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?

Subject

Whether automated telephone answering services are taxable telecommunications or ancillary services.

Plain-English summary

The Tennessee Department of Revenue ruled that an interactive, automated after-hours telephone answering system for physician practices and hospitals is not a taxable telecommunications service or a taxable ancillary service under Tennessee sales tax law.

Tennessee taxes "telecommunications services," defined as the electronic transmission, conveyance, or routing of voice, data, audio, video, or other information between points. The taxpayer's system does route calls: after-hours calls forward to the taxpayer's data center, an automated system interacts with the caller based on voice prompts, and depending on the outcome the system may connect the caller to an on-call physician, take a voice message, page the physician, or route the caller to a live operator. All of that involves telecommunications in a literal sense. But Tennessee courts apply a "true object" test — asking what the customer is really paying for — and here the Department found the true object is answering the phone and figuring out what the caller needs, not transmitting a communication. That distinguishes this service from BellSouth Telecommunications, Inc. v. Johnson, where voice mail service was taxable because its true object actually was transmitting a delayed message, and aligns it with Prodigy Services Corp. v. Johnson (Internet access) and Equifax Check Services, Inc. v. Johnson (check verification), where the telecommunications component was just the delivery mechanism for a different underlying service.

The ruling also separately cleared the service of Tennessee's "ancillary services" tax (which covers things like voice mail and vertical calling features), because the taxpayer doesn't offer advanced calling features like caller ID or conference bridging, and even though one call outcome lets a caller leave a recorded message, that alone doesn't make the whole service a "voice mail service" — again, the true object is answering and directing calls, not storing messages.

What this means for you

Call center, answering service, and telehealth-adjacent businesses

Providing an "answering" or "message-taking" service that happens to use telephone/data transmission technology doesn't automatically make you a taxable telecommunications provider in Tennessee. The key question is what your customer is actually buying: if it's the human/automated task of triaging calls and deciding what to do with them, you're likely outside the telecommunications and ancillary-services tax even though data moves across wires to do it. But if your core offering shifts toward genuinely transmitting/storing communications for later retrieval (true voice mail, conferencing, caller ID), you cross into taxable territory, as BellSouth shows.

Accountants and tax professionals

This ruling is a useful contrast set for the "true object" test: it lines up Prodigy (Internet access), Equifax (check verification), and this answering service on the "not telecommunications" side against BellSouth (voice mail) on the "is telecommunications" side. When advising a communications-adjacent business, the deciding fact pattern is usually whether the service's essential function is transmitting/storing a message for the recipient, or performing some other task (routing, verification, information lookup) that merely uses telecommunications as a means.

Common questions

Q: Does using telephone lines or data transmission to deliver a service automatically make it taxable as a telecommunications service?
A: No. Tennessee applies a "true object" test — if the customer's real purpose in buying the service is something other than the transmission itself (like answering and directing calls), the service isn't taxed as telecommunications even though transmission occurs.

Q: Is a service that lets callers leave a message automatically a taxable "voice mail" ancillary service?
A: Not necessarily. This ruling found that a message-leaving option, as just one of several call outcomes in a broader answering service, didn't convert the whole service into taxable voice mail, because the true object remained answering/directing calls.

Q: What distinguishes this from BellSouth's taxable voice mail service?
A: In BellSouth, the entire service's function was transmitting a delayed voice message to the intended recipient — that was the true object. Here, message-taking is just one branch of a broader call-triage service whose true object is answering the phone and determining a caller's options.

