center access with coaching and services all delivered on-site, but the first $150 per…
Can an LLC that absorbs a corporation in a tax-free A reorganization, and elects to be taxed as a corporation federally, still qualify for Tennessee's obligated-member-entity exemption from franchise and excise tax — and does that exemption shield a later asset sale's gain from Tennessee excise tax?
Yes to the exemption question — merging a corporation into a member-managed LLC via a tax-free A reorganization, and the LLC's federal corporate tax election, don't disqualify it from Tennessee's…
Is the sale and installation of an above-ground swimming pool subject to Tennessee sales and use tax, or does it count as a non-taxable improvement to real property?
Yes, taxable. Because the above-ground pool is designed to be removable without serious damage to the property and keeps its character as personal property after removal, it's treated as tangible…
Are open-topped, returnable plastic crates that food producers rent to ship packaged food products to distributors and stores exempt from Tennessee sales and use tax as packaging materials?
No, taxable. Because the lidless, open-topped crates don't fully enclose the food products (that's done by an inner plastic bag) and delivery of the food isn't impracticable without the specific…
When a software company bundles its core product with optional add-on components and charges one non-itemized price, does the $1,600 local-option and $3,200 state single-article sales tax cap apply to each component, or to the whole bundle?
The single article cap does not apply. Because the taxpayer negotiates and invoices one lump-sum price for its core software plus optional components without itemizing each product separately, the…
Does an out-of-state company that licenses billing software to wireless carriers, and also provides billing services and arranges third-party printing/mailing, owe Tennessee sales and use tax on any of its fees?
Only partly. The one-time software licensing fee is taxable as a lease of prewritten software, but the monthly billing-service fees and the printing/mailing reimbursements are not taxable because…
Which items on a medical-equipment company's product list — diabetic supplies, wheelchairs, braces, oxygen equipment, wound care supplies, and more — are exempt from Tennessee sales and use tax, and does a prescription, rental (vs. sale), or payment method change the answer?
It depends on the specific item: Tennessee exempts prosthetic devices and oxygen delivery equipment with no prescription needed, exempts durable medical equipment and mobility-enhancing equipment…
If a corporate parent moves its Tennessee operating LLCs under an out-of-state business trust instead of holding them directly, do the LLCs and the trust stay disregarded for Tennessee franchise and excise tax purposes the way they are for federal income tax?
No. Tennessee only disregards a single-member LLC for franchise and excise tax purposes if its sole member is a corporation — a business trust doesn't count, so once the trust owns the LLCs, both…
Are external fixators used to stabilize open bone fractures exempt from Tennessee sales tax, and does a patient prescription have to be on file for the exemption to apply?
Yes, external fixators sold individually are exempt from Tennessee sales and use tax -- through 2007 as orthotics, and from January 1, 2008 onward as prosthetic devices, PROVIDED that as of that…
Is a wearable continuous glucose monitoring system for diabetics exempt from Tennessee sales tax as a prosthetic device or durable medical equipment?
No, the glucose monitoring system is fully taxable under both the old and new versions of Tennessee's medical-device exemption. It's NOT a "prosthetic" under either the pre-2008 or post-2008…
Does an Internet service provider owe Tennessee sales tax on the DSL lines, circuits, and other telecom services it buys wholesale to deliver Internet access to its customers?
No. An Internet service provider's purchases of telecommunications services (DSL, T1/DS3 lines, circuits) used to provide Internet access to its customers are NOT subject to Tennessee sales and use…
Does an out-of-state limited partnership qualify as an exempt "family-owned" entity for Tennessee franchise and excise tax when a father's ownership only reaches the partnership indirectly, through a trust and a tiered second partnership?
No, the partnership does NOT qualify as an exempt family-owned entity. Tennessee's family-owned exemption requires that at least 95% of the entity's OWNERSHIP UNITS be held DIRECTLY by qualifying…
Are Kirschner Wires (K-Wires), temporary bone-fracture implants, exempt from Tennessee sales tax, and did a 2008 law change affect the answer?
Yes, K-Wires sold individually are exempt from Tennessee sales and use tax -- but the LEGAL BASIS for the exemption changed with a January 1, 2008 statutory amendment, and the exemption is now…
When a corporate parent eliminates an affiliate through dissolution, merger into the parent, conversion to a single-member LLC, or an F reorganization, does the parent (or its financial institution unitary group) get to use that affiliate's unused Tennessee net operating loss carryforward?
