When software is taxable remotely accessed software in Tennessee, are the separately stated implementation, onboarding, and content fees billed with it also taxable?

Plain-English summary

An IT company sells a remotely accessed software Platform — a decision-support tool customers' employees use through their employer's systems. The company bills three separately itemized fees under one contract: a Platform Fee (the software license, configuration, hosting, support), an Implementation Fee (onboarding and integration, plus training), and a Content Fee (access to the Platform's proprietary content). The company already agreed the Platform Fee is taxable as remotely accessed software, and asked only about the other two. The Department ruled both the Implementation Fee and the Content Fee are taxable.

Here's the logic. Tennessee taxes the access and use of remotely accessed software (since a 2015 amendment, for billing periods beginning on or after July 1, 2015; software itself has been taxable since 1977). Stand-alone services are taxable only if specifically enumerated — but two doctrines pull related charges into the taxable software sale:
- "Sales price" includes any service necessary to complete the sale. A charge for a service you can't do without doesn't escape tax just because it's listed separately.
- The true-object / essential-element rule. When a deal mixes taxable and nontaxable parts, and the true object — or a "crucial, essential, necessary, consequential, or integral" element — is taxable, the whole transaction is taxable (Thomas Nelson, Inc. v. Olsen).

Applying that:
- Implementation Fee — taxable. Onboarding (integrating, configuring, and mapping the customer's system so it can exchange data with the Platform) is mandatory, and the Platform won't run without it. That makes it a service necessary to complete the sale, so it's part of the taxable sales price even when separately stated.
- Content Fee — taxable. The proprietary content can't be bought without the Platform, and the Platform is useless without the content. The content is essential and integral to the taxable software, not an optional add-on, so it's taxed with the Platform.

The one carve-out — training. Computer-software training is not an enumerated taxable service on its own. But training included in the price of taxable software, required as part of the purchase, or bundled with taxable items is taxable. To be nontaxable, training must be both optional and separately stated on the invoice. Here training was folded into the Implementation Fee, so it was taxable; the Department noted that any optional training should be separately stated to qualify for different treatment.

What this means for you

SaaS and software vendors billing Tennessee customers

If your software is taxable remotely accessed software in Tennessee, the setup, onboarding, integration, and content charges that come with it are very likely taxable too — even if you itemize them. Separately stating a fee doesn't make it nontaxable when the underlying service is necessary to complete the sale or essential to the software working.

Want a charge to be nontaxable? Make it genuinely optional and separately stated

The clearest lesson is about training: software training isn't taxable on its own, but you only get that treatment if the training is truly optional and separately stated on the invoice. Bundle it into a mandatory fee and it becomes taxable. The same caution applies to any genuinely optional, standalone service you offer alongside taxable software.

Onboarding and "you can't use it without this" content

Mandatory onboarding and content the software is useless without are treated as part of the taxable software, not separate nontaxable services. If a charge is something the customer cannot decline and still use the product, expect it to be taxed with the software.

Accountants and tax professionals

Remote-software taxability is § 67-6-231 (subdivision (b) added by 2015 Tenn. Pub. Acts Ch. 514, § 22; effective for billing periods on or after July 1, 2015); prewritten software is tangible personal property under § 67-6-102(95)(A); services are taxable only if enumerated (§ 67-6-201). The "sales price includes services necessary to complete the sale" hook is § 67-6-102(85) (training-in-price at (85)(A)(vi)). The essential-element doctrine is Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621, 624 (Tenn. 1987); the taxpayer's true-object argument leaned on Prodigy Services Corp. v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003).

Common questions

Q: My SaaS is taxable in Tennessee. Are the implementation and onboarding fees taxable too?
A: Under this ruling, yes — when the onboarding is mandatory and the software won't work without it, it's a service necessary to complete the sale and is part of the taxable price, even if separately stated.

Q: We charge a separate "content" or "data" fee on top of the software. Is it taxable?
A: If the content is essential and integral to the software — the product is useless without it and it can't be bought separately — it's taxed with the software. A genuinely optional, standalone product could be different.

Q: Is software training taxable in Tennessee?
A: Not on its own — it isn't an enumerated taxable service. But it's taxable when included in the price of taxable software, required with the purchase, or bundled with taxable items. To keep it nontaxable, make it optional and separately state it on the invoice.

Q: Does itemizing a charge on the invoice make it nontaxable?
A: No. Separate statement only helps for charges that are genuinely optional and not essential to the sale. A necessary or integral service is taxable whether or not it's itemized.

