Does Tennessee sales and use tax apply to an out-of-state company's online banner ads, database advertising subscriptions, separately stated photography and set-up fees, hosted (ASP) database access, and wholesale reseller receipts?

Plain-English summary

An out-of-state company runs an online classified-advertising business: it sells banner ads, lets sellers and lessors advertise their inventory in a searchable online database, charges separate photography and set-up fees, rents access to its hosted database applications (so-called "ASP Services," an early name for software-as-a-service), and lets resellers sell its services under a co-branded site. It keeps no property in Tennessee — all of its offices, equipment, and servers are out of state — though some workers live in or visit the state. It asked which of these revenue streams are subject to Tennessee sales and use tax.

The Department ruled that none of them are on these facts. The reasoning rests on two pillars of Tennessee sales tax. First, the tax falls on retail sales of tangible personal property — which by statute includes prewritten computer software (Tenn. Code Ann. § 67-6-231(a), § 67-6-102(89)(A)). Second, for services, only the services the legislature specifically enumerated are taxable; a non-enumerated service is taxed only if it is bundled into the sales price of something that is taxable (Ryder Truck Rental v. Huddleston).

Run through that framework:

• Online banner advertising (Ruling 1): Not tangible property or software, and advertising services are not enumerated. Selling banner ads could in theory involve taxable "final artwork" or "advertising materials" (§ 67-6-312(b)), but on these facts any such sale happens outside Tennessee, so it is not taxed here.
• Database advertising subscriptions from sellers/lessors (Ruling 2): Not property, software, final artwork, or an enumerated service — not taxable.
• Separately stated photography and set-up fees (Ruling 3): A photograph used in an ad is taxable "final artwork," but the company makes that sale outside Tennessee (offices/servers all out of state), so no Tennessee tax applies. The set-up fee involves no property or enumerated service. Caveat: transferring final artwork in Tennessee for consideration would be taxable, and if photographs were furnished under a contract with no separate charge, the whole contract charge could become taxable (§ 67-6-102(78)(A)).
• Hosted database access / "ASP Services" (Ruling 4): Not taxable. The company never transfers title, possession, or control of its software — the applications stay on the company's servers and are never delivered to or installed on the customer's computers, so there is no taxable sale or use of software. And although moving data between points can look like a taxable telecommunications service (§ 67-6-205(c)(3)), this service is the excluded category of data processing and information services (§ 67-6-102(90)(B)(i)) — the customer's real purpose is managing its own inventory data.
• Wholesale reseller receipts (Ruling 5): Because the company sells nothing taxable in the first place, it doesn't matter whether a sale is retail or wholesale — the receipts aren't taxable.

This is an early (2013) Tennessee look at taxing digital advertising and hosted/cloud software, and two themes carry through: sourcing (a sale of digital goods that occurs entirely out of state isn't a Tennessee sale) and the line between remotely accessed software (no transfer of possession = no taxable software sale here) and an enumerated telecommunications service (excluded as data processing). Note that Tennessee has since changed how it taxes remotely accessed software, so confirm current law for present-day facts.

What this means for you

Online advertising, marketplace, and listing platforms

Selling advertising — banner ads, listing/subscription fees to be featured in a searchable database — is generally not a taxable service in Tennessee, because advertising isn't an enumerated service and these listings aren't tangible property or software. The trap is "final artwork": photographs, illustrations, and similar materials (and their digital equivalents) used to produce advertising are taxable, so watch where that artwork is actually sold or transferred, and watch for it being bundled into a single contract charge.

SaaS / hosted-application and cloud providers

Letting customers reach software that lives on your servers, without transferring title, possession, or control and without delivering or installing anything on their machines, was not a taxable software sale under this 2013 ruling, and routing their data did not make it a taxable telecommunications service because it fell into the excluded data processing / information services category. Important: Tennessee later amended its treatment of remotely accessed software, so do not assume this outcome still holds for current SaaS — check the current statute and rules.

Accountants and multistate tax professionals

The analysis is a clean walk through § 67-6-231(a) (software as taxable TPP), the enumerated-services rule (Ryder Truck), § 67-6-312(b) and the final-artwork/advertising-materials definitions (§ 67-6-102(38)/(2)), and the telecommunications-service exclusion for data processing (§ 67-6-102(90)(B)(i)). The result leans heavily on the company having no Tennessee situs for its digital deliverables — change the situs facts and the conclusions can change.

