Are self-paced online training courses, downloadable course textbooks, and live-instruction courses subject to Tennessee sales tax?

Plain-English summary

An online school sells real-estate licensing and exam-prep courses. The Department was asked how Tennessee sales tax applies to four offerings:

• Self-paced online licensing course (pre-recorded audio lectures, transcripts, auto-graded quizzes and a final exam, delivered through the school's learning-management system): taxable. The Department treated it as remotely accessed computer software — the customer is paying to use the school's software to move through the course and take auto-graded quizzes and exams, much like buying study software on a DVD. The instructor email access and Facebook group are incidental, and a future live-chat feature wouldn't change the result.
• Self-paced exam-guide course (text lessons and practice exams through the same system): taxable, for the same reason — remotely accessed software.
• Downloadable PDF course textbook: exempt. Tennessee exempts textbooks and workbooks, and that exemption extends to a digital good that would be exempt if sold in print. The PDF is a compilation of course lessons for license seekers (not for sale to the general public), so it qualifies.
• Proposed mortgage-loan-origination (MLO) course (20 hours of live instruction plus a required 3-hour self-paced module with auto-graded quizzes and exam): taxable as a whole. Live instruction by itself is not taxable, but the self-paced module is taxable software, and it's essential to the course's purpose (meeting the requirements to sit for the MLO licensing exam) — so the whole course is taxed. If the self-paced module were truly optional and sold separately, only the module would be taxed and the standalone live instruction would not.

What this means for you

Online schools, training providers, and CE/exam-prep sellers

In Tennessee, a self-paced online course delivered through your platform is generally taxable as remotely accessed software — the student is using your software to learn and to take auto-graded assessments. Bundled extras like instructor email access, discussion groups, or live chat are usually incidental and don't change that.

Live vs. self-paced instruction

Live, instructor-led instruction (even online) is generally not taxable in Tennessee, because it isn't an enumerated taxable service. But if you combine live instruction with a required self-paced software module in one course, the taxable module can make the entire course taxable. Selling the live and self-paced pieces separately, where the self-paced piece is genuinely optional, can keep the live instruction non-taxable.

Digital textbooks and workbooks

A genuine textbook sold as a PDF can be exempt, because Tennessee's textbook exemption reaches digital goods that would be exempt in print. The content has to actually be a textbook — systematically organized course material — not just any software or a general-public publication.

Accountants and tax professionals

Self-paced courses are taxed as remotely accessed software (§ 67-6-231(a)); the true-object test (prior Rulings 14-10, 20-04) keeps incidental services from changing that. The textbook exemption runs through § 67-6-329(a)(3), the definition in § 67-6-102(99), and the digital-goods extension in § 67-6-329(d)(1). The MLO bundling analysis uses § 67-6-102(87)(A)(iii) (services necessary to complete the sale) and the bundled-transaction rule in § 67-6-102(87)(A)(vi); live classes are not enumerated services (§ 67-6-205; Rulings 17-17, 20-04).

Common questions

Q: Are online courses taxable in Tennessee?
A: Self-paced online courses delivered through a learning platform are generally taxable as remotely accessed computer software. Live, instructor-led courses are generally not taxable.

Q: We give students instructor email access and a discussion group — does that make the course non-taxable?
A: No. Those extras are incidental to the true object, which is access to the course software. Even adding a real-time live-chat feature wouldn't change the taxability of a self-paced software course.

Q: Is a downloadable PDF textbook taxable?
A: Not if it's a genuine textbook. Tennessee's textbook exemption extends to a digital good that would be exempt if sold in print, so a PDF compilation of course material for license seekers is exempt.

Q: We're combining live instruction with a required online module — how is that taxed?
A: As a whole, it's taxable, because the self-paced module is taxable software and is essential to the course. If the module were genuinely optional and sold separately, only the module would be taxed and the standalone live instruction would not.

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. How you package live vs. self-paced content matters. Tennessee sales tax is state-administered, so there's no separate self-collected city tax.

