Are on-hold telephone messaging, digital video-signage programming, and overhead music services subject to Tennessee sales tax, and does the provider owe use tax on the equipment it hands customers for free?

Plain-English summary

The taxpayer is a company that sells three "background media" services to business customers:

• On-Hold Messaging (OHM): customized recorded messages played to callers waiting on a phone system (scripting, voice talent, music licensing, monthly custom messages).
• VideoCast Programming (VCP): custom promotional content played on video screens at the customer's location (plus optional generic feeds like weather, news, and a stock ticker), delivered through a digital signage media player.
• Overhead Music: pre-programmed, advertising-free music channels, with optional promotional messages inserted into the playlist.

The taxpayer licenses all of this content for the term of the contract — customers can't keep, copy, or reuse it afterward — and sometimes hands customers equipment (a media player, on-hold device, etc.) at no charge. The questions: is each service taxable, and does the company owe use tax on the free equipment? This is a Revenue Ruling, which is advisory and not binding even on the Department.

All three services are taxable as specified digital products (§ 67-6-233). Tennessee taxes the "retail sale, lease, licensing or use of specified digital products" — which include digital audio works and digital audio-visual works — transferred to or accessed by customers in the state. The OHM recorded messages and the Overhead Music are digital audio works; the VCP video content is a digital audio-visual work. It doesn't matter that the content is only licensed rather than sold outright: § 67-6-233(b)(1)-(3) makes digital products taxable when sold with rights of less than permanent use, with use conditioned on continued payment, or by subscription — exactly this arrangement.

The add-on charges ride along — the "true object" test. Each service comes with separately itemized extras (scripting, consultation, voice talent, layout and design, production of motion segments, Spanish-language programming, radio-ad conversion, voice prompts, and so on). The Department applied Tennessee's true-object / essential-element rule: when a transaction mixes taxable and nontaxable parts, you tax it according to its crucial, essential, necessary, or integral element. Here every add-on is part of, or further customization of, the digital content, and none of it has any value to the customer without the content. So the add-ons are included in the taxable "sales price" (§ 67-6-102(79)(A)(iii)) — separately stating them does not make them exempt.

The advertising argument failed. Advertising services are not a taxable enumerated service in Tennessee (§ 67-6-205), so the taxpayer argued its messaging was nontaxable advertising. The Department disagreed: the company didn't show it was an "advertising agency," and the definition of taxable "advertising materials" specifically excludes original sound recordings produced by recording/TV/video studios or for ad agencies (§ 67-6-102(2)). The true object of these sales is the recorded content itself — a taxable specified digital product — not an advertising service.

The one carve-out — optional information feeds. The optional weather feeds, news feeds, and stock ticker feeds sold with the VideoCast service are exempt information services under § 67-6-233(d) (subscriptions to data processing and information services delivered electronically) — because the customer buys them for the information itself. But this exemption only applies if the charges for those feeds are separately stated.

Free equipment = use tax on the provider. Tennessee imposes use tax on tangible personal property "used, consumed, distributed, or stored" in the state, paid by whoever exercises a right or power over it (§§ 67-6-203(a), 67-6-102(94)(A)). When the company gives a customer equipment at no charge to deliver the digital products, the company is the user/consumer of that equipment and owes use tax on it. (The taxpayer already conceded that equipment it sells, along with installation, configuration, activation, and site-survey charges, is taxable; and a non-return fee for unreturned equipment is taxable too.)

What this means for you

Sellers of background music, on-hold messaging, and digital signage content

If you license recorded audio, video, or music to Tennessee customers — even on a monthly, "you-don't-get-to-keep-it" basis — you're almost certainly selling a specified digital product that's taxable under § 67-6-233. The licensing/subscription model does not avoid the tax; § 67-6-233(b) was written to capture exactly that. Charge and remit Tennessee sales tax on the full bundle.

Don't expect "separately stated" to rescue bundled production services

Scripting, voice talent, design, production, language options — if they exist only to produce or customize the taxable digital content, the true object test pulls them into the taxable sales price even when you itemize them. The carve-out is narrow: it took genuinely independent information services (weather/news/stock feeds), separately stated, to escape tax here.