Common questions

Q: Is selling online advertising taxable in Tennessee?
A: On these facts, no. Banner ads and database-listing advertising are not tangible property, not software, and not an enumerated taxable service. But "final artwork" (like photographs) used to make advertising is taxable property when sold or transferred in Tennessee.

Q: Is access to hosted software ("ASP" / SaaS) taxable here?
A: Under this 2013 ruling, no — the provider kept the software on its own servers and never transferred title, possession, or control, and the service counted as excluded data processing rather than a taxable telecommunications service. Tennessee has since changed its rules on remotely accessed software, so verify current law.

Q: Why did "where the servers are" matter so much?
A: A photograph used in an ad is taxable final artwork, but a sale or use of it only triggers Tennessee tax if it occurs in Tennessee. With all offices, equipment, and servers out of state, the company's digital deliverables weren't sold or used in Tennessee.

Q: Can I rely on this revenue ruling?
A: No. Tennessee revenue rulings are advisory and not binding on the Department, and this one is from 2013 — the law on remotely accessed software in particular has changed since. Treat it as the Department's reasoning, not a guarantee, and confirm current rules with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; Retailers' Sales Tax Act, §§ 67-6-101 to -907):

• § 67-6-231(a) (retail sale, lease, licensing, or use of computer software taxable regardless of delivery method)
• § 67-6-102(89)(A) (tangible personal property includes prewritten computer software); § 67-6-102(76) ("retail sale" = sale/lease/rental not for resale); § 67-6-102(80)(A) ("sale" = transfer of title/possession for consideration; sales price = total consideration); § 67-6-102(78)(A), (78)(D) ("sale" includes furnishing taxable things/services; entire contract charge taxable if final artwork transferred in Tennessee)
• § 67-6-312(b) (sale/use of final artwork and advertising materials taxable); § 67-6-102(38) (definition of "final artwork," including photographs); § 67-6-102(2) (definition of "advertising materials")
• § 67-6-205(c)(3) (telecommunications services are an enumerated taxable service); § 67-6-102(90)(A) (definition of "telecommunications service"); § 67-6-102(90)(B)(i) (data processing and information services excluded from that definition)

Tennessee case cited by the ruling:

• Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911 (Tenn. Ct. App. Aug. 12, 1994) (only specifically enumerated services are subject to the sales tax)

Subject

The application of the Tennessee sales and use tax to online advertising and database 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/13-03.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 13-03
WARNING
Revenue rulings are not binding on the Department. 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 the Tennessee sales and use tax to online advertising and database services.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
The Taxpayer is a company formed under the laws of a state other than Tennessee; the Taxpayer
does not own or lease any real or tangible personal property in Tennessee. All of the Taxpayer’s
office locations, equipment, and computer servers are located outside Tennessee. However, the
Taxpayer has independent contractors and/or employees who live in Tennessee or who travel to
the state for business purposes.
The Taxpayer is primarily engaged in the marketing and management of online classified
advertising. The Taxpayer derives its revenues from offering to its customers a wide range of
advertising services over the Internet.
Banner Advertising
The Taxpayer maintains one or more websites and derives receipts from selling banner
advertising on such websites to end users and to resellers of such banner advertising.
[REDACTED].
Advertising of Seller’s Inventory
The Taxpayer maintains a database of items of inventory available for purchase from third party
sellers, as well as a database of [PROPERTY] available for lease from third party lessors or their
agents (the “Inventory”). Potential customers (i.e., purchasers or tenants) can access the
Taxpayer’s website at no charge and can search the Taxpayer’s database electronically to find
Inventory items by certain search criteria.
1

