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?

Subject

Whether access to an online business database and its reports is subject to sales and use tax.

Plain-English summary

The Tennessee Department of Revenue ruled that selling access to a proprietary online business database is a non-taxable "information service," even though the platform lets customers do quite a lot with the data — build contact lists, send communications to those contacts, review keyword-impression analytics, and generate printed or electronic reports.

The Department worked through why this isn't taxable in two steps. First, it's not a sale of tangible personal property: information itself doesn't meet Tennessee's definition of "tangible personal property" (something that can be seen, weighed, measured, felt, or touched), so simply charging customers to access data isn't a taxable property sale. Second, it's not a taxable telecommunications service either. Even though delivering the data involves electronic transmission (which literally fits the general definition of "telecommunications service"), the statute specifically excludes "data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser where such purchaser's primary purpose for the underlying transaction is the processed data or information." Because customers are paying for the underlying business information — not the transmission mechanism — the service falls squarely within that exclusion.

The ruling specifically addressed four usage scenarios (compiling a contact list; managing outbound communications to that list; reviewing keyword-impression data; and generating customer-defined tabular/graphical reports) and found all four non-taxable for the same reason: they're all just different ways of consuming, organizing, or presenting the underlying information the customer already paid to access. Even the printed and electronic reports the taxpayer produces aren't a separate taxable sale of tangible personal property — following AT&T Corp. v. Chumley, the reports are merely incidental to the sale of the information service; the customer is paying for the information itself, not the paper or format it arrives in.

What this means for you

Online data, analytics, and business-information platform providers

Selling access to a proprietary database — even one with substantial interactive features like list-building, outbound communication tools, and custom report generation — is likely a non-taxable Tennessee information service as long as the customer's primary purpose is getting the underlying data/analysis, not a transmission or telecommunications function. This exemption holds even when your platform delivers results in a printed format; the report itself doesn't convert the transaction into a taxable sale of tangible personal property if it's incidental to the information service.

Accountants and tax professionals

This ruling is a clean application of the "data processing and information services" carve-out from Tennessee's telecommunications-service definition (Tenn. Code Ann. § 67-6-102(a)(44)(B)) combined with the incidental-property principle from AT&T Corp. v. Chumley (also seen in the true-object-test line of cases like Prodigy Services Corp. v. Johnson and Equifax Check Services, Inc. v. Johnson). Useful template whenever a client's SaaS/data platform mixes information delivery with adjacent features (communication tools, report generation) and you need to determine whether the whole bundle stays non-taxable or gets pulled into a taxable category.

Common questions

Q: Does delivering data electronically over the internet make an information service a taxable "telecommunications service"?
A: No. Tennessee's telecommunications-service definition specifically excludes data processing and information services where the customer's primary purpose is the information itself, not the transmission.

Q: Does generating a printed report for a customer create a separate taxable sale of tangible personal property?
A: No, when the report is merely incidental to the sale of an information service — the customer is paying for the information the report contains, not the paper it's printed on.

Q: Does adding features like list management or outbound communication tools change the analysis?
A: Not in this ruling — all four usage scenarios examined (list-building, communication management, keyword-impression review, and custom reporting) were found to be different ways of using the same underlying non-taxable information service.

Q: Does this ruling apply to other online database or analytics providers?
A: No. A Tennessee letter ruling binds the Department only for the specific taxpayer and facts addressed and cannot be relied on by others, though the information-service exclusion it applies is of general use. Note the ruling also flags that Streamlined Sales and Use Tax Agreement conforming legislation effective July 1, 2007 could affect this analysis going forward — verify current law.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 67-6-102(a)(32)(A) (definition of "retail sale")
• Tenn. Code Ann. § 67-6-102(a)(43) (definition of "tangible personal property" — information doesn't qualify)
• Tenn. Code Ann. § 67-6-102(a)(32)(F)(iii) (telecommunications services generally taxable)
• Tenn. Code Ann. § 67-6-102(a)(44)(A)-(B) (definition of "telecommunications service"; specific exclusion for data processing/information services where information is the purchaser's primary purpose)
• AT&T Corp. v. Chumley, 2005 WL 2739270 (Tenn. Ct. App. 2005) (reports incidental to an information service are not separately taxable)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/06-31.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING 06-31

WARNING
Letter rulings are binding on the Department only with respect to the individual
taxpayer being addressed in the ruling. This presentation of the ruling in a redacted
form is informational only. Rulings are made in response to particular facts
presented and are not intended necessarily as statements of Department policy.

SUBJECT
Application of sales and use tax to an on-line database service.

SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a
specific set of existing facts furnished to the department by the taxpayer. The rulings
herein are binding upon the Department and are applicable only to the individual
taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time.
Such revocation or modification shall be effective retroactively unless the following
conditions are met, in which case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts
involved in the transaction;
(B) Facts that develop later must not be materially different from the facts
upon which the ruling was based;
(G) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a
prospective or proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying
upon the ruling; and a retroactive revocation of the ruling must inure to the
taxpayer's detriment.
FACTS
[TAXPAYER] is a corporation organized under the laws of the State of Delaware with its
principal office located in [STATE-NOT TENNESSEE]. The Taxpayer has offices in

[NUMBER] states including a sales office in Tennessee. The Taxpayer currently collects
and remits sales and use tax in Tennessee.
One business activity conducted by the Taxpayer is the ownership, management,
marketing, development and licensing of a proprietary database of entity, contact, and
editorial information for [LANGUAGE REDACTED] (“data”). Customers access,
manage and analyze the data in conjunction with inputs of information about their
specific business needs. Customers access the information through the Taxpayer’s
Internet web site located at [LANGUAGE REDACTED]. The data is primarily located
and maintained in the [STATE-NOT TENNESSEE]. The Taxpayer does not provide
Internet access.
There are four (4) basic scenarios involving the use of Taxpayer’s product that may
impact the application of Tennessee’s sales and use tax:
Scenario 1. Customers access the data and compile a [LIST] based on the data using the
Taxpayer’s website. Customers may print, email, or store this information electronically
in their account through the website. The information is primarily stored at the
Taxpayer’s location in [STATE-NOT TENNESSEE].
Scenario 2. Using the list compiled in Scenario 1, customers can create and manage the
distribution of a direct communication with the contacts on the list using electronic mail
and/or media printed by the customer.
Scenario 3. Customers can input content regarding keywords and scope of review for
[LANGUAGE REDACTED]. Based on the customer input, the Taxpayer reviews
[LANGUAGE REDACTED] and compiles a list of keyword impressions by date and
location (“impressions”). The website allows customers to create, store, and manage
these results in their account.
Scenario 4. Using the [LIST], the impressions, and potentially additional input from the
customer, the Taxpayer assesses and evaluates various customer-defined parameters and
produces reports for the customer in tabular and graphical formats, both printed and
electronic.

ISSUE
Is the sale of access to the Taxpayer’s database via the Internet subject to sales and use
tax?

RULING
No, the sale of access to a database via the Internet is not subject to sales and use tax.

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ANALYSIS

Retail sales in Tennessee are subject to sales and use tax under Tenn. Code Ann. § 67-6101 et. seq. Tenn. Code Ann. § 67-6-102(a)(32)(A) defines a retail sale to include a
“taxable sale of tangible personal property or specifically taxable services to a consumer
or to any person for any purpose other than resale.” The Taxpayer sells the information
contained in its database. Information does not meet the definition of tangible personal
property, which is defined in Tenn. Code Ann. § 67-6-102(a)(43) as “personal property,
which may be seen, weighed, measured, felt, or touched, or is in any other manner
perceptible to the senses.”
Providing information also does not constitute one of the services which are specifically
taxable under the Tennessee statutes. See generally Tenn. Code Ann. § 67-6102(a)(32)(F). As defined in Tenn. Code Ann. § 67-6-102(a)(32)(F)(iii), a “sale at retail”
includes the “furnishing, for a consideration, of either intrastate, interstate or international
telecommunications services.” 1 For this purpose, “telecommunications service” is
defined in pertinent part as follows:
(A) “Telecommunications service” means the electronic transmission,
conveyance, or routing of voice, data, audio, video, or any other
information or signals to a point, or between or among points. The term
"telecommunications service" includes such transmission, conveyance, or
routing in which computer processing applications are used to act on the
form, code or protocol of the content for purposes of transmission,
conveyance or routing without regard to whether such service is referred
to as voice over Internet protocol services or is classified by the Federal
Communications Commission as enhanced or value added;
(B) “Telecommunications service” does not include:
(i) Data processing and information services that allow data to be
generated, acquired, stored, processed, or retrieved and delivered by an
electronic transmission to a purchaser where such purchaser’s primary
purpose for the underlying transaction is the processed data or
information. . . .
Tenn. Code Ann. § 67-6-102(a)(44).
The Taxpayer sells information by charging a fee for customers to access its database.
Once the customer has access to the stored information, it can further store, process, and
deliver the information in a variety of ways. Information is not taxable as tangible
1

Legislation related to the Streamlined Sales and Use Tax Agreement, effective July 1, 2007, may result in changes
regarding the application of sales and use tax sales of certain items of tangible personal property. The Department of
Revenue encourages you to visit our website at www.tennessee.gov/revenue for updates.

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personal property, therefore, the sale of information is not subject to tax. Accordingly,
the Taxpayer’s business qualifies as a non-taxable information service under Tenn. Code
Ann. § 67-6-102(a)(44)(B).
The Taxpayer also produces electronic and printed reports for its customers, however, it
is not selling tangible personal property. The customer is not paying for the reports but
rather the information contained in the reports; thus, the provision of the reports is only
incident to the sale of an information service. See AT&T Corp. v. Chumley, 2005
WL2739270 (Tenn. Ct. App. 2005). Since the Taxpayer provides an information service,
it does not need to collect and remit sales and use tax on the sale of its service, or on the
electronic and printed reports.

Deborah A. Toon
Tax Counsel

APPROVED: Loren L. Chumley
Commissioner

DATE:

9/18/06

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