Is an SEC EDGAR filing service -- converting company financials into SEC format and transmitting them electronically -- a taxable telecommunications service in Tennessee, and does it matter that the provider's servers are out of state?

Plain-English summary

A company offers an "EDGAR-only" filing service for companies that must submit documents to the SEC through its EDGAR system. Customers send financial information (in Word, Excel, or PowerPoint) to the provider; the provider converts it into an SEC-compliant HTML/PDF file, sends the customer a preview for approval, and then electronically transmits the final file to the SEC. All of the conversion and transmission happens on the provider's servers, which are located outside Tennessee. The customer never receives or transfers any tangible personal property -- just the electronic document. The provider charges separate setup, per-document filing, alteration, and per-page converting fees rather than one lump sum.

The provider asked two things: (1) is this service taxable in Tennessee at all, and (2) if so, how is the tax "sourced" (assigned to a jurisdiction) when the work happens out of state but the customer is in Tennessee?

1. Is it taxable? Yes, as a "telecommunications service." Tennessee defines that broadly as "the electronic transmission, conveyance, or routing of ... data ... to a point, or between or among points" -- explicitly including transmissions where computer processing acts on the "form, code or protocol of the content," and explicitly not excluded just because a service might otherwise be called "enhanced" (a change the legislature made specifically to override a 2003 court decision, Prodigy Services Corp. v. Johnson, that had found "enhanced" online services non-taxable). Because the provider electronically transmits the converted document to the SEC -- and the conversion process itself involves computer processing acting on the document's form to prepare it for transmission -- the service fits squarely within the statute. The Department separately confirmed this isn't excluded "data processing," because that carve-out only applies when the customer's primary purpose is to obtain new processed data -- here, customers already have their financial data; what they're buying is the conversion-and-transmission service itself.

2. Where is it sourced? Tennessee sources telecommunications services sold on a per-call/per-transaction basis to wherever the transmission originates or terminates -- not automatically to the customer's location. Because the provider bills per document and per page (treated like "call-by-call" pricing), and the transmission originates at the provider's out-of-state server and terminates at the SEC, the sale is sourced entirely outside Tennessee. The practical result: even though the service category is taxable, no Tennessee tax is actually due on this particular arrangement, because the transmission itself never touches Tennessee.

What this means for you

Companies providing electronic filing, conversion, or data-transmission services

Converting and electronically transmitting documents to a third party (a regulator, a business partner) is likely a taxable "telecommunications service" in Tennessee, not a nontaxable "data processing" service -- that carve-out is narrow and only protects services where the customer is buying newly generated or retrieved data, not a transmission/conversion service. But where you perform the work matters enormously: if your processing and transmission both happen outside Tennessee, per-transaction sourcing rules can mean no Tennessee tax is owed even for Tennessee customers.

Accountants and tax professionals

This ruling is a useful post-2005 illustration of how the amended "telecommunications service" definition (Public Chapter 499, 2005) was written to sweep in "enhanced services" like EDI that Prodigy Services Corp. v. Johnson had exempted under the pre-amendment definition -- don't rely on pre-2005 characterizations of similar online/data services without checking the current statute.

Common questions

Q: Is converting and filing documents electronically to a government agency a taxable service in Tennessee?
A: Generally yes, as a "telecommunications service," because it involves the electronic transmission/conveyance of data using computer processing -- unless the customer's primary purpose is obtaining new processed data (the "data processing" exclusion), which didn't apply here.

Q: If my company is out of state but my customer is in Tennessee, do I owe Tennessee tax on this kind of service?
A: Not necessarily. Tennessee sources per-transaction telecommunications services to where the transmission originates or terminates, not to the customer's billing address -- if both ends of the transmission are outside Tennessee, the sale isn't sourced there.

Q: Does "enhanced service" status (like EDI) make a service exempt from Tennessee sales tax?
A: No, not since a 2005 statutory amendment specifically added language taxing telecommunications services "without regard to" whether they're classified as enhanced or value-added -- overriding the older Prodigy Services Corp. v. Johnson case that had exempted such services.

Q: Can another filing-service or data-transmission company rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified by the Commissioner. Your own server locations and billing structure should be confirmed with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-205(c)(3) (Supp. 2010) (sales tax on furnishing telecommunications services)
• § 67-6-102(93)(A) (Supp. 2010) ("telecommunications service" definition -- electronic transmission/conveyance/routing of data, including computer-processed transmissions, regardless of enhanced/VoIP classification)
• § 67-6-102(93)(B)(i) (data processing/information services exclusion -- narrow, requires the processed data itself to be the purchaser's primary purpose)
• § 67-6-905(b)(2) (Supp. 2010) (call-by-call sourcing rule for telecommunications services)
• § 67-6-101 et seq., § 67-6-102(79), § 67-6-102(81)(D) (Supp. 2010) (Retailers' Sales Tax Act; "retail sale"; "sale" includes furnishing taxable services)
• Public Chapter 499, Acts of 2005 (effective July 1, 2004) (amended the telecommunications service definition to reach "enhanced" services)