No, generally. A parent corporation cannot use an eliminated affiliate's Tennessee NOL carryforward whether the affiliate dissolved, merged into the parent, converted to a single-member LLC, or…
Does an out-of-state printer of clinical research materials have to collect Tennessee use tax on products it warehouses out of state and ships to Tennessee pharmaceutical customers months or years after the sale, and does that extend to shipping and handling charges?
Yes, if the taxpayer has Tennessee nexus: use tax is owed on the initial shipment and on every later shipment to a Tennessee customer, collected when each shipment actually goes to Tennessee (with…
Were timeshare-tour marketing services taxable under Tennessee business tax, and could multiple locations in one jurisdiction use a consolidated return?
Yes. Off-premises businesses paid to recruit people for timeshare sales presentations provided taxable Classification 3 marketing services. Same-classification, same-rate locations within one taxing…
Can Tennessee limited partnerships that received federal low-income housing credits in 1987-1989, before an extended low-income housing commitment was federally required, still claim Tennessee's affordable-housing franchise and excise tax exemption without one?
No. Tennessee's affordable-housing franchise and excise tax exemption requires an extended low-income housing commitment under IRC § 42(h)(6)(B) to be in effect, and lacking one — even because it…
Does a corporate group that owns home-care-organization subsidiaries and is affiliated with one hospital qualify as a Tennessee 'hospital company' entitled to combined-return franchise and excise tax credits?
No. A corporate group whose subsidiaries are licensed only as home care organizations, and which is affiliated with just one hospital, does not qualify as a Tennessee 'hospital company' for…
When a Tennessee motor vehicle dealer separately bills a customer the $5.50 statutory fee for a temporary tag, does the dealer owe Tennessee sales tax or business tax on that charge?
No to both. The $5.50 temporary-tag fee, when separately stated on the customer's invoice and passed through dollar-for-dollar to the state, is treated as payment for the intangible right to operate…
Is a monthly application-service-provider (ASP/SaaS) hosting fee, and its bundled add-on services like database setup, installation, bank reconciliation, and training, subject to Tennessee sales tax — and does the taxpayer owe use tax on the software licenses and hosting services it buys to run the ASP business?
The monthly ASP fee and related standalone services (database setup, bank reconciliation, training) are not subject to Tennessee sales tax as long as they're billed separately, but on-site…
For a vacation/overnight rental property manager, which of its various charges — cleaning fees, forfeited deposits, reservation fees, pet deposits, resold show tickets, pass-through firewood charges, bundled wedding packages, and trip insurance — are subject to Tennessee sales tax?
Most are taxable: forfeited deposits, reservation fees, non-refundable pet deposits, resold show tickets, and pass-through item charges (like firewood) are all subject to sales tax, as is any…
For a company that runs on-site photocopy and fax centers under a management-fee contract, which equipment and supplies qualify for the industrial machinery sales tax exemption, and must sales tax be charged on the full contract price?
Partly exempt. Pre-press, press, binding, and stapling machinery used in the copying process can qualify for the industrial machinery exemption (with Commissioner approval), and paper and copier…
Can a parent company file one combined sales and use tax return covering both itself and its wholly-owned single-member LLC leasing subsidiary, instead of the subsidiary registering and filing separately?
Yes. Because Subsidiary is a disregarded single-member LLC, the Department will treat it as a division of Parent for sales and use tax purposes -- Parent may register and pay tax owed by Subsidiary…
Do computer hardware, software, and telecommunications systems installed during a corporate headquarters relocation/expansion count toward Tennessee's $50 million qualified headquarters facility sales and use tax credit?
Yes. Computer hardware, software, and telecommunications systems installed at a qualifying headquarters facility during the investment period count as "qualified tangible personal property"…
Can a restaurant company deduct, for Tennessee franchise and excise tax purposes, the royalty payments it makes to its own wholly-owned trademark-holding subsidiary?
Yes, the Taxpayer may deduct the royalty payments it makes to its affiliated trademark-holding subsidiary as ordinary business expenses, provided that all outstanding loans from the subsidiary to…
Does a family-owned Tennessee LLC that licenses intellectual property, but also provides active services to its licensees, qualify for the franchise and excise tax exemption for family-owned entities earning passive investment income?