Calling it "advertising" usually won't work

Advertising services aren't taxable in Tennessee, but you can't relabel a sale of recorded content as "advertising" to dodge the tax. The Department looks at the true object; if customers are buying the recordings, that's a taxable digital product regardless of their marketing purpose. (And tangible advertising materials and final artwork are themselves taxable under § 67-6-312.)

"Free" equipment isn't free of tax

If you place media players, on-hold boxes, or similar gear with customers at no charge to deliver your service, you are the consumer and owe use tax on that equipment. Build that cost in. Equipment you actually sell (plus installation/configuration/activation/site-survey labor) is taxable to the customer.

Accountants and tax professionals

Specified digital products are taxable under § 67-6-233(a), with the less-than-permanent-use / continued-payment / subscription triggers at § 67-6-233(b)(1)-(3) and SDP definitions at § 67-6-102(27), (28), (29), (86). The information-services exemption is § 67-6-233(d). The taxable "sales price" sweep-in is § 67-6-102(79)(A)(iii). True object: Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621, 624 (Tenn. 1987); AT&T Corp. v. Johnson, 2002 WL 31247083 (Tenn. Ct. App. 2002); Rivergate Toyota, Inc. v. Huddleston, 1998 WL 83720 (Tenn. Ct. App. 1998); see also Ltr. Rul. 14-10. Advertising: § 67-6-205 (not enumerated), § 67-6-312(b), (c) (artwork/materials taxable), § 67-6-102(1), (2), (3)(B) (definitions). Use tax: §§ 67-6-202(a), 67-6-203(a), 67-6-102(94)(A); dealer liability § 67-6-501 (Sam Carey Lumber Co. v. Sixty-One Cabinet Shop, Inc., 773 S.W.2d 252 (Tenn. Ct. App. 1989)).

Common questions

Q: We license background music / on-hold messages to businesses monthly. Is that taxable in Tennessee?
A: Yes. The recordings are "specified digital products" (digital audio works), and licensing them with rights of less than permanent use or conditioned on continued payment is a taxable retail sale under § 67-6-233.

Q: If I separately itemize the scripting, voice talent, and production charges, are those exempt?
A: No. Under the true-object test, those charges are part of producing or customizing the taxable digital content and have no independent value to the customer, so they're included in the taxable sales price even when separately stated.

Q: Are any of these charges exempt?
A: Only the optional weather, news, and stock ticker feeds sold with the video service — those are exempt information services under § 67-6-233(d) — and only if the charges for them are separately stated.

Q: Isn't this just advertising, which Tennessee doesn't tax?
A: The Department said no. The company wasn't shown to be an advertising agency, and the true object of the sale was the recorded content (a taxable digital product), not an advertising service. Original sound recordings are also excluded from the definition of taxable "advertising materials."

Q: We give some customers a media player or on-hold device for free. Any tax?
A: Yes — use tax on you. By using that equipment to deliver the digital products, you're the consumer of it and owe Tennessee use tax on the equipment.

Q: Can I rely on this ruling?
A: Not as binding. This is a Revenue Ruling — advisory only and not binding even on the Department, and certainly not on other taxpayers. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):
- § 67-6-233(a) (specified digital products taxable); § 67-6-233(b)(1)-(3) (less-than-permanent use / conditioned on continued payment / subscriptions); § 67-6-102(27), (28), (29), (86) (SDP definitions)
- § 67-6-233(d) (exemption for data processing and information services delivered electronically)
- § 67-6-102(79)(A)(iii) (taxable "sales price" includes services that are part of the sale); § 67-6-102(72), (79)(A) (sales/purchase price)
- § 67-6-205 (enumerated taxable services — advertising not listed); § 67-6-312(b), (c) (final artwork and advertising materials taxable); § 67-6-102(1) (advertising agency), § 67-6-102(2) (advertising materials — excludes original sound recordings), § 67-6-102(3)(B) (advertising services)
- § 67-6-202(a) (sales tax on tangible personal property); § 67-6-203(a) (use tax); § 67-6-102(94)(A) (definition of "use"); § 67-6-102(78)(C) ("sale" includes furnishing taxable things/services)
- § 67-6-501 (dealer liable for the sales tax)