The Taxpayer does not own, sell, or lease any Inventory. The Taxpayer’s websites do not have
any purchase or “shopping cart” functionality to purchase or lease Inventory. Instead, if a
potential customer searches the Taxpayer’s electronic database and is interested in purchasing or
leasing an item of Inventory, the Taxpayer’s websites then provide contact information and/or a
mechanism to allow the customer to contact the seller or lessor. The website may also provide
redirects and/or hyperlinks from the Taxpayer’s websites to the seller’s or lessor’s website,
which is not maintained on the Taxpayer’s web server. The potential customer can then contact
the seller or lessor to purchase or lease the Inventory directly.
The Taxpayer derives subscription revenues from sellers and lessors (and not from their
customers) as follows: [REDACTED].
Separately Stated Service Charges
The Taxpayer may impose a separately stated charge for additional services. Such charges may
include the following:
a) Separately stated photography fee. On occasion, the Taxpayer will charge a
photography fee for the Taxpayer to take a photograph of the Inventory item, which the
Taxpayer then adds to the online advertisement about the item. The Taxpayer does not
transfer any tangible personal property to the seller or lessor.
b) Separately stated set up fee. On occasion, the Taxpayer will charge a “set up” fee for
the seller or lessor to have the right to enter information about the Inventory into the
Taxpayer’s database.
Access to Online Database Applications
The Taxpayer charges third party business (“Customers”) a [REDACTED] fee to access its
online database applications and provide related services (“ASP Services”). At all times, the
Taxpayer owns and operates the underlying database software, and the software resides on the
Taxpayer’s servers. The Customer is allowed to access the Taxpayer’s online database
applications via the Internet, and the Customer can then incorporate the searchable online
database applications into its own website and populate the database with its own Inventory.
Alternatively, the Customer can populate the database with Inventory owned by third party
sellers or lessors, as the Taxpayer does. Potential customers can then access and search the
Taxpayer’s database applications via the Customer’s website.
If the Customer wishes to populate the database with Inventory owned by sellers or lessors for an
advertising charge, the online database applications have functionality that allows the seller or
lessor to make payment of the advertising fee using a credit card. The credit card is processed by
a third party credit card processing service company for a service fee, and the advertising fee,
less the service fee, is credited to the Taxpayer’s bank account. The Taxpayer then transfers the
net advertising fee to the Customer.

2

Wholesale Receipts
In some cases, the Taxpayer will permit Customers to sell or resell the Taxpayer’s advertising
and subscription services as their own. In general, these services are the same as described
above. As part of this arrangement, the Taxpayer provides a version of the Taxpayer’s website
that is co-branded with the Taxpayer and Customer marks (a “Co-Branded Site”); no software is
transferred to the Customer at any time. This version of the website is integrated with the
Customer’s website and offers users the ability to search the Taxpayer’s database for Inventory.
Customers may also sell the banner advertising on the Co-Branded Site. The Taxpayer only
charges the Customers wholesale fees in connection with the advertising and subscription
services sold by the Customer. The Taxpayer does not charge the Customer for the Co-Branded
Site, other banner advertising sold on the Co-Branded Site, or a royalty for the use of the
Taxpayer’s trade name.
RULINGS

1. Are receipts from sales of online banner advertising subject to the Tennessee sales and use
   tax?
   Ruling: No. Receipts from sales of online banner advertising are not subject to the Tennessee
   sales and use tax.
2. Are receipts from sellers and/or lessors for the privilege of advertising their property on the
   Taxpayer’s online database subject to the Tennessee sales and use tax?
   Ruling: No. Receipts from sellers and/or lessors for the privilege of advertising their property
   on the Taxpayer’s online database are not subject to the Tennessee sales and use tax.
3. Are the separately stated service charges for the photography fee and the “set up” fee subject
   to the Tennessee sales and use tax?
   Ruling: No. Under the facts presented, the separately stated charges for the photography fee
   and the “set up” fee are not subject to the Tennessee sales and use tax, because no sale takes
   place in Tennessee.
4. Are receipts from providing access to the Taxpayer’s online database applications and related
   services subject to the Tennessee sales and use tax?
   Ruling: No. Receipts from providing access to the Taxpayer’s online database applications
   and related services are not subject to the Tennessee sales and use tax.
5. Are wholesale receipts from resellers of the Taxpayer’s online advertising services subject to
   the Tennessee sales and use tax?
   Ruling: No. Wholesale receipts from resellers of the Taxpayer’s online advertising services
   are not subject to the Tennessee sales and use tax.