Citations and references

Statutes:
- Tenn. Code Ann. § 67-6-231(a) (remotely accessed computer software is taxable)
- Tenn. Code Ann. § 67-6-329(a)(3) (exemption for textbooks and workbooks), § 67-6-102(99) (definition of "textbook"), and § 67-6-329(d)(1) (exemption extends to specified digital goods)
- Tenn. Code Ann. § 67-6-205 (only enumerated services are taxable; live classes are not)
- Tenn. Code Ann. § 67-6-102(87)(A)(iii) (sales price includes services necessary to complete the sale) and § 67-6-102(87)(A)(vi) (bundled transactions)

Cases and rulings:
- Ryder Truck Rental, Inc. v. Huddleston, No. 91-3382-III, 1994 WL 420911 (Tenn. Ct. App. Aug. 12, 1994) (only enumerated services are taxed)
- Tenn. Dep't of Revenue Letter Ruling 14-10 (true-object test), Letter Ruling 20-04 (true object applied to online courses), and Letter Ruling 17-17 (live online instruction not taxable)

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/23-07.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.

Applicability of the Tennessee sales and use tax to online training courses.

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.

[REDACTED] (the “Taxpayer”) is an online school that offers various licensing courses, exam
preparations, and continuing education products for its customers to obtain a license to sell real
estate in each customer’s respective state. The courses are designed to be compliant with the
educational and training guidelines required by the applicable state. All courses are offered online
and are self-paced.
In Tennessee, the Taxpayer’s school, courses, and instructors are approved by the Tennessee Real
Estate Commission. In addition, the online licensing course is approved by the Association of Real
Estate License Law Officials (“ARELLO”), which is an organization that supports jurisdictions in the
administration and enforcement of their real estate license laws.
The Taxpayer has three revenue streams: the online licensing course; course textbooks; and exam
guide course. These products are described in more detail below.

The online licensing course provides customers with pre-recorded audio lectures and written
transcripts of the lectures. Chapter quizzes and the number of questions asked are required by
ARELLO and directed by ARELLO requirements. The chapter quizzes and final exam are administered
and graded automatically through the learning management system. Customers will receive a
certificate of completion for the licensing course after passing the final exam.
The Tennessee Real Estate Commission requires prospective licensees to meet certain educational
requirements. The certificate of completion offered in the course follows a format approved by the
Tennessee Real Estate Commission. Certificates are used by customers as evidence to satisfy the
Tennessee Real Estate Commission ‘s requirements.
Customers pay a one-time, non-itemized fee to access the online licensing course. The course is
hosted online on the Taxpayer’s learning management system and is accessed through a web
browser. The course is self-paced and must be taken in sequential order. Customers can start, stop
and re-start the audio recordings. Each course includes an instructor who is available to answer
questions through email and Facebook Messenger. However, this is not a live feature and responses
are not returned in real time. In addition, the courses also include a Facebook Group where customers
can interact with the Taxpayer and other students about the courses. There are no video recordings
included in this course, and customers have twelve months from the time of purchase to complete
the course materials.
In the future, the Taxpayer is considering adding a live chat feature to this service. This will allow
customers to interact with course instructors in real time.

The course textbook is available to customers as a PDF download of the course materials. It comprises
lessons from the course compiled into a single downloadable PDF document. Customers pay a onetime, non-itemized fee to access the course textbook, and there is no expiration date.

2

The exam guide course provides the customers with text-based lessons and practice exams. The
course is hosted online on the Taxpayer’s learning management system and is accessed through a
web browser. The course is self-paced, and customers can freely navigate between lessons and
practice exams. There are no audio or video recordings included in this course. Customers cannot
input information, manipulate data, or create reports through the learning management system. The
course includes an instructor who is available to answer questions through email and Facebook
Messenger. However, this is not a live feature and responses are not returned in real time. Customers
pay a one-time, non-itemized fee to access the exam guide courses. For this course, there is no
expiration date for the materials.
In the future, the Taxpayer is considering adding a live chat feature to this service. This will allow
customers to interact with course instructors in real time.