Case law:
- Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621, 624 (Tenn. 1987) (true-object / essential-element test)
- AT&T Corp. v. Johnson, No. M2000-01407-COA-R3-CV, 2002 WL 31247083 (Tenn. Ct. App. 2002)
- Rivergate Toyota, Inc. v. Huddleston, No. 01A01-9602-CH-00053, 1998 WL 83720 (Tenn. Ct. App. 1998)
- Sam Carey Lumber Co. v. Sixty-One Cabinet Shop, Inc., 773 S.W.2d 252 (Tenn. Ct. App. 1989) (dealer bears ultimate sales-tax liability)

Related guidance:
- Tenn. Dep't of Revenue Letter Ruling 14-10 (Oct. 14, 2014) (bundling and the true-object test)

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/20-03.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 20-03
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 on-hold messaging services, VideoCast
programming services, and overhead music 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 Delaware corporation engaged in the business of selling customized On-Hold
Messaging (“OHM”) Services, VideoCast Programming (“VCP”) Services, and Overhead Music Services.
The Taxpayer describes its business as providing “custom marketing and sales solicitation services by
promoting additional products and services offered by its customers.” The Taxpayer’s specific revenue
streams and billing methods are discussed in more detail below.
On-Hold Messaging Services
The Taxpayer provides custom marketing messaging services for customers’ telephone systems. To
the extent the Taxpayer’s customers’ callers are interested in additional information about a certain
product or service, the OHM Services allow the customers’ systems to direct call traffic to customers’
sales departments.
The charge for OHM Services includes the production of customized recorded messages, including
script (advertising/marketing/copyrighting), consultation services, any music licensing fees the
Taxpayer incurs in production of the messaging, and professional talent options the Taxpayer uses to
produce the messages. The customer is provided, via electronic delivery, an audio commercial
message similar to a commercial aired by a radio station. Customers also have access to custom
messages previously provided to them during the contract period.
A typical contract includes a set number of custom messages per month, consisting of written script
with up to [REDACTED] messages totaling approximately [NUMBER OF] words and the associated
recorded voice and/or music material. All written and recorded material remains the property of the
Taxpayer and may not be used by a customer beyond the expiration date of the agreement. The

customer agrees not to retransmit, reproduce, or duplicate in any manner the productions provided
by the Taxpayer.
The Taxpayer may provide equipment 1 necessary for its customers to utilize the Taxpayer’s audio
messages. Such equipment is invoiced as a separate line item reflecting no charge. Title to the
equipment remains with the Taxpayer. Customers are prohibited from altering, tampering with, or
disassembling the equipment. Customers also are prohibited from using the equipment beyond the
expiration date of the agreement and must return the equipment to the Taxpayer within 30 days from
the end of the agreement. If a customer fails to return the equipment, the Taxpayer charges the
customer a [AMOUNT] fee.
The Taxpayer provides its OHM Service through one of five packages based on customer site types as
described below:
•
•

•
•
•

Primary Site: This facility will have its own entirely custom program which can include new
custom audio productions each month.
Custom Specific Site: This facility will generally have the same custom monthly content that is
selected for the Primary site, but will receive static, customized facility-specific messages in
place of those heard at the Primary site.
Duplicate Site: This facility will have an exact duplicate program of what is selected for the
Primary site.
Modified Primary Site: This facility will have a new program each month with messages that
all Modified Primary sites must use and custom messages specific to the individual site.
Primary Bi-Monthly Site: This facility will have its own entirely custom program. The service
includes a new, professionally produced custom program every other month.

In addition to purchasing one of the five packages, customers may order separately-stated additional
services such as Spanish language programming; pre-recorded radio ad audio conversion, which
requires editing/re-recording; on-site interview sessions, which include audit introduction and wrap
by a professional voice; and voice prompts, which include professional writing, voice over, wraps and
production.
VideoCast Programming Services
The Taxpayer provides customized VCP Services to the customer’s location. The VCP Service allows
custom promotional content to be played on video screens at the customer’s location. In addition to
custom promotional content, the customer may also purchase generic content such as weather feeds,
news feeds, and/or a stock market ticker feed. A menu board or other content, such as the status of
an order, may also be displayed. All content is generally delivered electronically.
The VCP Service requires a Digital Signage Media Player that the Taxpayer provides to the customer.
The Digital Signage Media Player is invoiced as a separate line item reflecting no charge. The customer
may use its own TV monitors and equipment to display the content or may purchase these items from
the Taxpayer.