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. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes:
- Tenn. Code Ann. § 67-6-231 (remotely accessed software is taxable; subdivision (b) added in 2015)
- Tenn. Code Ann. § 67-6-231(b) ("use of computer software" includes access to software that remains in the dealer's possession; access from a Tennessee location is deemed a taxable sale/licensing and electronic delivery)
- Tenn. Code Ann. § 67-6-102(85) ("sales price" includes charges for any services necessary to complete the sale); § 67-6-102(85)(A)(vi) (training included in the price of taxable software is taxable)
- Tenn. Code Ann. § 67-6-102(95)(A) ("tangible personal property" includes prewritten software)
- Tenn. Code Ann. § 67-6-201 (services are taxable only if specifically enumerated)

Authorities:
- 2015 Tenn. Pub. Acts Ch. 514, § 22 (enacted the remote-software tax, effective for billing periods beginning on or after July 1, 2015)
- Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621, 624 (Tenn. 1987) (the entire transaction is taxable when a crucial, essential, necessary, or integral element is taxable)
- Prodigy Services Corp. v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003) (true-object analysis)

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/21-10.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 21-10
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
Application of the Tennessee sales and use tax to charges for services related to the furnishing of
remotely accessed software.
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 [REDACTED] information technology company headquartered in
[CITY, STATE]. The Taxpayer sells a [TYPE] platform (the “Platform”) to [CUSTOMERS]. The Platform

1

delivers [REDACTED] to support [REDACTED] decision-making processes. The Platform contains a
[REDACTED] decision tree and is designed to operate within a [SYSTEM]. 1
The Platform is hosted on the Taxpayer’s servers or on third-party servers. [USERS] access the
Platform from their [EMPLOYER’S] electronic software system. The Platform is integrated into the
[EMPLOYER’S] system to the degree that there will either be a separate tab for [USERS] to click for
access or there will be certain triggers in the [EMPLOYER’S] software system that will produce a popup directing the [USER] to the Platform [REDACTED]. Some [EMPLOYERS] make use of the Platform
mandatory [REDACTED].
There is a two-way exchange of information between the [CUSTOMER’S] system and the Platform.
Basic [REDACTED] information from the [CUSTOMER’S] system is transferred into the Platform, such
as [REDACTED]. The [USER] enters the rest of the [INFORMATION] into the Platform. The Platform then
creates a decision tree [REDACTED] that the [USER] follows as information is entered. As the [USER] is
clicking through the Platform’s decision tree, the information being entered is populated back into the
[SYSTEM], which helps the [USER] keep accurate documentation. The Platform ultimately suggests [AN
OUTCOME] based on the information entered by the [USER].
The Taxpayer charges its [CUSTOMERS] three different fees: Platform Fees, 2 Implementation Fees,
and Content Fees. The fees are part of a single contract, are itemized within the body of the contract,
and are stated separately on invoices.
The Platform Fee covers the technology license of the Taxpayer’s software Platform and [REDACTED].
It also includes all required configuration, all technology and content integration, and covers all
[REDACTED] hosting, customer support, and maintenance of connectivity with the [CUSTOMER’S]
system.
The Implementation Fee covers the provision of all resources necessary to assure seamless
implementation, onboarding of [EMPLOYEES], on-site user training, and the strategies to drive
customer success. Onboarding involves integrating, configuring, and mapping orders with
[CUSTOMER’S] system so that it can exchange information properly with the Platform. Onboarding is
essential for the operation of the Platform.
Training is conducted either live, by webinar, or by videos. Live training is recorded for future
reference. The training services are optional and are not necessary for the operation of the Platform.
If the Taxpayer’s customer has an internal lead that the customer wants to handle the rollout and the
training of [EMPLOYEES], the Taxpayer would not provide any additional training webinars or videos
and the implementation fee would be adjusted accordingly.
The Content Fee is the amount charged for access to the Platform’s proprietary content and is
organized by [REDACTED]. [REDACTED]. Pricing [REDACTED] and covers user licenses to all
[CONTENT]. The content includes [REDACTED]. [REDACTED]. The Content Fee is based on the amount
and type of content made available to the [CUSTOMER].
1

[REDACTED]

The Taxpayer does not dispute that the Platform Fee is subject to Tennessee sales tax as the furnishing of remotely accessed
software and has not requested a ruling on the taxability of this charge.

2

2

RULINGS
1.

Are the Implementation Fees charged to [CUSTOMERS] located in Tennessee subject to
Tennessee sales and use tax?
Ruling: Yes. The Implementation Fees are subject to Tennessee sales and use tax.

2.

Are the Content Fees charged to [CUSTOMERS] located in Tennessee subject to Tennessee
sales and use tax?
Ruling: Yes. The Content Fees are subject to Tennessee sales and use tax.
ANALYSIS

Summary of Applicable Law
Under the Retailers’ Sales Tax Act (the “Act”), 3 retail sales of tangible personal property and computer
software are subject to sales and use tax unless an exemption applies. Tennessee also imposes sales
tax on services; however, the tax only applies to those services specifically enumerated as taxable. 4
Computer software is subject to sales and use tax on a stand-alone basis and under the definition of
“tangible personal property,” which includes “prewritten software.” 5 In 2015, the Tennessee General
Assembly 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 electronic delivery of
the software for use in the state. 6
As a result, effective for all billing periods beginning on or after July 1, 2015, the access and use of
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.

