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?

Plain-English summary

The taxpayer provides mobile and web data-analytics services. It collects data about the users of a customer's website or app — either the customer installs the company's tracking code in its site/app, or the customer sends its data to the company using company-generated code. Customers choose which metrics to track (user location, device/browser, how the user arrived, and so on). The raw data is streamed to the company's servers and made available on a web-based dashboard, which customers access under a limited, non-exclusive software license. The company offers tiered "user interaction" plans and "user data" plans (the latter used to segment users and target messages).

The company asked whether its data-analytics services are subject to Tennessee sales and use tax. The Department said no. Even though the services involve remotely accessed computer software, the true object of what customers buy is the nontaxable data-analytics service.

Here's the reasoning:

Remotely accessed software is generally taxable — but that doesn't tax the service. Since 2015, Tennessee taxes the sale, license, or use of computer software regardless of how it's accessed, including software that "remains in the possession of the dealer" and is accessed remotely (§ 67-6-231(a), (b)). But that same law is explicit that it does not make otherwise-nontaxable services taxable — it specifically lists "information or data processing services" and "the storage of data" as remaining nontaxable (§ 67-6-231(a)(2)).

True object: the analytics, not the software. Customers don't buy the plans to get the company's software — they buy them for the data analytics. The tracking code "is a tool to collect raw data," and that "raw data is meaningless to customers without the [company's] subsequent analysis." Likewise, the web-based dashboard is software, but it's "merely a tool to view the end result" of the analytics. So the customer's use of any software is merely incidental to the true object — the analytics service.

Services are taxable only if enumerated. Tennessee taxes services only when they are specifically enumerated in the Retailers' Sales Tax Act (§ 67-6-205). Data-analytics services are not enumerated. Because the true object is a non-enumerated service, the whole charge is not subject to Tennessee sales and use tax.

The throughline: wrapping a nontaxable data/analytics service in remotely accessed software doesn't make it taxable. When the software (tracking code, dashboards, logins) is just the delivery mechanism for a non-enumerated service like data processing or analytics, the true object controls and the service stays nontaxable.

What this means for you

Analytics, data-processing, and "software-delivered service" providers

If your business delivers a service through software — web/app analytics, data processing, reporting dashboards, monitoring — the fact that customers log into your platform or install your code doesn't automatically make the charge taxable. Tennessee looks at the true object. Where customers are really buying a non-enumerated service (and the software is just how you deliver it), the charge is not taxable. Document that the software is incidental and that the deliverable is the analysis/output, not access to the software itself.

The 2015 remote-software law has an explicit services carve-out

Tennessee's law taxing remotely accessed software (§ 67-6-231(b)) was written so it would not sweep in services that weren't already taxable. It names "information or data processing services" and "storage of data" as still nontaxable. If your offering is fundamentally one of those, the remote-software rule doesn't reach it.

Where the line is — when remote software IS taxable

The opposite result follows when the software access itself is the true object — i.e., the customer is really paying to use the software (a SaaS tool they operate to do their own work), not to receive a finished service. There, the remotely accessed software is taxable. The deciding question is always: is the customer buying the use of software, or buying an output/service that software merely helps produce?

Accountants and tax professionals

The analysis: remotely accessed software is taxable (§ 67-6-231(a), (b); 2015 Tenn. Pub. Acts Ch. 514, § 22), but the statute carves out otherwise-nontaxable services, expressly preserving information/data-processing services and data storage (§ 67-6-231(a)(2)). Under the true-object/primary-purpose test, the tracking code and dashboard are merely incidental tools (Thomas Nelson; AT&T; Rivergate Toyota; Ltr. Rul. 14-10), and services are taxable only if enumerated (§ 67-6-205). Data analytics is not enumerated, so the charge is nontaxable. Compare LR 21-01 (data analytics) and LR 19-04 (subscription database services), where the same true-object framework split taxable from nontaxable offerings.

Common questions

Q: My service runs on software that customers access remotely. Does that make it taxable in Tennessee?
A: Not necessarily. If the true object is a nontaxable service and the software is merely the tool used to deliver it, the charge is not taxable — even though Tennessee generally taxes remotely accessed software.

Q: Is data analytics a taxable service in Tennessee?
A: No. Tennessee taxes only specifically enumerated services, and data analytics (a form of information/data-processing service) is not enumerated. The 2015 remote-software law expressly leaves data-processing services and data storage nontaxable.