The Taxpayer does not currently offer a mortgage loan origination (MLO) course to its customers.
However, the Taxpayer is considering offering this course in the future.
This course will be an instructor led course that has a set schedule for customers. Twenty instructor
hours and a three hour self-paced, state-module course will be included in the course. The statemodule course is an online text-based course with chapter quizzes and a final exam that are
automatically administered and graded. In addition, other instructor interaction will be included such
as graded case studies. The course is designed to comply with pre-licensing education requirements
of the National Multistate Licensing System (NMLS) and will be approved by the NMLS.

1.

Is the online licensing course subject to Tennessee sales and use tax? Does adding a real time,
live chat feature to the online licensing course affect its taxability?
Ruling: Yes. The online licensing course is subject to Tennessee sales and use tax as remotely
accessed computer software. The addition of a live chat feature does not alter the taxability
of this transaction.

2.

Is the course textbook available as a downloadable PDF subject to Tennessee sales and use
tax?
Ruling: No. Textbooks are not subject to sales and use tax whether in digital or physical form.

3.

Is the exam guide course subject to Tennessee sales and use tax? Does adding a real time, live
chat feature to the exam guide course affect its taxability?

3

Ruling: Yes. The exam guide course is subject to Tennessee sales and use tax as remotely
accessed computer software. The addition of a live chat feature does not alter the taxability
of this transaction.
4.

Will the proposed mortgage loan originating course be subject to Tennessee sales and use
tax?
Ruling: Yes. The proposed course includes the self-paced state-module course in the
transaction, which will subject the entire transaction to sales and use tax.

1.

The online licensing course is subject to Tennessee sales and use tax.

The online licensing course is subject to Tennessee sales and use tax because it is remotely accessed
computer software.1 Customers access the online licensing course hosted by the Taxpayer’s learning
management system via a web browser. Through the learning management system, the customers
gain access to lectures and transcripts of those lectures. The software allows the customers to move
through the course at their own pace. The software also automatically administers and grades the
required chapter quizzes and final exam.
This is analogous to taxable pre-packaged software accessed via a tangible medium, such as a DVD or
compact disk that users purchase to study for career advancement, college entrance exams, or
learning a new skill, such as a new language. Therefore, the online licensing courses are subject to
Tennessee sales and use tax when sold to a Tennessee customer because the customer is paying to
use dealer owned software.
Although there are other elements included with the course that are not otherwise subject to sales
and use tax such as access to instructors who can answer questions in an email like format and
membership in a social media group, those additional services are not essential to listening to the
lectures and completing the steps necessary to earn a certificate. The true object of the transaction is
access to the software (online lectures, quizzes, and final exam).2 Adding a live chat feature would not
change the taxability of the transaction, as that would also be an incidental service.
2.

The course textbooks are not subject to Tennessee sales and use tax.

Textbooks available in PDF form are exempt from Tennessee sales and use tax. Tennessee has a
specific exemption from sales and use tax for textbooks and workbooks3 and defines “textbook” as a
“a printed book that contains systematically organized educational information that covers the
primary objectives of a course of study” that is not primarily published and distributed for sale to the

1

TENN. CODE ANN. § 67-6-231(a) (2022).

See Tenn. Dept. Rev. Ltr. Rul. 14-10 (Oct. 13, 2014) for a full explanation of the “true object” test and Tenn. Dept. Rev. Ltr. Rul.
20-04 (June 10, 2023)(applying the true object analysis to online courses).
2

3

TENN. CODE ANN. §67-6-329(a)(3).

4

general public.4 The term “textbook” does not include a computer or computer software. 5 However,
under TENN. CODE ANN. § 67-6-329(d)(1), the textbook exemption extends to a specified digital good
that would be exempt if sold in tangible form.
The PDF sold by the Taxpayer comprises lessons from the licensing courses. It is primarily for sale to
customers seeking certification from the Tennessee Real Estate Commission and is not distributed for
sale to the general public. In print form, this compilation would meet the definition of a “textbook.”
Following TENN. CODE ANN. § 67-6-329(d)(1), the sale of the textbooks in PDF form is exempt from
Tennessee sales and use tax.
3.

