Are the membership dues a professional association charges subject to Tennessee sales and use tax when the membership comes with some digital perks?

Plain-English summary

A nonprofit professional membership association (a § 501(c)(6) business league) sells an annual Individual Membership. For the yearly dues plus a one-time application fee, members get a bundle of benefits: networking and a global professional community, certification status tracking, discounts on exams and courses, a downloadable copy of the association's published Guide, hundreds of electronic tools and templates, free on-demand webinars, e-learning courses, access to events, an online job board, and online publications. Members reach most of this through an online dashboard — but they aren't required to use any of it, and the association says many members never touch the dashboard or online materials.

The question: are those Individual Membership dues subject to Tennessee sales and use tax? The Department ruled no.

The reasoning: Tennessee taxes retail sales of tangible personal property and specifically enumerated services. Certain membership fees and dues are taxable (as amusement), but professional memberships are not on the list — not as a taxable membership, not as a taxable service, not as an amusement. So the dues aren't taxable on their own.

The wrinkle is that the membership bundles in some items that would be taxable if sold by themselves — the downloadable Guide, e-learning courses, and pre-recorded on-demand webinars (taxable as specified digital products / software). But the Department applied the "essential vs. incidental" test: those benefits are not essential to the membership, members may or may not use them, and so they're merely incidental to a non-taxable membership. Incidental taxable items don't convert the whole non-taxable membership into a taxable sale. The Department contrasted Thomas Nelson, Inc. v. Olsen, where tangible property was an essential, crucial, and necessary element of the transaction and therefore made the entire charge taxable — the opposite of incidental.

One important caveat in the ruling: live instruction is not taxable, but a separately sold pre-recorded video is taxable in Tennessee as access to a specified digital product — even if it's a recording of a course that was previously livestreamed — when the buyer's home or primary business address is in Tennessee.

What this means for you

Associations and membership organizations

If you're a professional or trade membership organization, your Tennessee members' dues are generally not taxable, even when membership bundles in digital perks like guides, recorded webinars, or e-courses — as long as those perks are optional add-ons members don't have to use, not the real reason people pay. The non-taxable membership absorbs incidental taxable items.

Watch the "essential vs. incidental" line

The result can flip if a taxable item is essential to what members are buying. Under Thomas Nelson, when tangible (or taxable) property is a crucial, necessary element of the transaction, the whole charge becomes taxable. If your "membership" is really a wrapper around a taxable product or digital subscription that members must use, expect a different answer.

Selling the digital pieces separately is different

This ruling protects the bundled membership dues. If you instead sell the recorded webinars, e-courses, or the digital Guide on their own to Tennessee customers, those are taxable as specified digital products. Live, real-time instruction is not taxable; a pre-recorded video of it, sold separately, is — even if it was once livestreamed.

Accountants and tax professionals

Professional memberships aren't enumerated as taxable under § 67-6-205 or § 67-6-212, so the dues escape tax; the analysis turns on whether bundled taxable items are essential (taxable, per Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621 (Tenn. 1987)) or merely incidental (non-taxable). Note the ruling addressed only the Individual Membership, not the association's other membership tiers.

Common questions

Q: Do we charge Tennessee sales tax on professional or trade association dues?
A: Under this ruling, no. Professional memberships aren't an enumerated taxable membership, service, or amusement in Tennessee, so the dues aren't taxable — even when membership includes some digital benefits.

Q: Our membership includes recorded webinars and downloadable guides. Doesn't that make it taxable?
A: Not if those items are optional and not essential to the membership — members may or may not use them, so they're incidental and don't make the dues taxable. It would be different if a taxable item were a crucial, necessary part of what members are really buying.

Q: What if we sell those recorded webinars or guides on their own?
A: Sold separately to Tennessee customers, pre-recorded videos and downloadable digital products are taxable as specified digital products. Live instruction is not taxable, but a recording of it sold separately is.

Q: Can I rely on this ruling?
A: Not directly. A Tennessee letter ruling binds the Department only as to the taxpayer and exact facts it addressed and cannot be relied on by anyone else, and this one covered only the Individual Membership. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes:
- Tenn. Code Ann. §§ 67-6-101 to -907 (Retailers' Sales Tax Act — retail sales of tangible personal property and enumerated services are taxable unless exempt)
- Tenn. Code Ann. § 67-6-212 (certain taxable membership fees and dues — amusement); § 67-6-205 (enumerated taxable services) — professional memberships are not listed in either

Case:
- Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621 (Tenn. 1987) (a transaction is fully taxable when tangible/taxable property is an essential, crucial, and necessary element; incidental items do not have that effect)

Related ruling:
- Tenn. Dep't of Revenue Letter Ruling 23-07 (live online instruction not taxable; pre-recorded/self-paced online content taxable as remotely accessed software or a specified digital product)