Other sources cited by the ruling:

• Prodigy Services Corp. v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003) (pre-amendment case exempting "enhanced services" -- superseded by the 2005 statutory amendment)
• Tennessee Department of Revenue Important Notice #05-20 (Oct. 27, 2005) (discusses "enhanced services," including EDI)
• Inmate Calling Servs. Providers Task Force, 11 F.C.C.R. 7362 (1996) (FCC listing EDI as an example of an "enhanced service")

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/11-35.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 11-35

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 the services of an EDGAR filing system provider are subject to Tennessee sales and use
tax.
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 the taxpayer’s
detriment.
FACTS
[TAXPAYER] is [REDACTED INFORMATION], [AN] Electronic Data Gathering
Arrangement and Retrieval system (“EDGAR”) filer, [REDACTED INFORMATION]. EDGAR
is the automated filing system used by the United States Securities and Exchange Commission
(the “SEC”). The system “performs automated collection, validation, indexing, acceptance, and

.

forwarding of submissions by companies and others who are required by law to file forms” with
the SEC.1
The Taxpayer offers an EDGAR-only type service called [SERVICE]. The [SERVICE] includes
obtaining financial information, which the customer sends to the Taxpayer in electronic format
via email or on a disc; the conversion of such customer furnished information (received in Word,
Excel or PowerPoint format) into an HTML SEC compliant electronic file; and submission of the
electronic file to the SEC. The conversion of the customer information takes place on and the
transmission of the converted document to the SEC is sent from the Taxpayer’s server, which is
located outside Tennessee. Prior to the submission, the HTML file is sent to the customer
electronically for approval (as a PDF document). Upon customer approval, the file is
electronically transmitted to the SEC. Neither the customer nor the SEC obtain any tangible
personal property during the filing process. The electronic document is the only item sent to the
customer or the SEC. Rather than a lump service fee, the Taxpayer charges the customer a setup fee and a filing fee for each document filed with the SEC and an alteration fee and a
converting fee for each page filed with the SEC.
QUESTIONS

1. Is the Taxpayer’s [SERVICE] subject to the Tennessee sales and use tax?
2. If the Taxpayer’s [SERVICE] is a taxable service under the Tennessee sales and use tax, how
   is the tax sourced when the Taxpayer provides the service from an out-of-state location to a
   customer located in Tennessee?
   RULINGS
3. Yes. The Taxpayer’s [SERVICE] is a service that is generally subject to the Tennessee sales
   and use tax as a telecommunication service under TENN. CODE ANN. § 67-6-205(c)(3) (Supp.
   2010).
4. If the Taxpayer’s service is performed out-of-state, the sale of the service is sourced out-ofstate, even if the customer is located in Tennessee.
   ANALYSIS
5. Taxability of the Taxpayer’s [SERVICE]
   The Taxpayer’s [SERVICE] is subject to the Tennessee sales and use tax as a telecommunication
   service under TENN. CODE ANN. § 67-6-205(c)(3) (Supp. 2010).
   Under the Retailers’ Sales Tax Act, TENN. CODE ANN. § 67-6-101 et seq., retail sales of tangible
   personal property and specifically enumerated services in Tennessee are subject to sales and use
   tax. TENN. CODE ANN. § 67-6-102(79) (Supp. 2010) defines a “retail sale” as a “sale, lease, or
   rental for any purpose other than for resale, sublease, or subrent.” The term “sale” includes “the
   furnishing of any of the things or services taxable” under the Tennessee sales and use tax laws.
   TENN. CODE ANN. § 67-6-102(81)(D). TENN. CODE ANN. § 67-6-205(c)(3) imposes the sales and
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See the official website for the SEC for more information: http://www.sec.gov/edgar/aboutedgar.htm.

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use tax on retail sales of the service of “furnishing, for a consideration, of intrastate, interstate or
international telecommunication services.” “Telecommunications service” is defined 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,” and 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.” TENN. CODE
ANN. § 67-6-102(93)(A).
Accordingly, if the Taxpayer’s [SERVICE] comes within the definition of a
“telecommunications service” for Tennessee sales and use tax purposes, then the service is
subject to the sales and use tax.
As stated above, “telecommunications service” is “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.” TENN. CODE ANN. § 67-6-102(93)(A). The Taxpayer electronically transmits
files containing financial information obtained from its customers to the SEC. This action
clearly falls within the plain language of the definition of telecommunications services.
The Taxpayer, however, also converts the financial information submitted by its customers into
an SEC compliant format, or “EDGARizes” the information, prior to filing the documents with
the SEC. The entire process of transferring and converting information between companies
constitutes an electronic data interchange (“EDI”) process.2 According to the definition, the
classification of a service as an enhanced service is inconsequential with respect to whether the
service is considered a telecommunication service.3
2