Q: Does this ruling apply to my answering or call-center service?
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 true-object framework it applies is broadly instructive.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 67-6-205(c)(3) (2007) (tax on telecommunications services)
• Tenn. Code Ann. § 67-6-102(81)(A) (2007) (definition of "telecommunications service")
• Tenn. Code Ann. § 67-6-205(c)(9) (2007); § 67-6-102(4), (4)(E) (2007) (ancillary services and voice mail service definitions)
• Prodigy Services Corp., Inc. v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003) (Internet access not taxable telecommunications)
• Equifax Check Services, Inc. v. Johnson, 2000 Tenn. Ct. App. LEXIS 412 (check-verification service not taxable telecommunications)
• BellSouth Telecommunications, Inc. v. Johnson, No. M2005-00865-COA-R3-CV (Tenn. Ct. App. 2006) (voice mail service held taxable telecommunications)

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/08-23.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 08-23
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
Whether certain telephone answering services are subject to the Tennessee sales tax as
telecommunications services or ancillary services.
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;
(C) 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 his detriment.
FACTS
[THE TAXPAYER] creates customized interactive and automated answering system contact
management software applications for physician practices and hospitals. The software enables
the customer to receive, sort, deliver, retrieve, and otherwise manage after-hours telephone calls
and resulting messages from patients, physicians and others. The software applications that
control the answering services are hosted on computer servers located at the Taxpayer’s data
center in [CITY], Tennessee. As discussed in more detail below, calls to each customer are

routed to and from the data center via the Publicly Switched Telephone Network (the “PSTN”)
or the Internet. After business hours, a customer forwards all incoming calls to a dedicated tollfree number provided by the Taxpayer, which is the gateway into the data center.
Once an incoming call is routed to the data center, the interactive and automated answering
system provides the caller with a choice of several options, which are determined based on
preprogrammed criteria selected by the taxpayer’s customers and the responses given by the
caller to a series of voice prompts. The outcome of each call depends on the various inputs and
the automated answering system’s responses, but can be categorized into five groups:
(1) The caller is instructed (i) to hang up and call back during normal business hours, (ii)
to call emergency assistance, or (iii) to proceed immediately to the nearest hospital
emergency room.
(2) The caller is connected to an appropriate party, which is usually the physician on call.
In this case, the data center automatically initiates an outbound call through the PSTN to
a telephone number specified by the customer, and then connects the caller’s inbound call
with the data center-initiated outbound call.
(3) The caller is prompted to leave a voice message for the customer. The message is
deposited into the appropriate inbox to be retrieved by the customer through the PSTN or
via the Internet. The customer is notified of the new message in a manner previously
selected by the customer. Typical notification methods include a message sent to the
customer’s pager or mobile telephone, or a telephone call to the customer, each of which
are automatically initiated by the data center via the PSTN.
(4) The caller is asked to enter a call-back telephone number. The call-back number is
then passed on to the physician’s pager or mobile telephone via the PSTN as described
above.
(5) The caller is transferred to a live operator who transcribes the message and then
sends the transcribed message to the customer’s pager or mobile telephone via the PSTN
as described above.
The Taxpayer does not sell or otherwise provide the customers or the callers with telephone
lines, pagers, mobile telephones, or any other means by which to receive and transfer calls or to
retrieve and access messages. Rather, the Taxpayer, the customers, and the callers each purchase
the telecommunications services necessary to accomplish their respective roles in the answering
services provided by the Taxpayer.
The callers purchase telecommunications services from their respective telephone companies in
order to initiate the telephone call that ultimately is routed to the data center for further
processing. The customers purchase telecommunications services from their respective telephone
companies in order to forward inbound calls to the data center, receive messages or calls
forwarded by the data center to mobile telephone calls and pagers, and to retrieve messages
stored in the data center. Finally, the Taxpayer purchases telecommunications services from its

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telephone company in order to redirect calls, receive messages, or forward messages, as the case
may be, to the customers.
QUESTIONS
1.
Are the Taxpayer’s answering services considered “telecommunications services”
pursuant to Tenn. Code Ann. § 67-6-102, and thus a taxable service subject to the Tennessee
sales tax pursuant to Tenn. Code Ann. § 67-6-205?
2.
Are the answering services provided by the Taxpayer services subject to the Tennessee
sales tax pursuant to any other subsection of Tenn. Code Ann. § 67-6-205?
RULINGS
1.
No. The Taxpayer’s answering services are not “telecommunications services” for
purposes of Tenn. Code Ann. § 67-6-102, and are not subject to the Tennessee sales tax pursuant
to Tenn. Code Ann. § 67-6-205.
2.
No. The answering services are not subject to the Tennessee sales tax pursuant to any
other subsection of Tenn. Code Ann. § 67-6-205. Specifically, the answering services are not
subject to the sales tax as ancillary services pursuant to Tenn. Code Ann. § 67-6-205.
ANALYSIS
1.