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)).
3

4

TENN. CODE ANN. § 67-6-201 (Supp. 2020).

5

TENN. CODE ANN. §§ 67-6-231 (2018) and 67-6-102(95)(A) (Supp. 2020).

6

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

3

Additionally, 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 Act. 7
Finally, a transaction may involve the sale of a combination of items or services. When a transaction
involves taxable and nontaxable components and the transaction’s true object or a crucial, essential,
necessary, consequential, or integral element of the transaction is subject to tax, the entire transaction
is subject to sales tax. 8
Application of the Law
The Platform fee is a charge for access to and use of computer software. The use of the software in
Tennessee is taxable under TENN. CODE ANN. § 67-6-231 as remotely accessed software. The Taxpayer
does not dispute that Tennessee sales tax applies to its Platform fees.
The Taxpayer has requested guidance as to its Implementation Fees and Content Fees. As described
in more detail below, these fees are subject to Tennessee sales tax as part of the sale of the Platform,
which is the true object of the transaction.
Under the facts presented, the Taxpayer and its customer enter into a contract for access to the
Platform. The contract divides different aspects of the Taxpayer’s product into separate categories
(i.e., the use of the Platform, implementation of the Platform, and access to Platform content). The
Platform Fees, the Implementation Fees, and the Content Fees are separately referenced in the
contract and are separately stated on the Taxpayer’s invoices to the customer. Because the different
categories of services covered by these fees are either necessary to complete the sale or essential and
integral to the sale of software and/or remote access to and use of software, the fees are subject to
Tennessee sales tax.
IMPLEMENTATION FEE
Included in the Implementation Fee is onboarding, which is mandatory and involves integrating,
configuring, and mapping orders with the [CUSTOMER’S] system so that it can exchange information
properly with the Platform. The Platform would not operate properly without onboarding. Therefore,
these services are necessary to complete the sale and as such charges for these services are included
in the sales price of the software, even if separately stated. 9
The Implementation Fee may also include computer software training services. On a stand-alone
basis, computer software training services are not enumerated as taxable. However, charges for
computer software training included in the price of computer software will be subject to tax as part
See TENN. CODE ANN. § 67-6-231(b) (stating that nothing in this subsection shall be construed to impose a tax on any services
that are not currently subject to tax.).

7

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).
8

9

TENN. CODE ANN. § 67-6-102(85) (stating that “sales price” includes charges for any services necessary to complete the sale).

4

of the sale of the computer software if the purchase of such training is required as part of the purchase
of the software. 10 Training will also be subject to tax if it is bundled with other taxable products or
services.
In order for training to be nontaxable, it must be optional and separately stated from the sale of a
taxable product. The information provided by the Taxpayer lists training as included in the
implementation fee (not separately itemized). 11 Because this training is included in the price of other
taxable items, it is subject to Tennessee sales and use tax. If the training is optional, then in order to
apply a different tax treatment it must be separately stated on the invoice. Similarly, to the extent the
Taxpayer offers additional optional training, the related charges should be separately stated on the
invoice so that the appropriate tax treatment can be applied.
CONTENT FEE
The Content Fee is a charge for access to the Taxpayer’s proprietary content, which includes
[REDACTED]. The Taxpayer’s position is that the true object of the Content Fee is the delivery of
nontaxable [REDACTED] content. 12 The Taxpayer’s propriety content cannot be purchased without
purchasing the Platform. The primary purpose of the Platform is to [REDACTED]. This is done through
the use of software and the related decision trees. Without the [PROPRIETY CONTENT], the Platform
would be of no use to [CUSTOMERS]. As such, the Content Fee is a charge for tools and information
that are essential and integral to the operation of the Platform. It is not a charge for an additional and
optional product and cannot be separated from the sale of the Platform. Therefore, the Content Fee
is subject to Tennessee sales and use tax.
CONCLUSION
In conclusion, the Platform is [REDACTED]. The sale of access to and use of the Platform (computer
software) is subject to the Tennessee sales and use tax. The Taxpayer’s Implementation Fees and the
Content Fees are in turn subject to the Tennessee sales and use tax because the services covered by
the fees are necessary to complete the sale and/or an essential and integral part of the taxable sale
of the Platform. To the extent the Taxpayer offers optional training services, these services must be
separately stated from the Platform, Content, and Implementation Fees to allow for different tax
treatment.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

10/21/2021

10

TENN. CODE ANN. § 67-6-102(85)(A)(vi).

11

In the example agreement provided, computer software training is included in the Implementation Fees.

12
See Prodigy Services Corporation, Inc. v. Johnson, 125 S.W.3d 413 (Tenn. Ct. App. 2003) (finding telecommunications services
were not the true object of the transaction, resulting in the transaction not being subject to tax).

5