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/21-02.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 21-02
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.
SUBJECT
The application of Tennessee sales and use tax to fees and dues charged for membership in a
professional membership organization.
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] (the “Taxpayer”) is a business league exempt from federal income taxation under Internal
Revenue Code § 501(a) as an organization described in § 501(c)(6). The Taxpayer is a not-for-profit
professional membership association for the [REDACTED] profession and is the [REDACTED]. The
Taxpayer is headquartered in [CITY, STATE]. The Taxpayer provides its members with certifications,

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resources, tools, academic research, publications, professional development courses, and networking
opportunities.
The Taxpayer’s primary membership is the [REDACTED] (the “Individual Membership”). The Individual
Membership costs [AMOUNT] per year, plus a one-time [AMOUNT] application fee. The Individual
Membership provides members with connections to the global community of [INDUSTRY]
professionals, discounts on certification exam fees and professional development opportunities, and
advance access to conferences and seminars. More specifically, the Individual Membership includes
the following: certification status tracking, the ability to download a free copy of the [TAXPAYER’S
PUBLISHED] Guide, access to more than [NUMBER] electronic tools and templates, 1 discounts on
certifications, access to free on-demand webinars, access to virtual and in-person events, access to
the Taxpayer’s online job board, access to the Taxpayer’s online publications, and exclusive rewards
and discounts. 2
Individual Members primarily interact with the Taxpayer through an online dashboard, which allows
a member to access and update profile information, view a list of upcoming events and webinars, take
e-learning courses, search webinars using keywords, register for webinars, conduct research, access
links to information about certifications as well as see an overview of active applications for
certifications. Through the dashboard a member can sign up for a [USER] profile, which can be linked
to their [REDACTED] member account. Members are not required to utilize any of the Taxpayer’s
products and services, and, according to the Taxpayer, many members do not utilize the dashboard
or online materials.
The Taxpayer also offers a free [REDACTED] membership 3 that permits a user access to the Taxpayer’s
global community and gives the user the ability to track certification status through the Taxpayer’s
online dashboard. [FREE MEMBERS] can also access the [TAXPAYER’S ONLINE] store to purchase
various books, the [TAXPAYER’S PUBLISHED] Guide, exam preparation materials, e-learning courses,
and virtual events, all at regular price. [FREE MEMBERS] cannot access the more than [NUMBER]
electronic tools and templates, the online job board, or online publications; these items are only
available to paying members.
RULING
Is the Taxpayer’s sale of an Individual Membership subject to Tennessee sales and use tax?
Ruling: No. The Taxpayer’s sale of an Individual Membership is not subject to Tennessee sales
and use tax.

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The electronic tools and templates are in Excel, PowerPoint, or Microsoft Project format.

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[LINKS TO TAXPAYER’S WEBSITE]

The Taxpayer also offers [OTHER MEMBERSHIP] options. At the Taxpayer’s request, this ruling only addresses the taxability
of the Individual Membership and is not applicable to the Taxpayer’s other membership offerings.
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ANALYSIS
Under the Retailer’s Sales Tax Act (the “Act”), 4 retail sales in Tennessee of tangible personal property
and specifically enumerated services are subject to the sales tax, unless an exemption applies.
Included among the things taxable under the Act are certain membership fees and dues. 5 Professional
memberships, however, are not listed as taxable on a stand-alone basis, as a service, or as an
amusement. 6
The Taxpayer is a not-for-profit professional membership organization. As part of the Individual
Membership that the Taxpayer offers, the purchaser receives access to some nontaxable services
and some taxable items such as the [TAXPAYER’S PUBLISHED] Guide, e-learning courses, and prerecorded on-demand webinars. 7 These benefits to membership, however, do not necessarily result in
the membership fees becoming taxable.
Under the facts presented, members receive access to a variety of benefits most of which are not
taxable. The added benefits are not essential 8 to the membership sales. In fact, members may or may
not take advantage of these items. The [TAXPAYER’S PUBLISHED] Guide, e-learning courses, and prerecorded on-demand webinars offered with an Individual Membership are better classified as
incidental to the sale of the Individual Membership and, as such, do not alter the taxability of the
Individual Membership sales. Accordingly, the Taxpayer’s Individual Membership is not subject to the
Tennessee sales and use tax.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

2/9/2021

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 & Supp. 2020)).
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5

TENN. CODE ANN. § 67-6-212.

6

TENN. CODE ANN. §§ 67-6-205 and 67-6-212.

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Note that while live instruction is not subject to sales tax, the separate sale of a pre-recorded video that is accessed by
subscribers or consumers in this state, whether members or nonmembers, is subject to sales tax as the sale of access to a
specified digital product. This is true even if the pre-recorded video is of an online course that was previously livestreamed.
Subscribers or consumers are in this state if their residential or primary business street address is in this state.

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).

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