1

The sample contract provided indicates the equipment is [REDACTED].

2

Charges for VCP Services include the following services involved in producing the custom video
content:
•
•
•
•
•
•
•

Development of initial custom layout and design
Production of elements and motion segments
Access to historical static and video content
Remotely managed content updates
A set number of hours monthly for custom digital creative updates
Portal access for each location, which offers the ability for local content updates
Weather feeds, news feeds and stock ticker feeds (these are optional and are only included in
the charges when provided)

The custom video content is licensed to the Taxpayer’s customers as a non-exclusive, nontransferrable, non-assignable, limited license in the content for the term of the agreement. Customers
agree not to make copies of the content in any format, not to create derivative works from the content
or make any changes to the content, and not to use the content at any other location, trade show or
marketing event. The content is the Taxpayer’s copyrighted, proprietary information and is protected
by applicable copyright laws, and all rights to license, market, or otherwise develop or dispose of the
content are the exclusive property of the Taxpayer.
Additionally, the invoice states that any Digital Signage Media Players provided as part of the services
will remain the property of the Taxpayer and customers may not sell, dispose of, or otherwise
encumber these items. Any television monitors or mounting equipment purchased by a customer will
remain the customer’s property.
Overhead Music Services
The Taxpayer provides pre-programmed channels of advertising-free music in a variety of genres. The
Taxpayer’s Overhead Music Services are generally provided by third-party producers. Such music is
licensed by the Taxpayer and subsequently licensed to the Taxpayer’s customers for a fee. Customers
are not permitted to record, modify, edit, reproduce, transmit or alter any licensed music.
As an additional service and for an additional fee, customers may choose to have customer-specific
promotional messages (the “promotional messages”) inserted into the music playlist. The promotional
messages direct shoppers to a current sale item or remind them about seasonal specials.
Approximately 60%-70% of the Taxpayer’s customers purchase this additional service. All written and
recorded material provided as part of the additional service remains the property of the Taxpayer and
may not be used by customers beyond the expiration date of the agreement. Customers agree not to
retransmit, reproduce, or duplicate in any manner the promotional messages provided by the
Taxpayer.
The Taxpayer usually sells overhead music equipment to customers in order to facilitate its Overhead
Music Services. However, the Taxpayer may, on occasion, provide equipment to customers at no
charge.
For all three services, the Taxpayer may charge customers a service activation fee that includes labor
and materials for the installation and configuration of any necessary equipment. If a site survey is
necessary, the Taxpayer will perform one for an additional fee.
3

The Taxpayer separately itemizes all fees on its invoices. The Taxpayer acknowledges that all charges
for the provision of tangible equipment and the installation and configuration of such equipment for
all three services, including charges for site surveys and service activation fees, are subject to
Tennessee sales and use tax. 2
RULINGS
1.

Are the Taxpayer’s OHM Services subject to Tennessee sales and use tax?
Ruling: Yes, the Taxpayer’s OHM Services are subject to Tennessee sales and use tax under
TENN. CODE ANN. § 67-6-233 (2018).

2.

Are the Taxpayer’s VCP Services subject to Tennessee sales and use tax?
Ruling: Yes, the Taxpayer’s VCP Services are subject to Tennessee sales and use tax under
TENN. CODE ANN. § 67-6-233. However, the optional weather feeds, news feeds, and stock ticker
feeds that may be sold with the VCP Services are exempt information services under TENN.
CODE ANN. § 67-6-233(d).

3.

Are the Taxpayer’s Overhead Music Services subject to Tennessee sales and use tax?
Ruling: Yes, the Taxpayer’s Overhead Music Services are subject to Tennessee sales and use
tax under TENN. CODE ANN. § 67-6-233.

4.