Telecommunications Services

The Taxpayer’s answering services are not “telecommunications services” for purposes of Tenn.
Code Ann. § 67-6-102(81) (2007) and are therefore not subject to the Tennessee sales tax as
such.
Under the Retailers’ Sales Tax Act, Tenn. Code Ann. § 67-6-101 et seq., the retail sale of
tangible personal property in Tennessee and certain services is generally subject to the Tennessee
sales and use tax. Tenn. Code Ann. § 67-6-205(c)(3) (2007) imposes the sales tax on “the
furnishing, for a consideration, of intrastate, interstate or international telecommunication
services.” The term “telecommunications service” is defined under Tenn. Code Ann. § 67-6102(81)(A) (2007) as 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.”
Importantly, the term “telecommunications services” does not include telephone answering
services. Although an answering service may involve the transmission of information (e.g., the
person answering the telephone may transmit a message to the service recipient via
telecommunications), the primary purpose of the answering service transaction is the answering
of the telephone, rather than the transmission of the resulting message.
In determining whether a transaction that involves telecommunications comes within the
definition of a taxable “telecommunications services” under Tenn. Code Ann. § 67-6-102(81),
the Tennessee courts have applied the “true object” test to the transaction in question. For
example, in Prodigy Services Corp., Inc. v. Johnson, 125 S.W.3d 413 (Tenn.Ct.App. 2003), the

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Tennessee Court of Appeals ruled that the sale of Internet access services was not taxable as a
telecommunications service, because providing telecommunications services was not the “true
object” of the sale, even if some of the services sold fit within the definition of the term. The
“true object” of a telecommunication service was also discussed by the Tennessee Court of
Appeals in Equifax Check Services, Inc. v. Johnson, No. M1999-00782-COA-R3-CV, 2000
Tenn.Ct.App. LEXIS 412 (Tenn.Ct.App. June 27, 2000). In that case, Equifax provided a service
whereby a merchant could dial into Equifax’s computers to determine whether a customer had
sufficient funds to cover a check tendered to the merchant. The purpose of the service was to
enable merchants to minimize the number of bad checks they accepted. In holding that the
service was not taxable as a telecommunications service, the court explained that the “true
object” of the transaction was not the provision of a telecommunications service, but rather
access to the account information provided by Equifax.
In contrast, the Tennessee Court of Appeals held in BellSouth Telecommunications, Inc. v.
Johnson, No. M2005-00865-COA-R3-CV (Tenn.Ct.App. October 27, 2006), that certain services
involving voice mail were taxable as telecommunications services. BellSouth offered voice mail
services that included alerting customers to the receipt of messages on their home phones,
notifying customers of new messages on the customers’ pagers, allowing customers to exchange
information through messaging with other customers, and allowing customers to classify
messages as urgent. The court found based on these facts that the “true object” of the voice mail
services was to transmit, albeit in a delayed manner, voice, data, audio, video or other
information to a point or between points, and that the service was therefore a
“telecommunications service” as defined under Tenn. Code Ann. § 67-6-102(81). As the court
explained, a caller uses a telephone to call the person with whom he wants to speak. If there is no
answer, the caller may leave a recording, stored on BellSouth’s computers, for the recipient to
receive at a convenient time. Additionally, the court stated that the fact that the oral message is
held in abeyance does not change the nature of the service provided; that is, the customer can
communicate with a specific person through telephonic means. As such, the taxpayer was
providing a taxable telecommunications service.
Under the facts provided, the Taxpayer provides its customers access to an interactive and
automated telephone answer system. The answering system uses its software in conjunction with
preprogrammed criteria from a customer in order to interpret a caller’s voice response and
provide the caller with a list of options tailored to the caller’s needs. In the Taxpayer’s case, the
services provided are answering services that do not come within the definition of
“telecommunications services” under Tenn. Code Ann. § 67-6-102(81). Although some of the
options provided to callers by the answering system’s response do transmit voice, data, audio,
video, or any other information or signals to a point or between points, the primary purpose of
the automated answering services provided by the Taxpayer is to answer customers’ phones after
normal business hours and determine what options best suit the caller. Thus, the “true object” of
the answering service is to answer the phones of customers during non-business hours and to
determine a caller’s options, as opposed to providing telecommunication service. Therefore, the
Taxpayer’s answering services are not “telecommunications” for purposes of Tenn. Code Ann.
§ 67-6-102(81), and are not subject to Tennessee sales tax as such.
2.