The exam guide course is subject to Tennessee sales and use tax.

The exam guide course is subject to Tennessee sales and use tax because it is remotely accessed
computer software.6 The exam guide course is accessed by the customer through the Taxpayer’s
learning management system. The self-paced courses allow customers to learn through text-based
lessons and to freely navigate between lessons and practice exams. The exams are administered
automatically and graded automatically. Much like the online licensing course analyzed above, the
exam guide course is subject to Tennessee sales and use tax when sold to customers in Tennessee
because the course is remotely accessed computer software.
Although there are items in this transaction that are not subject to tax on their own, such as receiving
instructor feedback through email and membership in a social media group, as explained above these
are merely incidental to the true object of accessing the course.
4.

The proposed MLO course will be subject to sales and use tax.

Under these proposed facts, MLO course will include 20 hours of instructor led classes, as well as an
online module that is a self-paced, text-based course with chapter quizzes and a final exam that will
be automatically administered and graded through the learning management system. Consistent with
the discussion above, the self-paced course will be considered computer software subject to sales and
use tax. In contrast, live instruction accessed online is not subject to Tennessee sales and use tax.7
If a transaction has both taxable and nontaxable items, such that it does not readily lend itself to
classification for sales tax purposes, the “true object” test is employed, looking at the totality of the
facts and circumstances, to determine what objective is really being accomplished by the transaction. 8
The objective of purchasing the course will not be to simply gain information about originating loans
4

TENN. CODE ANN. § 67-6-102(99).

5

TENN. CODE ANN. §67-6-102(99).

6

TENN. CODE ANN. § 67-6-231(a) (2022).

Live classes are not an enumerated taxable service. TENN. CODE ANN. § 67-6-205 (2022); see also Ryder Truck Rental, Inc. v.
Huddleston, No. 91-3382-III, 1994 WL 420911, at *3 (Tenn. Ct. App. Aug. 12, 1994) (stating that the sales tax does not apply to all
services; it applies only to those services specifically enumerated by the statute); see, e.g., Tenn. Dept. Rev. Ltr. Rul. 17-17 (Oct.
31, 2017) and Tenn. Dept. Rev. Ltr. Rul. 20-04 (June 10, 2020) (stating that live instructor-led webinars and classes are not subject
to Tennessee sales and use tax because the student is purchasing access to live classes, and the software platform providing
access to the classes is merely incidental to the transaction).
7

8

See generally Tenn. Dept. Rev. Ltr. Rul. 14-10, supra note 2.

5

from live instructors, but to meet requirements in order to qualify for the National MLO licensing
exam. To meet those requirements, the facts indicate that completion of the automatically
administered quizzes and exam will be necessary. As such, the self-paced course is essential to the
transaction. The MLO course, therefore, will be subject to sales and use tax.9
Alternatively, if two or more products can be sold separately but are instead sold for one non-itemized,
the transaction is a bundled transaction. In a bundled transaction, the inclusion of one taxable product
in the bundle renders the entire transaction subject to tax. 10 While the proposed facts suggest that
the self-paced online state-module is essential to the MLO course, if the online state-module is instead
a separate product that could be sold on a standalone basis (separate and optional from the live
instruction), then the taxpayer could sell the courses separately. If sold separately, the online statemodule would be subject to tax, and the live instruction, sold by itself, would not be taxable.

9

Approved:

David Gerregano
Commissioner of Revenue

Date:

August 21, 2023

See also TENN. CODE ANN. § 67-6-102(87)(A)(iii) (defining sales price to include services necessary to complete the sale).

10

See, e.g., TENN. CODE ANN. § 67-6-102(87)(A)(vi).

6