Q: What about the dashboard or login software my customers use?
A: That's software, but the Department treated it as merely incidental — a tool to view the end result of the analytics. It doesn't convert the nontaxable service into a taxable one.

Q: When would remotely accessed software actually be taxable?
A: When the true object is the software itself — i.e., the customer is really paying to use the software to do its own work, rather than to receive a finished service. Then the remotely accessed software is taxable.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling is binding on the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-231(a), § 67-6-231(b) (retail sale, license, or use of computer software taxable regardless of access method, including remotely accessed software; eff. billing periods on/after July 1, 2015 — 2015 Tenn. Pub. Acts Ch. 514, § 22)
• § 67-6-231(a)(2) (the remote-software tax does not reach otherwise-nontaxable services — information/data-processing services and data storage remain nontaxable)
• § 67-6-205, § 67-6-205(c) (sales tax applies only to services specifically enumerated in the Retailers' Sales Tax Act; data analytics is not enumerated)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A), (C), (K) ("sale" — incl. furnishing enumerated services and the transfer/loading of computer software)
• § 67-6-102(68) ("prewritten computer software"); § 67-6-102(18) ("computer software"); § 67-6-102(24) ("delivered electronically"); § 67-6-102(89)(A) ("tangible personal property")

Case law:

• Creasy Sys. Consultants, Inc. v. Olsen, 716 S.W.2d 35 (Tenn. 1986) (fabrication or customized modification of software = taxable sale of software)
• Univ. Computing Co. v. Olsen, 677 S.W.2d 445 (Tenn. 1984); Commerce Union Bank v. Tidwell, 538 S.W.2d 405 (Tenn. 1976) (software treated as tangible personal property after the 1977 amendment)
• True object / enumerated services: Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621 (Tenn. 1987); AT&T Corp. v. Johnson, 2002 WL 31247083 (Tenn. Ct. App. 2002); Rivergate Toyota, Inc. v. Huddleston, 1998 WL 83720 (Tenn. Ct. App. 1998); Tenn. Dep't of Revenue Ltr. Rul. 14-10 (Oct. 14, 2014)

Related Tennessee rulings: Ltr. Rul. 21-01 (data analytics); Ltr. Rul. 19-04 (subscription database services) — same true-object framework.

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/18-09.pdf

Original ruling text

Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and circumstances
presented, and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes, and is not intended as
a statement of Departmental policy. Taxpayers should consult with a tax professional before
relying on any aspect of this ruling.

The application of the Tennessee sales and use tax to data analytics services.

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.

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[TAXPAYER] (the “Taxpayer”) provides mobile and web data analytics services. The Taxpayer collects
data about users of a customer’s website or mobile application and provides the customer with
reports about such use. The Taxpayer obtains customer data one of two ways: (1) a customer
installs the Taxpayer’s code within its website or mobile application, or (2) a customer sends its data
to the Taxpayer using Taxpayer-generated code. Customers determine what user interactions or
metrics they want to track, such as user location, type of device and browser used to access the
website, and how the user was directed to the customer’s website. Only those metrics a customer
1
chooses to track are included in the Taxpayer’s code and subsequently tracked.
Once the Taxpayer has collected the raw data, it is streamed to the Taxpayer’s servers. The data is
then made available to customers on the Taxpayer’s web-based dashboard. Customers are granted
a limited, non-exclusive, non-transferrable software license to the Taxpayer’s web-based dashboard
to access their user data and reports. Customers access the dashboard through their own internet
browser or the Taxpayer’s mobile application. While the Taxpayer automatically generates some
reports in the dashboard, customers are able to create their own reports as well. The Taxpayergenerated reports include the [REDACTED] report, which shows how users move through the
customer’s website; the [REDACTED] report, which looks at how often users return to the customer’s
website; and the [REDACTED] report, which provides a comprehensive analysis of all user and event
data.
The Taxpayer offers two types of plans: [USER INTERACTION] plans and [USER DATA] plans
(collectively, the “Taxpayer’s Plans”). Customers may have both types of plans, as each serves a
different purpose. [USER INTERACTION] plans track user interactions with a customer’s website or
mobile application. The Taxpayer offers three levels of [USER INTERACTION] plans, which vary in the
amount of data available to customers and whether customers can download such data.
The [FIRST TIER PLAN], the lowest-tier plan, offers customers full analytics of current data and up to
one year of historical data. Customers are able to save reports within the dashboard. Pricing for the
[FIRST TIER PLAN] uses a base monthly, quarterly, or annual rate, with additional fees for increased
data capabilities. The [FIRST TIER PLAN] allows unlimited access to the Taxpayer’s dashboard for up
to 10 customer accounts.
The [SECOND TIER PLAN] differs from the [FIRST TIER PLAN] in a few key ways. There are no monthly
data limits and dashboard access is not limited to a certain number of customer accounts.
Additionally, [SECOND TIER PLAN] customers can access up to five years of historical data in the
dashboard. [SECOND TIER PLAN] customers are also able to export data from the dashboard in CSV
format. Pricing for the [SECOND TIER PLAN] is at an annual rate.
The [THIRD TIER PLAN] is the top-tier plan. [THIRD TIER PLAN] customers are able to access their
complete data history in the dashboard and also have access to additional Taxpayer-generated
reports that other [USER INTERACTION] plans do not offer. [THIRD TIER PLAN] customers can also
export their data from the dashboard in CSV format.