Not automatically. The Taxpayer is family-owned and can be a qualifying non-corporate entity, but it is exempt from Tennessee franchise and excise tax only if it demonstrates that at least 66.67% of…
Were mortgage origination fees and brokerage commissions earned by a Tennessee joint venture exempt from business tax as loan-broker services?
Yes. The joint venture arranged residential mortgage loans for other lenders, fitting SIC Industry 6163 loan-broker services and the business-tax exclusion for persons engaged in extending credit.
Which industrial and medical gases sold by a specialty gas distributor — oxygen, acetylene, nitrogen, argon, propane, and mixtures used in welding — are exempt from Tennessee's local sales and use tax as "natural or artificial gas"?
It depends on whether the gas is used as combustible energy fuel: oxygen, acetylene, nitrogen (when used as fuel), and propane used to power equipment are exempt from local sales and use tax, but…
Is access to an online business-data platform — where customers build contact lists, send communications, review keyword impressions, and generate reports — subject to Tennessee sales and use tax?
No. Access to the database, including compiling contact lists, sending communications, reviewing keyword-impression data, and generating printed or electronic reports, is a non-taxable information…
Does an out-of-state factoring subsidiary — with no Tennessee offices, employees, or property, but whose affiliated originators pursue collection actions on its behalf against Tennessee customers — have enough nexus to owe Tennessee franchise and excise tax, and if so, must it file a combined return with another affiliated financial institution?
Yes to both. Even with zero physical presence in Tennessee, the factoring company has substantial nexus because its affiliated originators pursue collection agencies, attorneys, and court judgments…
Can a corporation deduct the royalty payments it makes to a related, commonly-owned intellectual-property-holding affiliate when computing its Tennessee excise tax net earnings, and what factors determine whether that structure is a legitimate business arrangement rather than a tax-avoidance sham?
Yes. Because the IP-holding affiliate has its own offices, employees, and independent operations outside Tennessee, holds legal title to the intangibles, sets royalty rates through independent…
When a loss-making subsidiary merges into a newly formed, not-yet-capitalized single-member LLC owned by its sister corporation (as part of a corporate simplification), does the subsidiary's unused Tennessee net operating loss carry over to the LLC or become usable by the sister corporation going forward?
No on both counts. The disregarded SMLLC is treated as a division of its corporate owner, so the merger is really treated as the loss-making subsidiary merging directly into its actively-operating…
When a buyer and seller jointly elect under IRC § 338(h)(10) to treat a stock purchase as a deemed asset sale, and that deemed sale generates a loss for the acquired corporation, does that loss properly show up in the corporation's Tennessee excise tax base, and can the corporation carry that loss forward to later years even though federal tax rules treat it as a legally distinct "new" corporation after the transaction?
Yes to both. The loss from the deemed asset sale properly flowed into the corporation's Tennessee taxable income because Tennessee doesn't require any adjustment to override the federal Section…
Is a drug-eluting coronary stent system — a permanent artery-support implant coated with a restenosis-preventing drug, sold pre-mounted on a disposable delivery system — exempt from Tennessee sales and use tax as a prosthetic device?
Yes. The stent augments the coronary artery's function by holding it open so blood can flow to the heart, qualifying it as an exempt prosthetic device, and because the disposable delivery system is…
Does a subsidiary's Tennessee net operating loss carryforward survive when it either (1) converts under state law into a single-member LLC wholly owned by its corporate parent, or (2) merges out of existence into a newly formed LLC that later becomes a disregarded entity?
No, in both scenarios. Because the disregarded single-member LLC is treated as a mere division of its actively-operating corporate parent (which has its own income, assets, and net worth, not an…
When a government-owned gas utility district sells, installs, and services gas-fired appliances (furnaces, water heaters, ranges, grills, etc.) for customers, which of those transactions are subject to Tennessee sales tax, and does the utility's own government tax exemption cover any of it?
Split result. The utility's own government tax exemption only covers items it installs that become part of the customer's real property — everything it sells that stays tangible personal property…
Does a Tennessee corporation that buys and collects its affiliate's accounts receivable from customers in other states have enough tax nexus in those other states — through in-person collection visits made by its affiliate's employees on its behalf — to apportion its Tennessee franchise and excise tax liability rather than paying on 100% of its net earnings?
Yes. Because the taxpayer directs its affiliate's employees to make face-to-face visits with out-of-state customers to resolve credit and collection issues — activities significantly associated with…
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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.