The term “EDI” is defined as “the electronic transfer of business documents between companies in a structured,
computer-processed data form.” NATHAN J. MULLER, DESKTOP ENCYCLOPEDIA OF TELECOMMUNICATIONS 306 (3d
ed. 2002). EDI is governed by a set of standards and is most commonly used in commerce. The process is
classified as an enhanced service by the Federal Communications Commission (“FCC”). See Inmate Calling Servs.
Providers Task Force, 11 F.C.C.R. 7362 (1996) (in examining its Computer II decisions, the FCC listed several
examples of “enhanced services,” which included electronic data interchange.) The Tennessee Department of
Revenue also elaborates on the term “enhanced services” in Important Notice #05-20, Oct. 27, 2005,
www.state.tn.us/revenue/notices/tvtelecom/index.htm. The notice includes EDI and value added non-voice data
services as examples of enhanced services.
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The Tennessee General Assembly enacted Public Chapter 499, Acts of 2005, effective July 1, 2004, which rewrote
the sales and use tax provisions pertaining to telecommunications. This revision included inter alia the addition of
the clause “without regard to whether such service is referred to as voice over Internet protocol services or is
classified by the federal communication commission as enhanced or value added,” to the definition of
“telecommunications service.” Prior to the statutory revision, the Tennessee Court of Appeals addressed
“telecommunications” in Prodigy Services Corp v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003). In that case,
the taxpayer offered an online computer information service. The state deemed the taxpayer’s service to be a
taxable telecommunications service. The court, however, distinguished between FCC-regulated basic services and
FCC-nonregulated enhanced services, determined that the taxpayer’s services were enhanced services as defined by
the FCC, and concluded that “enhanced services” did not come within the definition of “telecommunication
services” and were therefore nontaxable. The amended definition of “telecommunications service” clearly intends
to include “enhanced services” if such enhanced services otherwise meet the requirements of the definition of
“telecommunications service.”

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As noted above, TENN. CODE ANN. § 67-6-102(93)(A) includes in the definition of
telecommunications service “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.” (Emphasis added.) The Taxpayer’s filing service is
performed entirely electronically. Computers are used to receive the financial information that
the Taxpayer obtains from its customers. Computers are then used to convert the information
from a Word, Excel, or PowerPoint document into an SEC compliant document. The purpose of
this conversion is to create a document that the SEC can receive. Therefore, this conversion
process performed by the Taxpayer is also within the parameters of the plain language of the
statute. Thus, the Taxpayer’s [SERVICE] constitutes a telecommunications service for purposes
of the Tennessee sales and use tax.
Note that the Taxpayer’s service is not considered “data processing” under TENN. CODE ANN.
§ 67-6-102(93)(B)(i), which excludes from telecommunications services “data processing and
information services that allow data to be generated, acquired, stored, processed, or retrieved and
delivered by electronic transmission to a purchaser, where such purchaser’s primary purpose for
the underlying transaction is the processed data or information.” (Emphasis added.) The
purchaser’s primary purpose in using the Taxpayer’s [SERVICE] is not for data processing or
retrieval, but rather is to have its financial information converted to an SEC compliant format
and electronically transmitted to the SEC. In fact, the purchaser already has all of the data that is
filed with the SEC and is not seeking to gain additional data or information; the Taxpayer’s
service does not include generating any additional data.
Because the Taxpayer’s [SERVICE] comes within the definition of a “telecommunications
service” under TENN. CODE ANN. § 67-6-102(93)(A), it is a taxable service for the purposes of
Tennessee sales and use tax under TENN. CODE ANN. § 67-6-205(c)(3).

2. Sourcing of the sale of the Taxpayer’s [SERVICE], where the service is provided outside of
   Tennessee to a Tennessee customer
   If the Taxpayer’s [SERVICE] is performed out-of-state, the sale of the service is sourced out-ofstate, even if the customer is located in Tennessee.
   TENN. CODE ANN. § 67-6-905 (Supp. 2010) sets forth the sourcing rules for sales of
   telecommunications services in Tennessee. TENN. CODE ANN. § 67-6-905(b)(2) provides that if
   the telecommunications service is sold on a call-by-call basis and the call does not originate and
   terminate in the same location, then the sale is sourced to the jurisdiction where the call “[e]ither
   originates or terminates and in which the service address is also located.”
   The Taxpayer charges its customers fees for each document and each page filed with the SEC.
   For Tennessee sales and use tax sourcing purposes, the sale of a service on a “per document” or
   “per page” basis is considered to be a sale on a call-by-call basis. Additionally, the call, or in
   this case the transmission of the documents to the SEC, does not originate and terminate in the
   same location. The call originates with the Taxpayer’s server and terminates with the SEC.
   Therefore, the call is sourced to one of these two locations and not to Tennessee.

4

Because the Taxpayer’s service is performed out-of-state (i.e. the call originates and terminates
out-of-state), the sale of the [SERVICE] is sourced to a location out-of-state, and thus the
Taxpayer’s service is not subject to the Tennessee sales and use tax.

Elizabeth Henderson
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

7/22/11

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