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The Taxpayer also offers a codeless tracking option for website tracking. If a customer chooses this option, all user
interactions on a customer’s website are tracked once the Taxpayer’s code has been installed.

2

[USER DATA] plans, on the other hand, collect and analyze user data, rather than interactions.
Customers using [USER DATA] plans are able to determine the demographics and use history of
their website and mobile application users. Customers use the [USER DATA] plan to categorize
users, such as those from a certain region or with a certain purchase history, and target emails or
mobile application messages to those individual groups. Additionally, the Taxpayer uses the [USER
DATA] plan platform to send notifications to customers. Pricing for [USER DATA] plans is based on
the number of user profiles a customer maintains.

Are the Taxpayer’s data analytics services subject to Tennessee sales and use tax?
Ruling: No, the Taxpayer’s data analytics services are not subject to Tennessee sales and use
tax. Although the Taxpayer’s services involve the use of remotely accessed computer
software, the true object of the services is the nontaxable data analytics service.

Under the Retailers’ Sales Tax Act, the retail sale in Tennessee of tangible personal property and
2
specifically enumerated services is subject to the sales tax, unless an exemption applies. “Retail
sale” is defined as “any sale, lease, or rental for any purpose other than for resale, sublease, or
3
subrent.”
TENN. CODE ANN. § 67-6-102(78)(A) (2018) defines “sale,” in pertinent part, to mean “any transfer of
title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any
manner or by any means whatsoever of tangible personal property for a consideration.” “Tangible
personal property” includes “property that can be seen, weighed, measured, felt, or touched, or that
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is in any other manner perceptible to the senses.” Tangible personal property also includes
“prewritten computer software,” which is defined in TENN. CODE ANN. § 67-6-102(68) in pertinent part
as “computer software, including prewritten upgrades, that is not designed and developed by the
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author or other creator to the specifications of a specific purchaser.”
In addition to the transfer of tangible personal property, the term “sale” also includes “the furnishing
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of any of the things or services” taxable under the Retailers’ Sales Tax Act. One of the “things”
specifically taxable is:
2

Tennessee Retailers’ Sales Tax Act, Ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts Ch. 22, §§ 2254 (codified as amended at TENN. CODE
ANN. §§ 67-6-101 to -907 (2018)).
3

TENN. CODE ANN. § 67-6-102(76) (2018).

4

TENN. CODE ANN. § 67-6-102(89)(A).

5

TENN. CODE ANN. § 67-6-102(68) further provides that “’[p]rewritten computer software’ or a prewritten portion of the
computer software that is modified or enhanced to any degree, where the modification or enhancement is designed and
developed to the specifications of a specific purchaser, remains prewritten computer software.” Note, however, that “where
there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for the
modification or enhancement, the modification or enhancement shall not constitute prewritten computer software.”
6

TENN. CODE ANN. § 67-6-102(78)(C).

