Is a subscription rental-property advertising platform and app a taxable software product or a nontaxable advertising service in Tennessee?

Plain-English summary

A company sells a subscription online platform and mobile app (the "Product") that helps property-management companies create and manage advertising listings for rental properties. Users type in basic data, and the Product assembles ads and posts them (directly to Craigslist; for Google and Facebook the user deploys the ad themselves), then pulls all the responses, leads, and messages back into one dashboard, with automated emails, texts, and live chat to follow up with prospective renters. It also tracks which advertising channels produce the most leases. Users pay a monthly per-unit software subscription fee, plus a one-time implementation fee.

The company argued it is really providing nontaxable "advertising services," so the Product shouldn't be taxed. The Department disagreed and ruled the Product is taxable computer software.

The reasoning: Tennessee defines computer software as a set of coded instructions that make a computer perform a task, and it taxes software even when it's accessed remotely (no download needed). Here the users themselves use the Product as a tool to generate and manage their own ads and communications. The company doesn't take an active role in creating the advertising — it hands users the software and the users do the work. "Advertising services" means services rendered by an advertising agency to promote something; that's not what's happening. So the true object of the transaction is the software, and the subscription fees are subject to sales and use tax.

The Department distinguished an earlier ruling (Revenue Ruling 19-01) where a similar-sounding product came out nontaxable: there, customers used the product to create listings that were then published on the taxpayer's own platform, and the true object was that platform/listing service — the customers weren't using software tools to build reports, manage data, and communicate themselves. Here there's no such platform; the users operate the software tools, so the result flips to taxable.

What this means for you

SaaS and online-platform businesses selling into Tennessee

If your customers log in and use your software to do the work themselves — create content, manage data, run communications — Tennessee will likely treat your subscription as taxable computer software, even though nothing is downloaded and even if the end purpose is "advertising" or "marketing." Remote access doesn't make software nontaxable in Tennessee.

The line between "software" and a "service"

The dividing question is the true object: are customers buying your performance of a service, or buying the use of your software to perform tasks themselves? In Revenue Ruling 19-01 the taxpayer published the listings on its own platform (a nontaxable service); here the users built and deployed their own ads with the software (taxable). Where you sit on that line drives the tax.

"Advertising services" is narrower than it sounds

Tennessee's nontaxable "advertising services" category means services rendered by an advertising agency to promote a product, service, or idea. Selling software that lets customers make their own ads is not the same thing, and it doesn't shelter the software from tax.

Bundled fees follow the software

The monthly subscription is the taxable software charge. Implementation and optional in-person training were part of the same software arrangement; when the true object is taxable software, related charges generally ride along with it.

Common questions

Q: We don't download anything — it's all in the cloud. Is it still taxable in Tennessee?
A: Yes. Tennessee taxes computer software even when it is accessed remotely, so cloud or "SaaS" delivery does not by itself make a software subscription nontaxable.

Q: We help customers with their advertising. Doesn't that make us a nontaxable advertising service?
A: Not under this ruling. "Advertising services" means an advertising agency performing the work to promote something. If your customers instead use your software to build and manage their own ads, the true object is taxable software.

Q: How is this different from Revenue Ruling 19-01, which was nontaxable?
A: In Ruling 19-01 the customers' listings were published on the taxpayer's own platform, so the true object was that nontaxable platform/listing service. Here the taxpayer provides no such platform — the users operate the software themselves — so the Product is taxable software.

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. § 67-6-102(18) (computer software is a set of coded instructions designed to cause a computer to perform a task)
- Tenn. Code Ann. § 67-6-231(b) (computer software is taxable even when accessed remotely)
- Tenn. Code Ann. § 67-6-102(3)(A) (nontaxable "advertising services" — services rendered by an advertising agency to promote a product, service, idea, concept, issue, place, or thing)
- Tenn. Code Ann. § 67-6-205(c) (enumerated taxable services)

Related rulings:
- Tenn. Dep't of Revenue Revenue Ruling 19-01 (May 2019) (product used to create listings published on the taxpayer's own platform; true object was the nontaxable platform/listing service)
- Tenn. Dep't of Revenue Revenue Ruling 20-03 (May 4, 2020) (advertising services)

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/22-07.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 Tennessee sales and use tax to a subscription-based online platform and mobile
application used to create and manage advertising listings.

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.

[TAXPAYER] (the “Taxpayer”) is a [STATE-OUTSIDE TENNESSEE] corporation that offers a subscriptionbased electronic product to facilitate advertising and marketing endeavors related to rental
properties. Specifically, the Taxpayer has designed an online platform and mobile application (the