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ANALYSIS
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. §§ 67-6-101 to -907 (2011 & Supp.
2012), the retail sale in Tennessee of tangible personal property is subject to the sales and use
tax.1 TENN. CODE ANN. § 67-6-231(a) (2011) further provides that the “retail sale, lease,
licensing or use of computer software” in Tennessee is subject to the sales and use tax, regardless
of whether the software is delivered electronically, via tangible storage media, or otherwise.
Additionally, the term “sale” is defined to include “the furnishing of any of the things or services
taxable” under the Retailers’ Sales Tax Act. 2 In particular, the sale or use of final artwork and
advertising materials are subject to the sales and use tax. 3 The term “final artwork” is defined as
“tangible personal property or its digital equivalent” that is suitable for use in producing
advertising materials. 4 Final artwork includes, but is not limited to, photographs, illustrations,
drawings, paintings, calligraphy, models and similar works that are used to produce advertising
materials. 5 “Advertising materials” is defined as “tangible personal property or its digital
equivalent produced to advertise a product, service, idea, concept, issue, place or thing,
including, but not limited to, brochures, catalogs and point-of-purchase materials, but not
including preliminary artwork” and not including certain original sound recordings or video
recordings. 6
In the case of services, the sales tax does not apply to all services. Rather, it only applies to retail
sales of those services specifically enumerated by the statute. 7 Even if a service is not
specifically enumerated by the statute, however, the service may be subject to the sales tax where
charges for the service are included in the sales price of a taxable good or service. Specifically,
the sales price of a good or service equals the “total amount of consideration . . . for which
personal property or services are sold,” with no deduction for the seller’s costs. 8 Thus, when the
sale of a non-enumerated service is part of the sale of a taxable good or service, the charges for
the non-enumerated service are included in the sales price of the taxable good or service and as
such are subject to taxation.

1

TENN. CODE ANN. § 67-6-102(89)(A) (Supp. 2012) defines “tangible personal property” to include prewritten
computer software. TENN. CODE ANN. § 67-6-102(76) provides that the term “retail sale” means “any sale, lease, or
rental for any purpose other than for resale, sublease, or subrent.” TENN. CODE ANN. § 67-6-102(80)(A) defines the
term “sale” in pertinent part to mean “any transfer of title or possession, or both, exchange, barter, lease or rental,
conditional or otherwise, in any manner or by any means whatsoever of tangible personal property for a
consideration.”
2

TENN. CODE ANN. § 67-6-102(78)(D).

3

TENN. CODE ANN. § 67-6-312(b), (c) (2011).

4

TENN. CODE ANN. § 67-6-102(38).

5

Id.

6

TENN. CODE ANN. § 67-6-102(2).

7

Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911 (Tenn. Ct. App. Aug. 12, 1994).

8

TENN. CODE ANN. § 67-6-102(80)(A).
4

Accordingly, the transactions described herein will be subject to the Tennessee sales and use tax
if the particular transaction constitutes 1) the sale of tangible personal property or computer
software in Tennessee; 2) the sale in Tennessee of final artwork or advertising materials,
including digital equivalents; 3) the furnishing of a taxable service in Tennessee; and/or 4) the
furnishing of an otherwise nontaxable service that is sold as part of the sale of a taxable good or
service.
1.

Online Banner Advertising

Receipts from sales of online banner advertising are not subject to the Tennessee sales and use
tax.
The Taxpayer maintains one or more websites and derives receipts from selling banner
advertising on such websites to end users and to resellers of such banner advertising.
[REDACTED].
The sale of online banner advertising does not involve the sale of tangible personal property or
computer software. Additionally, advertising services are not among the services specifically
subject to taxation under the Retailers’ Sales Tax Act.
It is possible that a taxpayer could furnish taxable final artwork or advertising materials, which
include digital equivalents, when it sells banner advertising. In the Taxpayer’s case, however, the
facts indicate that any sales by the Taxpayer of final artwork or or advertising materials would
take place outside Tennessee: the Taxpayer has stated that all of its office locations, equipment,
and computer servers are located outside Tennessee. Because no furnishing of final artwork or
advertising materials occurs in Tennessee, the transaction is not subject to the Tennessee sales
and use tax. Note, however, that if the Taxpayer were to transfer final artwork or advertising
materials in Tennessee for a consideration, such sales would be subject to the sales and use tax.
Finally, because the Taxpayer does not make sales of taxable goods or services in conjunction
with the sale of online banner advertising, the sale of such advertising cannot be characterized as
the furnishing of an otherwise nontaxable service that is sold as part of the sale of a taxable good
or service.
As a result, receipts from sales of online banner advertising are not subject to the Tennessee sales
and use tax.
2.