3

[t]he retail sale, lease, licensing or use of computer software in this state, including
prewritten and custom computer software . . . regardless of whether the software is
delivered electronically, delivered by use of tangible storage media, loaded or
programmed into a computer, created on the premises of the consumer or
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otherwise provided.
“Computer software” is “a set of coded instructions designed to cause a computer . . . to perform a
8
task.” Computer software is “delivered electronically” if delivered “by means other than tangible
9
storage media.” The Tennessee Supreme Court has stated that the fabrication of, or customized
modification or enhancement to, computer software is considered a taxable sale of computer
10
software.
Additionally, the term “sale” specifically includes the transfer of computer software, including the
creation of computer software on the premises of the consumer and any programming,
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transferring, or loading of computer software onto a computer.
In response to advances in technology that allow the remote access and use of software over the
Internet, the Tennessee General Assembly adopted into law 2015 Tenn. Pub. Acts Ch. 514, § 22. This
law effectively treats all uses of computer software in this state equally, regardless of how a person
accesses the software. It amended TENN. CODE ANN. § 67-6-231 to include a new subdivision (b),
which states in pertinent part that:
[f]or purposes of subdivision (a), “use of computer software” includes the access and
use of software that remains in the possession of the dealer who provides the
software or in the possession of a third party on behalf of such dealer. If the
customer accesses the software from a location in this state as indicated by the
residential street address or the primary business address of the customer, such
access shall be deemed equivalent to the sale of licensing of the software and
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electronic delivery of the software for use in the state.
As a result, effective for all billing periods beginning on or after July 1, 2015, the access and use of
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computer software in this state, which has generally been subject to tax since 1977, remains
subject to sales and use tax regardless of a customer’s chosen method of use.
7

TENN. CODE ANN. § 67-6-231(a) (2018). The term “sale” specifically includes the transfer of computer software, including the
creation of computer software on the premises of the consumer and any programming, transferring, or loading of computer
software onto a computer. TENN. CODE ANN. § 67-6-102(78)(K).
8

TENN. CODE ANN. § 67-6-102(18).

9

TENN. CODE ANN. § 67-6-102(24).

10

See Creasy Sys. Consultants, Inc. v. Olsen, 716 S.W.2d 35, 36 (Tenn. 1986).

11

TENN. CODE ANN. § 67-6-102(78)(K).

12

2015 Tenn. Pub. Acts Ch. 514, § 22 (codified at TENN. CODE ANN. § 67-6-231(b) (2018)).

13

The General Assembly amended the definition of “tangible personal property” in 1977 to specifically include computer
software in response to the Tennessee Supreme Court’s holding to the contrary in Commerce Union Bank, 538 S.W.2d 405,

4

The sales tax also applies to retail sales of services specifically enumerated in the Retailers’ Sales Tax
14
Act. However, the application of the sales tax to retail sales of services in Tennessee remains
unaffected by the enactment of 2015 Tenn. Pub. Acts Ch. 514, § 22. The sales tax remains applicable
only to those services specifically enumerated in the Retailers’ Sales Tax Act. As reassurance of this
fact, the General Assembly included language in Section 22 stating that nothing in the new
subdivision (b) of TENN. CODE ANN. § 67-6-231:
shall be construed to impose a tax on any services that are not currently subject to
tax under this chapter, such as, but not limited to, information or data processing
services, including the capability of the customer to analyze such information or data
provided by the dealer; payment or transaction processing services; payroll
processing services; billing and collection services; internet access; the storage of
data, digital codes, or computer software; or the service of converting, managing,
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and distributing digital products.
Therefore, while TENN. CODE ANN. § 67-6-231(b) (2018) modernizes taxation of computer software in
this state, it has no effect on the taxation of services.
Additionally, whenever two or more items are sold for a single sales price and at least one of the
16
items is subject to sales tax, the entire sales prices is subject to sales tax as a bundled transaction.
When a transaction involves taxable and nontaxable components and the transaction’s true object
17
18
19
20
21
or a “crucial,”
“essential,”
“necessary,”
“consequential,”
or “integral”
element of the

408. 1977 Tenn. Pub. Acts Ch. 42 (defining “tangible personal property” to include computer software); see also Univ.
     Computing Co. v. Olsen, 677 S.W.2d 445, 447 (Tenn. 1984) (detailing the General Assembly’s actions taken to subject computer
     software to sales and use tax).
     14

See TENN. CODE ANN. § 67-6-205(c) (2018).