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“Product”) that assists property management companies (the “Users”) in creating and managing
advertising listings for rental properties.
ADVERTISING CONTENT
The Product provides a mechanism by which Users can efficiently create and distribute
advertisements for rental properties to online platforms such as Craigslist, Google, and Facebook. The
Product also allows Users to communicate with prospective renters that view the listings.
The role of the Product in creating the advertising content varies depending on the platform to which
the advertisement is deployed. For advertising content posted to Craigslist, Users are able to input
basic data points via the Taxpayer’s online platform, which are then assembled into advertisements
by automated processes. The Product will then publish the advertisement to Craigslist. For
advertisements posted to Google, Facebook, or other online platforms, the advertising content is
generated and deployed by Users directly to those platforms, without assistance from the Taxpayer’s
Product. However, the Product does integrate with the Google and Facebook platforms to collect
communications from prospective renters for review on the User’s dashboard, as discussed below.
Following the deployment of advertising content to various online platforms, the Product will
automatically consolidate prospective leads and other responses to the listings on the User’s
dashboard for ease and simplicity of viewing. The Product enables Users to then communicate with
the individuals that responded to the advertisements to schedule tours, follow up with interested
renters, and ultimately negotiate the lease of the apartment or other rental space. Many of these
communications are automated by the Product, including initial response emails and scheduling
prompts for tours. The Product also provides automated live-chat functionality and a text message
auto-response feature to maximize engagement with rental prospects and assist in increasing lease
renewal rates.
MARKETING FUNCTIONALITY
In addition to the advertising elements outlined above, the Product also includes a marketing
component. When Users receive leads and other responses to advertising content, the Product
analyzes those data metrics to assist Users in evaluating the effectiveness of different advertising
platforms. Specifically, the Product tracks the number of leads and the number of leases sourced from
various advertising channels. This lead-to-lease ratio may inform User decisions regarding how to
allocate and optimize advertising budgets.
TERMS OF SERVICE AGREEMENT AND FEES
The Taxpayer’s relationship with Users is governed by a Master Service Agreement, which imposes a
Product Software Subscription fee per unit for the Taxpayer’s provision of the Product, to be billed
monthly. The Master Service Agreement also includes a Terms of Service Agreement that outlines the
restrictions on use of the Taxpayer’s “mobile applications, websites, software, or other products or
services of [the Taxpayer].” Under the Terms of Service Agreement, the Taxpayer provides customer
support by way of email and telephone during business hours. Users also pay a one-time
implementation fee for help with the set-up of User log-in credentials and assistance in connecting
the Product to the Users’ existing property management systems. The implementation fee has an

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optional upgrade for in-person training to guide Users in navigating the Product and learning to
generate ready-to-publish advertisements.

1.

Is the Taxpayer engaged in the business of providing advertising services, such that the
Taxpayer’s Product is not subject to Tennessee sales and use tax?
Ruling: No. The Taxpayer’s Product is computer software rather than advertising services, and
the Taxpayer’s Product is thus subject to Tennessee sales and use tax.

The Taxpayer’s Product is subject to Tennessee sales and use tax because it is computer software that
the Users employ to generate and manage their own advertising content. Computer software is a set
of coded instructions designed to cause a computer to perform a task, 1 and it is subject to Tennessee
sales and use tax even when the software is accessed remotely. 2
Users input data points into the Product to produce advertisements for rental property listings. After
the Users create advertising content using the Taxpayer’s Product, the Users manually deploy the
content to other platforms.3 The Product then consolidates listing responses, leads, and other data
related to the advertising content on the Users’ dashboard. The Users are using the Product as a tool
to facilitate the automated creation and subsequent management of their rental property listings.
The Taxpayer suggests that while its Product may involve access to and use of computer software,
these components of the Product are ancillary to its primary function—the provision of nontaxable
advertising services.4 However, the Taxpayer does not assume an active role in assisting its Users to
generate advertising content. Rather, the Taxpayer provides software that facilitates its Users’ creation
and management of their own advertising content. Furthermore, the Product is being used by the
Users for this software functionality. Thus, the Taxpayer’s Product is appropriately characterized as
computer software that Users purchase to generate their own advertisements, manage rental
property listings, and interact with potential renters, not as an advertising service. As such, the
Taxpayer’s Product is subject to Tennessee sales and use tax.
In its request the Taxpayer compares its facts to those presented in Tenn. Dept. of Rev. Rev. Rul. 1901 (May 2019)(“Ruling 19-01”). While there are similarities between the facts in this ruling and those in
Ruling 19-01, the key distinction is that the users in Ruling 19-01 used the taxpayer’s product to create
event listings that were then published on the taxpayer’s platform. The true object of the transaction
in Ruling 19-01 was the non-taxable platform and listing services provided by the taxpayer. The

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Tenn. Code Ann. §67-6-102(18) (Supp. 2021).

2

Tenn. Code Ann. § 67-6-231(b) (2018).

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This is the case for all online platforms other than Craigslist, to which the Taxpayer’s Product posts directly.

“Advertising services” are not subject to Tennessee sales and use tax and are defined by TENN. CODE ANN. § 67-6-102(3)(A) to
mean “services rendered by an advertising agency to promote a product, service, idea, concept, issue, place or thing.” See also
TENN. CODE ANN. § 67-6-205(c) (Supp. 2021); Tenn. Dept. of Rev. Rev. Rul. 20-03 (May 4, 2020).
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customers accessed the platform but were not using the software tools to create reports, manage
data, communicate with customers, etc.
In contrast, under the facts presented here, the Taxpayer does not provide a platform on which Users
may list their advertisements. The Taxpayer’s Product allows Users to create advertisements, publish
these ads to other platforms, collect communications data, and contact prospective buyers through
automated emails, text messages and live chat functionality. Users pay a subscription fee in order to
use these software tools. Because Users are primarily purchasing access to computer software, the
subscription fees are subject to tax.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

10/5/2022

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