Which parts of a healthcare practice-management software suite are subject to Tennessee sales tax, and what happens when they are bundled into one price?

Plain-English summary

A vendor sells healthcare practices a cloud suite with three offerings — Billing and Claims (the vendor's staff file and chase insurance claims and patient bills), Manager (an electronic-health-record / practice-management program the practice uses itself), and Transmitter (appointment reminders, live operators, and a patient portal). It asked Tennessee which pieces are taxable. The answer splits along the line between software you use and a service someone performs for you:

• Manager = taxable. Tennessee taxes computer software even when it is accessed remotely. Manager is software the practice uses to manage its own health records, so it is taxable — even though a lot of human data-entry work sits behind it. Once the taxable software is more than "merely incidental," the whole offering is taxable.
• Billing and Claims = not taxable. This is really a billing and collection service — work done by the vendor's employees — which Tennessee's software statute expressly lists as a non-taxable service. The software is just how the staff and customer touch the service, so it is merely incidental.
• Transmitter = not taxable. It is a limited patient-communication tool, not a "telecommunications service" (which means general communication with a multitude of parties), and the patient portal is merely incidental to that communication.

Then the bundling rule decides the combinations. Under Tennessee law, when two or more products are sold for one non-itemized price and any one of them is taxable, the entire price is taxable. So: Billing and Claims alone, or with Transmitter, is non-taxable; but Manager alone, Manager sold with anything, and the all-in Bundled Base Package are fully taxable.

What this means for you

Software / SaaS vendors selling into Tennessee

Taxability of a cloud offering turns on its true object: are you selling software the customer operates, or a service your people perform? Tennessee taxes remotely accessed software, but expressly does not tax billing-and-collection, data-processing, or data-storage services. Note the asymmetry the Department stressed: the non-taxable work does not have to be smaller — if a taxable software component is more than "merely incidental," the offering is taxable even when the human/data work is larger by sheer volume. And how you package and price matters: bundling a taxable item with non-taxable ones under a single price makes the whole charge taxable.

Doctors' offices and other buyers

Expect tax on practice-management / EHR software you operate yourself, and expect the whole bill to be taxed if it is quoted as one bundled price that includes any taxable software. If you want the non-taxable services (billing/collection, patient communication) to stay untaxed, they generally need to be purchased — and separately stated — apart from the taxable software, not lumped into a single price.

Accountants and advisors

This ruling cleanly applies two distinct doctrines. The true-object / "merely incidental" test (Commerce Union Bank; Qualcomm) governs a single mixed offering — Manager, Billing and Claims, and Transmitter were each analyzed on their own. The bundled-transaction rule (§ 67-6-102(87)(A)(vi)) governs separate products sold for one price — there, a single taxable item taxes the entire charge regardless of how it is invoiced. Don't conflate the two.

Common questions

Q: Is software taxable in Tennessee if it only lives in the cloud?
A: Yes. Tennessee taxes computer software even when it is accessed remotely rather than downloaded or installed.

Q: Our vendor's people do our insurance billing through their system. Is that taxable software?
A: Not under this ruling. Where the vendor's employees perform the work and the software is just how the service is delivered and accessed, it is a non-taxable billing-and-collection service; the software is "merely incidental."

Q: Manager has a lot of human data-entry behind it. Doesn't that make it a service?
A: No. The Department said the software lets the practice manage its own records — a true object of the deal — and as long as the taxable software is more than merely incidental, the offering is taxable even if the human/data work is larger by volume.

Q: Why is the all-in bundle fully taxable?
A: Because Tennessee's bundling rule says that when items are sold together for one non-itemized price and any item is taxable, the entire price is taxable. Manager is taxable, so any bundle containing it (including the Bundled Base Package) is fully taxable.

Q: Can I rely on this for my own product?
A: Not as binding. A Tennessee revenue ruling is advisory, is not binding on the Department, and is based on the specific facts presented. Your offering's true object and pricing may differ.

