Are repair services performed in Tennessee on equipment that is then shipped to an out-of-state customer subject to Tennessee sales tax?

Plain-English summary

A company makes traffic-management cameras (the kind installed at intersections that sense traffic and adjust light timing). When an out-of-state customer's camera needs repair, the customer ships it to the company's repair center in Tennessee; the company fixes it and ships it back out of state. It asked whether those repair services are subject to Tennessee sales tax — and, separately, whether the shipping terms matter.

The answer turns on a law change with a July 1, 2024 dividing line:

• Before July 1, 2024 — taxable. Tennessee taxes only the services it specifically lists, and repair services on tangible personal property are on that list. So the repairs were taxable. There is a narrow interstate-repair exemption for repairs done in Tennessee on property then shipped out of state — but only for "qualified" tangible personal property, which (as relevant here) means machinery and equipment necessary for building or improving roads or highways. The Department held the traffic cameras don't qualify: they make traffic flow more efficiently but they don't build or physically improve the road itself. So the exemption didn't apply, and the repairs were taxable. The shipping method made no difference — FOB origin or FOB destination, the answer was the same.
• Beginning July 1, 2024 — no longer Tennessee-sourced. Under the Tennessee Tax Works Act (Public Chapter 377 (2023)), when a repair is performed in Tennessee and the seller then ships or delivers the serviced property to a purchaser outside Tennessee, the sale is not sourced to Tennessee and is reported as an exempt interstate sale. That new sourcing rule reaches this scenario regardless of whether the property was "qualified."

What this means for you

Tennessee repair shops serving out-of-state customers

If you repair tangible personal property (or software) in Tennessee and ship the fixed item to a customer outside Tennessee, the key date is July 1, 2024. On or after that date, the new sourcing rule generally takes the charge out of Tennessee tax as an interstate sale — you no longer have to squeeze into the narrow "qualified property" exemption. For work billed before that date, the old rules (and the qualified-property limits) still govern.

Don't over-rely on the old interstate-repair exemption

The pre-July-2024 exemption (§ 67-6-313(b)) is narrow: it only covered repairs on "qualified" property, such as equipment necessary for building or improving roads. Equipment that merely uses or enhances the roads (like traffic cameras) didn't count. If you were relying on that exemption for older periods, check whether your property actually qualified.

Shipping terms aren't the lever

Note what did not matter: whether the goods went back FOB origin or FOB destination. For the pre-July-2024 analysis the Department said the shipping method is irrelevant to taxability — don't expect FOB terms alone to change the result.

Accountants and advisors

Repair services are taxable as an enumerated service under § 67-6-205(c)(4); the old interstate-repair exemption and its "qualified tangible personal property" definition are at § 67-6-313(b); "tangible personal property" is defined at § 67-6-102(97)(A); and Tennessee taxes only enumerated services (§ 67-6-201; Ryder Truck Rental). The post-July-1-2024 sourcing change comes from Public Chapter 377 (2023) (the Tennessee Tax Works Act); see Sales and Use Tax Notice #24-08 for the Department's explanation.

Common questions

Q: Are repair services taxable in Tennessee?
A: Yes — repairing tangible personal property or software is a specifically enumerated taxable service. The question for cross-border work is sourcing: where the sale is treated as occurring.

Q: I repair items in Tennessee and ship them out of state — do I charge Tennessee tax?
A: For work on or after July 1, 2024, generally no: the new sourcing rule treats it as not sourced to Tennessee (an exempt interstate sale). For work before that date, it was taxable unless the item was "qualified" property under the narrow § 67-6-313(b) exemption.

Q: Does FOB origin vs. FOB destination change the answer?
A: For the pre-July-2024 analysis, no — the Department said the shipping method is not relevant to whether the repair service is taxable.

Q: Can my business rely on this ruling?
A: No. A Tennessee letter ruling binds the Department only as to the taxpayer it was issued to and cannot be relied on by anyone else; it can be revoked or modified. And note it straddles a law change — confirm the current sourcing rules for your dates.

Citations and references

Statutes (Tennessee Code Annotated):
- § 67-6-205(c)(4) — repair services for tangible personal property/software are a taxable enumerated service
- § 67-6-313(b) — exemption for repair services on "qualified tangible personal property" repaired in Tennessee then shipped/delivered out of state
- § 67-6-102(97)(A) — definition of "tangible personal property"
- § 67-6-201 — imposition of sales tax; only enumerated services are taxed

Legislation and guidance:
- Public Chapter 377 (2023) (Tennessee Tax Works Act) — effective July 1, 2024, repair of TPP performed in Tennessee and delivered to a purchaser outside Tennessee is not sourced to Tennessee
- Sales and Use Tax Notice #24-08 — Department guidance explaining Public Chapter 377 (2023)

Cases:
- Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911 (Tenn. Ct. App. Aug. 12, 1994) — sales tax applies only to specifically enumerated 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/24-05.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.

Application of Tennessee sales and use tax to repair services performed in Tennessee on traffic
management equipment which is then shipped to customers outside of the state.