Advertising on Online Database

Receipts from sellers and/or lessors for the privilege of advertising their property on the
Taxpayer’s online database are not subject to the Tennessee sales and use tax.
The Taxpayer maintains a database of items of inventory available for purchase from third party
sellers, as well as a database of [PROPERTY] available for lease from third party lessors or their
agents (the “Inventory”). Potential customers (i.e., purchasers or tenants) can access the
Taxpayer’s website at no charge and search the Taxpayer’s database electronically to find
Inventory items by certain search criteria. The Taxpayer does not own, sell, or lease any
Inventory. The Taxpayer’s websites do not have any purchase or “shopping cart” functionality to
5

purchase or lease Inventory. Instead, if a potential customer searches the Taxpayer’s electronic
database and is interested in purchasing or leasing an item of Inventory, the Taxpayer’s websites
then provide contact information and/or a mechanism to allow the customer to contact the seller
or lessor. The website may also provide redirects and/or hyperlinks from the Taxpayer’s websites
to the seller’s or lessor’s website, which is not maintained on the Taxpayer’s web server. The
potential customer can then contact the seller or lessor to purchase or lease the Inventory
directly.
The Taxpayer’s sale of this online database service does not involve the sale of tangible personal
property, computer software, final artwork, or advertising materials. Additionally, the furnishing
of an online database is not among the services specifically subject to taxation under the
Retailers’ Sales Tax Act. Finally, because the Taxpayer does not make sales of taxable goods or
services in conjunction with the sale of online database services, the sale of such services cannot
be characterized as the furnishing of an otherwise nontaxable service that is sold as part of the
sale of a taxable good or service.
3.

Separately Stated Charges

Under the facts presented, the separately stated charges for the photography fee and the “set up”
fee are not subject to the Tennessee sales and use tax.
The Taxpayer may impose a separately stated charge for providing additional services related to
a seller or lessor’s purchase of advertising services. Such charges may include the following:
a) Separately stated photography fee. On occasion, the Taxpayer will charge a
photography fee for the Taxpayer to take a photograph of the Inventory item, which the
Taxpayer then adds to the online advertisement about the item.
b) Separately stated set up fee. On occasion, the Taxpayer will charge a “set up” fee for
the seller or lessor to have the right to enter information about the Inventory into the
Taxpayer’s database.
The photography fee does include the furnishing of a photograph, which constitutes final artwork
when used in the online advertisement for an item. Final artwork includes, but is not limited to,
photographs and other illustrations and their digital equivalents. As explained above, the sale of
final artwork is subject to taxation. However, the facts indicate that the Taxpayer’s sales of final
artwork, in the form of digital photographs, takes place outside Tennessee; all of the Taxpayer’s
office locations, equipment, and computer servers are located outside Tennessee.
Because no sale or use of final artwork occurs in Tennessee, the sale is not subject to the
Tennessee sales and use tax. Note, however, that if the Taxpayer were to transfer final artwork in
Tennessee for a consideration, such sales would be subject to the sales and use tax. 9

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Note as well that in instances where the Taxpayer does not separately charge for the photography services, but
furnishes final artwork in the form of photographs under its contract with a seller, the transfer of final artwork in
Tennessee would cause the entire charge under the contract to become taxable. TENN. CODE ANN. § 67-6102(78)(A).
6

The “set up” fee does not involve the sale of tangible personal property, computer software, or
final artwork in digital form. Additionally, the set up fee does not involve a service that is among
those specifically subject to taxation under the Retailers’ Sales Tax Act. Finally, because the
Taxpayer does not make sales of tangible personal property, computer software, final artwork in
digital form, or taxable services in conjunction with this service, the sale of this service cannot be
characterized as the furnishing of an otherwise nontaxable service that is sold as part of the sale
of a taxable good or service.
4.