Citations and references

Statutes (Tennessee Code Annotated):
- §§ 67-6-201, -202, -203, -231 — imposition of sales/use tax; § 67-6-231(b) taxes remotely accessed software and lists non-taxable billing/collection, data-processing, and data-storage services
- § 67-6-102(97)(A) — "prewritten software" is taxable tangible personal property
- § 67-6-102(18) — definition of computer software
- § 67-6-205 — enumerated taxable services (telecommunications at § 67-6-205(c)(3))
- § 67-6-102(87)(A)(vi) — bundled transaction: one non-itemized price + any taxable item = entire price taxable

Cases:
- Commerce Union Bank v. Tidwell, 538 S.W.2d 405 (Tenn. 1976) — true object / "merely incidental"
- Qualcomm, Inc. v. Chumley, 2007 WL 2827513 (Tenn. Ct. App. 2007) — true object / primary purpose
- Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911 (Tenn. Ct. App. 1994) — only enumerated services are 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/25-04.pdf

Original ruling text

The application of the Tennessee sales and use tax to practice management products provided to
healthcare providers and physician’s offices.

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.

The Taxpayer offers practice management products to healthcare providers and physician’s offices
(the “Customers”). The Taxpayer provides the Customers with a suite of network healthcare solutions
(collectively, the “Products”). The Taxpayer’s Products assist healthcare providers in the entire patient
treatment lifecycle – from patient intake, insurance billing and management, medical record
documentation, patient engagement, invoicing patients and insurance carriers, and claims follow-up.
The interface between the Taxpayer and the Customers is exclusively internet-based, and, at the
Customers’ selection, includes access via mobile app for which there is no separate charge. The
Taxpayer’s cloud-based platform is housed exclusively on the Taxpayer’s servers, which are located
outside of Tennessee. Physician practice data is securely maintained on the Taxpayer’s servers, and
the Taxpayer does not charge the Customers separately for data storage, retrieval, or transmission.
The Customers can access data through built-in reporting functions or through custom reports.
The Taxpayer never transfers any software licenses to the Customers, nor does the Taxpayer ever
install its proprietary software on the Customers’ servers or hardware. Java software, known as
“applets,” are sometimes downloaded onto a user’s personal server or hardware during a web-based
browser session, but these applets have no independent value or use apart from facilitating the web
browser session.
The Taxpayer’s primary Products are comprised of Billing and Claims, Manager, and Transmitter. In
some instances, the Taxpayer bundles these three Products together as its Bundled Base Package.
When the Customer signs up for one or more offerings from the Taxpayer, the contract requires the
Customer to pay an initial implementation fee in addition to a recurring monthly charge. The
implementation fees cover the set-up of the Customer on the Taxpayer’s systems as well as any
assistance from the Taxpayer’s personnel to facilitate the set-up process and perform the initial user
training for the Customer, sometimes for an additional fee. Thereafter, the Taxpayer’s monthly
charges are based on the offering selected by the healthcare provider and typically determined based

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on a percentage of the Customer’s revenue. Alternatively, in some instances, the monthly charges are
imposed at a flat rate based on the number of practitioners in a medical practice or the number of
claims processed. Where the Customer purchases Bundled Base Package, the Customer receives the
suite of Products for one monthly charge. The Taxpayer does not provide any internet, telephone, or
facsimile connections to the Customer. The Customer is responsible for obtaining the requisite access
to the respective communication services necessary to communicate with the Taxpayer in the context
of all of the offerings.
The Taxpayer’s internet-based Products are described as follows:
Billing and Claims
The Taxpayer’s Billing and Claims offering is a practice management and revenue cycle offering that
manages administrative and billing-related functions for physician practices. The Customers conduct
business in an industry where third-party insurers are a significant source of payments for services
rendered to patients. The Taxpayer’s offering enables the Customers to achieve faster reimbursement
from payers, reduce billing error rates, increase collections, lower operating costs, improve
operational workflow controls, improve patient satisfaction and compliance, and more efficiently
manage clinical and billing processes.
The primary functionality of the Billing and Claims offering includes sending insurance claims;
receiving, processing, and posting payments from insurance companies and patients; and working
the Customers’ accounts receivable, which consists of tracking claims, investigating claims that have
been denied by the insurance company, providing tools that allow the Customers to determine
whether insurance payments comport with the Customers’ contracted rates, and managing the
patient billing cycle by sending patient statements and posting any patient payments the Taxpayer
receives. While Billing and Claims automates certain functions for the Customers, there is significant
human involvement required from the Taxpayer’s employees reviewing, tracking, processing, and
working claims. The Customer does not have the ability to utilize the Taxpayer’s software or
technology to work its own claims. In circumstances where incorrect information was submitted, the
Customer could contact the patient, obtain the correct information, and submit the correct
information to the Taxpayer through the Billing and Claims offering.
During Customer onboarding, the Taxpayer assigns a dedicated Taxpayer employee or agent to
collaborate with the Customer to ensure that enrollment paperwork is submitted to the insurance
companies. This enrollment work allows the Customer to update its pay-to-address, sign up for
electronic claim submission and adjudication, and receive payment from insurance companies
electronically. The Taxpayer’s employees and agents, in providing the Billings and Claims offering,
conduct outreach to third-party payers to determine the status of outstanding medical claims,
prepare custom appeal forms when directed by the Customer, and engage with insurance companies
to ascertain any necessary steps to secure payment for claims. The Taxpayer maintains an electronic
eligibility interface with insurance carriers which allows the Taxpayer to provide insurance eligibility
verification prior to a patient’s office visit. The Taxpayer also tracks the Customer’s practice activity to
ensure that charges are captured and properly entered, and claims are generated for each patient
visit. This function is a combination of manual effort to establish logic used when new claims are filed
and automatically transferred information. The tracking is a function performed by the Taxpayer and
not the Customer.