Other subsections of Tenn. Code Ann. § 67-6-205 (2007)

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The Taxpayer’s answering services are not subject to the Tennessee sales tax pursuant to any
other subsection of Tenn. Code Ann. § 67-6-205 (2007). Specifically, the answering services are
not subject to the sales tax as ancillary services pursuant to Tenn. Code Ann. § 67-6-205.
The furnishing of “ancillary services” for a consideration is subject to the Tennessee sales tax
pursuant to Tenn. Code Ann. § 67-6-205(c)(9) (2007). Tenn. Code Ann. § 67-6-102(4) (2007)
defines the term “ancillary services” as “services that are associated with, or incidental to, the
provision of telecommunication services, including, but not limited to, detailed
telecommunications billing service, directory assistance service, vertical service, and voice mail
service.”1 Tenn. Code Ann. § 67-6-102(4)(E) (2007) defines the term “voice mail service” as an
ancillary service that “enables the customer to store, send or receive recorded messages.”
“Vertical services” include any ancillary services that “are offered in connection with one or
more telecommunications services, that offers advanced calling features that allow customers to
identify callers and to manage multiple calls and call connections, including conference bridging
services.”
The Taxpayer’s answering services do not constitute a voice mail service or a vertical service.
First, the taxpayer does not offer any of the advanced calling features that allow customers to
identify callers and to manage multiple calls and call connections, including conference bridging
services. Next, the Taxpayer’s answering services do not come within the definition of “voice
mail service” because the Taxpayer’s primary purpose is to answer its customers’ calls and
determine a caller’s options based on the caller’s voice responses during non-work hours. See
Prodigy Services Corp., Inc. v. Johnson, 125 S.W.3d 413 (Tenn.Ct.App. 2003); Equifax Check
Services, Inc. v. Johnson, No. M1999-00782-COA-R3-CV, 2000 Tenn.Ct.App. LEXIS 412
(Tenn.Ct.App. June 27, 2000); BellSouth Telecommunications, Inc. v. Johnson, No. M200500865-COA-R3-CV (Tenn.Ct.App. May 26, 2006). Although one of the options the Taxpayer
provides allows its customers’ callers to store, send or receive recorded messages, the “true
object” of the Taxpayer’s interactive and automated answering service is to answers the phones
and directs calls of customers during non-business hours.
Accordingly, the Taxpayer’s answering services are not subject to the Tennessee sales tax as
ancillary services pursuant to Tenn. Code Ann. § 67-6-205(c)(9).2
Conclusion
The Taxpayer’s answering services are not “telecommunications services” for purposes of Tenn.
Code Ann. § 67-6-102(81) (2007), and are not subject to the Tennessee sales tax pursuant to
Tenn. Code Ann. § 67-6-205 (2007). The answering services are not subject to the Tennessee
sales tax pursuant to any other subsection of Tenn. Code Ann. § 67-6-205 (2007). Specifically,

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Ancillary services are specifically excluded from the definition of “telecommunication services” pursuant to Tenn.
Code Ann. § 67-6-102.

2

Note that the Taxpayer’s answering services are not subject to taxation pursuant to any other provision of the
Retailers’ Sales Tax Act.

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the answering services are not subject to the sales tax as “ancillary services” pursuant to Tenn.
Code Ann. § 67-6-205(c)(9) (2007).

Tony Greer
Tax Counsel

APPROVED:

Reagan Farr
Commissioner of Revenue

DATE:

3-12-08

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