Is the Taxpayer required to pay Tennessee use tax on the equipment it provides to Tennessee
customers for no charge?
Ruling: Yes. When the Taxpayer provides equipment to its Tennessee customers at no cost,
the Taxpayer is using the equipment to transfer specified digital products and is subject to
Tennessee use tax on the equipment.
ANALYSIS

Under the Retailers’ Sales Tax Act (the “Act”), 3 retail sales of tangible personal property and specifically
enumerated services 4 are subject to the sales tax, unless an exemption applies. The term “sale”
includes “the furnishing of any of the things or services” taxable under the Act. 5 One of the “things”
This includes the [AMOUNT] fee charged for equipment provided to OHM Service customers that is not returned. The Taxpayer
is not currently collecting and remitting Tennessee sales and use tax; it must do so. TENN. CODE ANN. § 67-6-501 places the
liability for sales tax on the dealer selling tangible personal property. While the dealer may charge the consumer the appropriate
tax, as between the dealer and the consumer, it is the dealer that is ultimately liable to the state. Sam Carey Lumber Co. v. SixtyOne Cabinet Shop, Inc., 773 S.W.2d 252 (Tenn. Ct. App. 1989). The Taxpayer cannot transfer this responsibility to its customers
by contract or otherwise. Thus, the Taxpayer must register for sales and use tax and may do so through the Department’s
Tennessee Taxpayer Access Point (“TNTAP”) at: https://tntap.tn.gov/eservices/_/.
2

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN. CODE ANN.
§§ 67-6-101 to -907 (2018)).
3

4

TENN. CODE ANN. § 67-6-205 (Supp. 2019) (listing services subject to tax).

5

TENN. CODE ANN. § 67-6-102(78)(C) (Supp. 2019).

4

specifically taxable under the Act is the “retail sale, lease, licensing or use of specified digital products
transferred to or accessed by subscribers or consumers” in Tennessee. 6 Specified digital products
include “electronically transferred digital audio-visual works, digital audio works and digital books.” 7
The transactions at issue involve multiple components, some of which are not subject to tax. When a
sale consists of taxable and nontaxable components, the transaction’s true object or its crucial,” 8
“essential,” 9 “necessary,” 10 “consequential,” 11 or “integral” 12 element determines its taxability. 13 If the
true object of the transaction is not independently subject to sales tax and the taxable components
are “merely incidental” to the true object of the transaction, the transaction is not subject to sales
tax. 14 However, if the true object is taxable, the entire transaction is taxable. If the transaction is
taxable, the tax base is its “sales price” or “purchase price,” which is defined to include the total amount
of consideration for which property or services are sold. 15
ON-HOLD MESSAGING SERVICES
The customized recorded messages licensed for use under the Taxpayer’s OHM Services are specified
digital products. As such, the Taxpayer’s OHM Services, including the separately stated additional
services, are subject to the Tennessee sales and use tax under TENN. CODE ANN. § 67-6-233. 16

6

TENN. CODE ANN. § 67-6-233(a) (2018).

7

TENN. CODE ANN. § 67-6-102(27), (28), (29), and (86) (defining the types of specified digital products).

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

Id.; see also AT&T Corp. v. Johnson, No. M2000-01407-COA-R3-CV, 2002 WL 31247083, at *8 (Tenn. Ct. App. Oct. 8, 2002) (holding
that a transaction involving the sale of engineering services along with separately itemized tangible telecommunications
systems was subject to sales tax on the entire amount of the contract because “equipment, engineering, and installation
combine in this instance to produce BellSouth's desired result: a functioning item of tangible personal property assembled on
the customer’s premises,” and further describing the engineering services as “essential” and “integral” to the sale of tangible
personal property).
9

10

See supra note 8.

11
See Rivergate Toyota, Inc. v. Huddleston, No. 01A01-9602-CH-00053, 1998 WL 83720, at *4 (Tenn. Ct. App. Feb. 27, 1998) (holding
that a transaction involving the commission and distribution of advertising brochures was subject to sales tax on the “entire
cost of the transaction” because, although the transaction involved a number of services, the brochures themselves “were not
inconsequential elements of the transaction but, in fact, were the sole purpose of the contract”).
12

See AT&T Corp. v. Johnson, 2002 WL 31247083, at *8.

See generally Tenn. Dept. of Rev. Ltr. Rul. 14-10 (Oct. 14, 2014) (discussing Tennessee law regarding bundling and the “true
object” test), available at https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/14-10.pdf.
13

14

See generally id.