15

2015 Tenn. Pub. Acts Ch. 514, § 22 (codified at TENN. CODE ANN. § 67-6-231(b) (2018)).

16

See generally Tenn. Dept. of Rev. Ltr. Rul. 14-10 (Oct. 14, 2014) [hereinafter “Ltr. Rul. 14-10”] (discussing Tennessee law
regarding bundling and the “true object” test).
17

See, e.g., Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621, 624 (Tenn. 1987) (holding that a transaction involving the sale of nontaxable intangible advertising concepts was nevertheless subject to sales tax on the entire amount of the transaction because
advertising models, which were tangible personal property, were an “essential,” “crucial,” and “necessary” element of the
transaction).
18

Id.; see also AT&T Corp. v. Johnson, No. M2000-01407-COA-R3-CV, 2002 WL 31247083, at *9 (Tenn. Ct. App. Oct. 8, 2002)
(holding that a transaction involving the sale of engineering services along with separately itemized tangible
telecommunications systems was subject to sales tax on the entire amount of the contract because “equipment, engineering,
and installation combine in this instance to produce BellSouth’s desired result: a functioning item of tangible personal
property assembled on the customer’s premises,” and further describing the engineering services as “essential” and “integral”
to the sale of tangible personal property).
19

See supra note 17.

20

See Rivergate Toyota, Inc. v. Huddleston, No. 01A01-9602-CH-00053, 1998 WL 83720, at *4 (Tenn. Ct. App. Feb. 27, 1998)
(holding that a transaction involving the commission and distribution of advertising brochures was subject to sales tax on the
“entire cost of the transaction” because, although the transaction involved a number of services, the brochures themselves
“were not inconsequential elements of the transaction but, in fact, were the sole purpose of the contract”).

5

22

transaction is subject to tax, the entire transaction is subject to sales tax. Only if the true object of
the transaction is not independently subject to sales tax and the items that would be subject to sales
tax are “merely incidental” to the true object of the transaction will the transaction not be subject to
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sales tax.
With respect to the taxable use of computer software in this state that remains in possession of the
dealer, TENN. CODE ANN. § 67-6-231(b) requires the access and use of the computer software by a
customer from a location within Tennessee. However, TENN. CODE ANN. § 67-6-231(b) clarifies that the
application of the sales and use tax to remotely accessed software does not make otherwise
nontaxable services subject to tax. TENN. CODE ANN. § 67-6-231(b) specifically states that “information
or data processing services” and “the storage of data” remain nontaxable for Tennessee sales and
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use tax purposes. To utilize the Taxpayer’s Plans, customers must either install the Taxpayer’s code
within their mobile or web application or send the Taxpayer their data for processing and analysis.
Customers who opt to install the Taxpayer’s code within their own applications have access to the
Taxpayer’s software that collects the customer’s data. Although this constitutes computer software
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for Tennessee sales and use tax purposes, and some of the Taxpayer’s customers use the software
from locations within Tennessee, a customer’s use of the software is merely incidental to the true
object of the Taxpayer’s Plans. Customers do not purchase the Taxpayer’s Plans to gain access to the
Taxpayer’s software; rather, customers do business with the Taxpayer for its data analytics services.
The Taxpayer’s software is a tool to collect raw data. This raw data is meaningless to customers
without the Taxpayer’s subsequent analysis. Accordingly, the data analytics service is the true object
of the Taxpayer’s Plans.
Similarly, the Taxpayer provides customers with access to a web-based dashboard that stores the
customer’s data and reports. Although the web-based dashboard also constitutes computer
26
software for Tennessee sales and use tax purposes, the storage of the customer’s data and
capability of the Taxpayer’s customers to access and analyze its historical data via the dashboard
from locations within Tennessee, is merely incidental to the true object of the Taxpayer’s services.
The web-based dashboard is merely a tool to view the end result of the data analytics services that
customers purchase from the Taxpayer.

21

See AT&T Corp. v. Johnson, 2002 WL 31247083, at *8.

22

See generally Ltr. Rul. No. 14-10, supra note 16.

23

See generally id.

24

TENN. CODE ANN. § 67-6-231(a)(2).

25

See TENN. CODE ANN. § 67-6-102(18).

26

Id.

6

With respect to the sale of services in Tennessee, only specifically enumerated services are subject
to tax under the Retailers’ Sales Tax Act. The Taxpayer’s data analytics services, which are the true
object of the Taxpayer’s Plans, are not specifically enumerated in TENN. CODE ANN. § 67-6-205.
Accordingly, the Taxpayer’s data analytics services are not subject to Tennessee sales and use tax.

Courtney Swim
Assistant General Counsel

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

12/14/18

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