Access to Online Database Applications

Receipts from providing access to the Taxpayer’s online database applications and related
services are not subject to the Tennessee sales and use tax.
The Taxpayer charges Customers a quarterly fee to access its online database applications and
provide related services (“ASP Services”). At all times, the Taxpayer owns and operates the
underlying database software, and the software resides on the Taxpayer’s servers. The Customer
is allowed to access the Taxpayer’s online database applications via the Internet, and the
Customer can then incorporate the searchable online database applications into its own website
and populate the database with its own Inventory. Alternatively, the Customer can populate the
database with Inventory owned by third party sellers or lessors, as the Taxpayer does. Potential
customers can then access and search the Taxpayer’s database applications via the Customer’s
website. If the Customer wishes to populate the database with Inventory owned by sellers or
lessors for an advertising charge, the online database applications have functionality that allows
the seller or lessor to make payment of the advertising fee using a credit card. The credit card is
processed by a third party credit card processing service company for a service fee, and the
advertising fee, less the service fee, is credited to the Taxpayer’s bank account. The Taxpayer
then transfers the net advertising fee to the Customer.
No taxable sale or use of tangible personal property or computer software occurs in Tennessee
when the Customer accesses the online database applications via the Internet, because the
Taxpayer does not transfer title, possession, or control of the applications to the Customer at any
time. Furthermore, the applications are never delivered to, transferred to, or installed on, the
customer’s computers.
Additionally, the provision of ASP Services does not constitute a taxable service for Tennessee
sales and use tax purposes. As noted above, only specifically enumerated services are subject to
the Tennessee sales and use tax. One of the services subject to the sales and use tax is the
furnishing of “intrastate, interstate or international telecommunication services.” 10 The term
“telecommunications service” is defined as the “electronic transmission, conveyance, or routing
of voice, data, audio, video, or any other information or signals to a point, or between or among
points.” 11 However, excluded from the definition of “telecommunications service” are data
processing and information services “that allow data to be generated, acquired, stored, processed,
10

TENN. CODE ANN. § 67-6-205(c)(3) (Supp. 2012). The Taxpayer’s services cannot be characterized as any other
type of service that is taxable under the Retailers’ Sales Tax Act; this letter ruling therefore does not discuss any
specifically enumerated services other than telecommunications services.
11

TENN. CODE ANN. § 67-6-102(90)(A).
7

or retrieved and delivered by electronic transmission to a purchaser, where such purchaser’s
primary purpose for the underlying transaction is the processed data or information.” 12
The ASP Services involve the electronic transmission, conveyance, or routing of data between
points, and the ASP Services as such could be characterized as a telecommunications service.
However, the ASP Services are excluded from the definition of “telecommunication services”
because the Taxpayer offers a service that allows data to be generated, acquired, stored,
processed, retrieved, or delivered electronically to the Customer. Additionally, the Customer’s
primary purpose for the underlying transaction is the management and processing of its
Inventory data and information. Accordingly, the ASP Services fall under the category of data
processing and information services, which are specifically excluded from the definition of
“telecommunications service.” The provision of access to the online database applications
therefore does not constitute a taxable telecommunications service.
Because the Taxpayer does not make sales of tangible personal property or computer software
and does not provide a taxable service in conjunction with providing access to its online database
applications, no part of the transaction can be described as the furnishing of an otherwise
nontaxable service that is sold as part of the sale of a taxable good or service.
5.

Wholesale Receipts

Wholesale receipts from resellers of the Taxpayer’s online advertising services are not subject to
the Tennessee sales and use tax.
In some cases, the Taxpayer will permit Customers to sell or resell the Taxpayer’s advertising
and subscription services as their own. In general, these services are the same as described
above. As part of this arrangement, the Taxpayer provides a version of the Taxpayer’s website
that is co-branded with the Taxpayer and Customer marks (a “Co-Branded Site”); no software is
transferred to the Customer at any time. This version of the website is integrated with the
Customer’s website and offers users the ability to search the Taxpayer’s database for Inventory.
Customers may also sell the banner advertising space on the Co-Branded Site. The Taxpayer
only charges the Customers wholesale fees in connection with the advertising and subscription
services sold by the Customer. The Taxpayer does not charge the Customer for the Co-Branded
Site, other banner advertising space sold on the Co-Branded Site, or a royalty for the use of the
Taxpayer’s trade name.
As discussed above, the Retailers’ Sales Tax Act subjects the retail sale of tangible personal
property and specifically enumerated services to the sales and use tax. The term “retail sale”
means “any sale, lease, or rental for any purpose other than for resale, sublease, or subrent.” 13
Thus, sales for resale are not subject to the Tennessee sales and use tax.
Here, the Taxpayer makes no sales of tangible personal property, computer software, or taxable
services. The Taxpayer does not transfer software to the Customer as part of the transaction.
Therefore, it is irrelevant whether the Taxpayer’s sales are retail or wholesale. In either event, the
12

TENN. CODE ANN. § 67-6-102(90)(B)(i).

13

TENN. CODE ANN. § 67-6-102(76).
8

Taxpayer’s receipts from resellers of its online advertising services are not subject to the
Tennessee sales and use tax.

Kristin Husat
General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

January 14, 2013

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