15

TENN. CODE ANN. § 67-6-102(72) and (79)(A).

16

See also TENN. CODE ANN. 67-6-102(86).

5

OHM Services are sold with rights of less than permanent use to the recorded messages and such
rights are conditioned upon continued payment by the customer. The contract for the OHM Services
provides that all written and recorded material remains the property of the Taxpayer and may not be
used by the customer beyond the expiration date of the agreement. The customer agrees not to
retransmit, reproduce, or duplicate in any manner the productions provided by the Taxpayer. A
taxable retail sale includes the sale of an audio digital work with rights of less than permanent use. 17
The customized recorded messages are digital audio works, which are a type of specified digital
product, and the customer’s purchase constitutes a taxable retail sale as described in TENN. CODE ANN.
§ 67-6-233(b)(1)-(3).
OHM Services also include a sales and marketing aspect. Advertising services are not among those
services listed as taxable in Tennessee. 18 While advertising services are not subject to tax, final artwork
sold by an advertising agency to a customer pursuant to an agreement for advertising services is
subject to sales tax. The sales price of the final artwork, however, does not include fees paid for
advertising services. 19
The Taxpayer has not provided facts that support that it is an advertising agency as defined in TENN.
CODE ANN. § 67-6-102(1), nor do its contracts appear to be for advertising services. Under TENN. CODE
ANN. § 67-6-102(3)(B), advertising services do not include the production of final artwork or advertising
materials. 20 While advertising materials are subject to tax, they are defined to exclude “original sound
recordings produced by recording studios, television studios, video production studios or by or for
advertising agencies, or masters produced from the original recordings, regardless of whether the
original recordings or masters are produced in a tangible medium or a digital equivalent.” 21 The
Taxpayer’s facts do not suggest that these services are included in its sales. In summary, the
Taxpayer’s facts do not support a finding that the crucial element of the transaction is advertising
services. Instead, the Taxpayer’s facts and contracts support a conclusion that the true object of the
sale is the recorded messages, which are subject to Tennessee sales and use tax as described above.
Although other separately-stated additional services are available under the OHM Service, some of
which may not be otherwise subject to tax, all of the additional services are a part of or are further
customization of the customized recorded messages (e.g. Spanish language programming, radio ad
audio conversion, voice prompts, professional writing, etc.). Without being able to obtain the
customized recorded messages, none of the other service offerings would be of any value to the
customer. These services, therefore, are part of the sales of the digital audio work (the customized
recorded messages) and subject to tax under the definition of “sales price”. 22 Consequently, charges
17
TENN. CODE ANN. § 67-6-6-233(a) and (b)(1)-(3) (stating that the “retail sale, lease, licensing or use of specified digital products
transferred to or accessed by subscribers or consumers” in Tennessee is subject to sales and use tax and include: “[s]pecified
digital products sold with rights of less than permanent use; [s]pecified digital products sold with rights of use conditioned upon
continued payment by the subscriber or purchaser; and [s]ubscriptions to, access to or the purchase of a digital code for receiving
or accessing specified digital products.” Emphasis added.)
18

TENN. CODE ANN. § 67-6-205.

19

See TENN. CODE ANN. § 67-6-312(b) (2018).

20

Advertising materials are specifically subject to Tennessee sales and use tax pursuant to Tenn. Code Ann. § 67-6-312(c) (2018).

21

TENN. CODE ANN. § 67-6-102(2).

22

TENN. CODE ANN. § 67-6-102(79)(A)(iii).