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)
(B)
(C)
(D)
(E)

The taxpayer must not have misstated or omitted material facts involved in the
transaction;
Facts that develop later must not be materially different from the facts upon
which the ruling was based;
The applicable law must not have been changed or amended;1
The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
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”) manufactures and sells traffic management equipment, including
cameras installed at roadway intersections that assist in regulating traffic flow (the “Equipment”). The
Equipment operates as an automated traffic management system by detecting traffic that is
increasing in a particular direction and adjusting traffic light timing intervals to mitigate roadway
congestion.

Note that the Tennessee Tax Works Act, Tenn. Pub. Acts. Ch. 377 (2023) makes changes to the sourcing of repair services
beginning July 1, 2024.
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In the event the Equipment purchased for use in the United States needs to undergo repairs, the
Taxpayer’s out-of-state customers ship the Equipment to the Taxpayer’s repair center located in
Tennessee. The Taxpayer completes the needed services at its Tennessee facility and then ships the
repaired Equipment back to the out-of-state customer via Common Carrier, FOB Origin, such that
possession of the Equipment transfers to the Taxpayer’s customers upon shipment from the
Taxpayer’s Tennessee facility.

1.

Are the repair services performed by the Taxpayer at its Tennessee facility subject to
Tennessee sales and use tax?
Ruling: With respect to transactions occurring before July 1, 2024, repair services on tangible
personal property are subject to sales tax under TENN. CODE ANN. § 67-6-205(c)(4) and the
exemption provided under TENN. CODE ANN. § 67-6-313(b) is not applicable to the services at
issue because the Equipment is not necessary for building or improving roads and highways.
However, pursuant to a recent law change, beginning July 1, 2024, if the service is performed
in Tennessee and the serviced property or software is then shipped or delivered by the seller
to the purchaser outside Tennessee, the sale is no longer sourced to Tennessee and reported
as an exempt interstate sale.2

2.

If the Taxpayer shipped the repaired Equipment back to its customers via Common Carrier
FOB Destination, would the repair services be subject to Tennessee sales and use tax?
Ruling: Yes, with respect to transactions occurring before July 1, 2024. The shipping method is
not relevant to the taxability of the Taxpayer’s repair services. However, pursuant to a recent
law change, beginning July 1, 2024, if the service is performed in Tennessee and the serviced
property or software is then shipped or delivered by the seller to the purchaser outside
Tennessee, the sale is no longer sourced to Tennessee and reported as an exempt interstate
sale.3

Tennessee does not impose sales tax on the provision of services generally. Rather, only services
specifically enumerated by statute are subject to sales tax.4 TENN. CODE ANN. § 67-6-205(c)(4) (2022)
imposes sales tax on repair services for any kind of tangible personal property or computer software.5
Accordingly, the repair services the Taxpayer provides with respect to the Equipment are subject to
Tennessee sales tax unless an exemption is applicable.
TENN. CODE ANN. § 67-6-313(b) (2022) authorizes a sales tax exemption for certain repair services and
provides in relevant part as follows:

2

See Sales and Use Tax Notice #24-08 (explaining the impact of Public Chapter 377 (2023)).

3

Id.

TENN. CODE ANN. § 67-6-201 et seq. (2022); see Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911, No. 91-3382-III, *2 (Tenn.
Ct. App. Aug. 12, 1994).
4

“Tangible personal property” is defined in relevant part as “personal property that can be seen, weighed, measured, felt, or
touched.” TENN. CODE ANN. § 67-6-102(97)(A) (Supp. 2023).
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2

There is exempt from the sales and use tax repair services, including parts and labor,
with respect to qualified tangible personal property, where such services are initiated
or completed, or both, by a repair person within this state, and where such property,
after having repair services performed on it, is delivered or shipped outside this state.
Here, the Taxpayer performs its repair services on the Equipment within the state and subsequently
ships the Equipment back to its customers outside the state. The Taxpayer’s repair services are thus
exempt from sales tax if the Equipment is “qualified tangible personal property.”
TENN. CODE ANN. § 67-6-313(b) defines “qualified tangible personal property” in pertinent part to
“[include] machinery, apparatus and equipment, with all associated parts, appurtenances and
accessories, that is necessary for . . . (2) Building or improving roads or highways.” Although the
Taxpayer’s cameras offer an enhancement or upgrade to use of roads in the form of reduced traffic
congestion, the Equipment is not “necessary for building or improving roads or highways” within the
meaning of the statute. The Equipment is not used to build roads, nor does it improve the physical
structure of the road itself. Instead, the Equipment increases efficiencies for vehicles traveling on the
roads.
As the repair services provided by the Taxpayer with respect to the Equipment do not fall within the
exemption provided by TENN. CODE ANN. § 67-6-313(b), those services remain subject to Tennessee
sales tax under TENN. CODE ANN. § 67-6-205(c)(4) with respect to transactions occurring before July 1,
2024. This determination is unaffected by the shipping method used to return the Equipment to the
Taxpayer’s customers.
However, please note that under the Tennessee Tax Works Act. Tenn. Pub. Acts. Ch. 377 (2023),
beginning July 1, 2024, the repair of tangible personal property, for sales tax purposes, is not sourced
to this state when the sale is made from a place of business within the physical limits of this state, and
where the serviced tangible personal property is delivered by the seller to the purchaser or the
purchaser's designee outside the physical limits of this state or to a carrier for delivery to a place
outside the physical limits of this state.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

June 4, 2024

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