6

for the Taxpayer’s OHM Service are subject to the sales and use tax under TENN. CODE ANN. § 67-6-233
as the licensing for use of specified digital products.
VIDEOCAST PROGRAMMING SERVICES
The VCP Service allows custom promotional content and generic feeds to be played on video screens
at the customer’s location. The custom video content licensed for use under this service is a specified
digital product. As explained in the previous section, specified digital products are subject to tax under
TENN. CODE ANN. § 67-6-233. However, as explained below, the optional weather feeds, news feeds,
and stock ticker feeds are exempt information services. 23
Sales of specified digital products are subject to Tennessee’s sales and use tax. Here, the Taxpayer’s
customers pay a fee in exchange for the custom video content. The custom video content is a digital
audio-visual work, which is a type of specified digital product as defined by statute. The sale, lease, or
licensing of audio-visual works is subject to tax as set forth in TENN. CODE ANN. § 67-6-233(b)(1)-(3). 24
Although there are itemized charges for the VCP Services, some of which may not otherwise be subject
to sales and use tax, all of the itemized charges except the charges for weather feeds, news feeds, and
stock ticker feeds are a part of or are additional customization of the custom video content (e.g.,
custom layout and design, production of elements and motion segments, access to historical video
content, managing updates, custom digital creative updates, etc.). Without being able to obtain the
customized video content, none of the itemized VCP Service charges would be of any value to the
customer. These services, therefore, are included in the sales price of the digital audio-visual work
and subject to tax. 25 Other than the exception described below, charges for the Taxpayer’s VCP
Services are subject to sales and use tax under TENN. CODE ANN. § 67-6-233 as the sale of access to
specified digital products.
Information services are exempt under TENN. CODE ANN. § 67-6-233(d), which excludes certain items
from tax, including “subscriptions to data processing and information services that allow data to be
generated, acquired, stored, processed or retrieved and delivered by electronic transmission to a
purchaser.” Information services include weather feeds, news feeds, and stock ticker feeds. The
Taxpayer’s customers purchase the weather feeds, news feeds, and stock ticker feeds for the
information contained therein. Accordingly, if the Taxpayer separately states the charges for the
weather feeds, news feeds, and stock ticker feeds, the charges for these information services will not
be subject to sales and use tax.
OVERHEAD MUSIC SERVICES
Customers purchasing the Overhead Music Services pay a monthly fee in exchange for the preprogrammed advertising-free music, which may consist of only music or may include optional
promotional messages. The licensing terms are the same as the licensing arrangements for the
23

TENN. CODE ANN. § 67-6-233(d).

Consistent with the analysis of the customer audio messaging, the true object of the VPC Service is the digital audio-visual
work.
24

25

TENN. CODE ANN. § 67-6-102(79)(A)(iii).

7

products described above. The pre-programmed advertising-free music, including, if any, promotional
messages licensed for use under this service offering also falls within the definition of a “specified
digital product” as a “digital audio work.” 26 Like the previously discussed services, the Taxpayer’s
Overhead Music Services are subject to the sales and use tax under TENN. CODE ANN. § 67-6-233.
The purchase of the Overhead Music Services, alone, or including the optional promotional messages,
constitutes a retail sale of a specified digital product. Although there are other itemized charges such
as activation fees or site survey fees, some of which may not be otherwise subject to Tennessee sales
and use tax, those additional charges are for services that are part of the sale of the Overhead Music
Services. These services have no value to the customer without the music and optional promotional
messages. Under these facts, charges for these services are part of the sale of the digital audio work. 27
Accordingly, charges for the Taxpayer’s Overhead Music Services and optional promotional messages
are subject to the sales and use tax as sales of access to specified digital products. 28
APPLICABILITY OF USE TAX
Tennessee imposes a sales tax on retail sales of tangible personal property. 29 Tennessee also imposes
a use tax on the purchase price of each item of tangible personal property “when the same is not sold
but is used, consumed, distributed, or stored for use or consumption in this state.” 30 The tax is paid
by the person who “uses” the property in Tennessee. In this context, “use” is defined as “the exercise
of any right or power over tangible personal property incident to the ownership thereof.” 31
The Taxpayer stated that it may provide equipment to customers at no charge. In such circumstances,
the Taxpayer is using tangible personal property to transfer specified digital products to its customers.
Accordingly, the Taxpayer is the user and consumer of the equipment provided at no charge to its
Tennessee customers and is liable for use tax on these items.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

5/4/2020

26

TENN. CODE ANN. § 67-6-102(27) and (86).

27

TENN. CODE ANN. § 67-6-102(79)(A)(iii).

28

TENN. CODE ANN. § 67-6-233.

29

TENN. CODE ANN. § 67-6-202(a) (2018).

30

TENN. CODE ANN. § 67-6-203(a) (2018).

31

TENN. CODE ANN. § 67-6-102(94)(A).

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