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A key component of Billing and Claims is a database of payer-specific reimbursement requirements,
researched and regularly updated by the Taxpayer, that facilitates the full and accurate payment by
health insurers of patient bills. The Taxpayer works directly with Customers to submit insurance
claims and collect patient balances, communicating with each other via claim notes within the user
interface. Each Customer grants the Taxpayer the authority to submit claims on its behalf. Relying on
its database of reimbursement requirements, the Taxpayer can analyze, process, and submit claims
on behalf of the Customer in accordance with the insurance carrier’s requirements. The Taxpayer’s
employees review payor and insurance manuals and from there create a rule set that is used as the
logic for any software automation. These rule sets can vary based on medical provider, state,
treatment plans, etc. These rule sets also change over time, which requires employee interaction. As
part of its submission, the Taxpayer must ensure that all required information is gathered and
presented appropriately for adjudication. Utilizing its employees and automation, the Taxpayer tracks
the status of claims, including calling payers, faxes, checking payer portals, and sending demand
letters for claim statuses. For denied claims, the Taxpayer’s employees review the claim denial
explanation, and in some cases analyze whether the claim denial was appropriate. This includes
reviewing medical service eligibility and when necessary, taking necessary steps including contesting
the insurance carrier’s claim denial. As part of this process, when appropriate, the Taxpayer’s
employees will resubmit denied claims after the Customer has made appropriate corrections.
In resolving claims, the Taxpayer may use a proprietary tool to access third-party web portals such as
a third-party payer’s website and Application Programming Interfaces on the Customer’s behalf to
submit documentation required by third-party payers. The Taxpayer also generates patient billing
statements for the Customer’s patients. Finally, the Taxpayer facilitates the transfer of past patient
accounts to the Customer’s designated collection agency based on policies and procedures as
determined by the Customer.
Manager
The Taxpayer’s Manager offering provides managed and automated medical record and patient
workflow assistance for healthcare providers, including an electronic health record management
feature. Manager captures and stores pertinent patient data, including an electronic chart which
summarizes each patient’s relevant medical and demographic information, encounter
documentation, orders (e.g., lab work, imaging), results, patient interactions and questionnaires,
clinical reminder tracking, and workflow task management. Manager also enables the Customer to
manage outbound prescriptions, place outbound orders, and obtain results that the Taxpayer
connects to the antecedent order where possible. The Customer determines and configures what
information is to be shared directly with its patients.
Through its Manager offering, the Taxpayer presents the Customer with a library of global content,
including clinical templates for documenting patient care (such as history of present illness, review of
systems, medical procedures, and physical exam), clinical guidelines reflecting medical standards and
best practices, curated lists of permissible orders, and guidance related to drug interactions. The
Customer can modify default templates within the user interface to customize, for example, screening
questionnaires, patient information forms, and clinical templates.
The Customer authorizes the Taxpayer to exchange data with other sources including state health
reporting organizations and other third-party providers that facilitate more efficient patient care
collaboration. The Customer can input patient data and details from patient visits using a variety of
methods, including typing into or making selections from within templates provided from Manager

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document libraries; voice-to-text entries; or labeling hand-written documents with barcodes that are
sent to the Taxpayer for incorporation into electronic records. Documents with barcodes are not
handled by human beings. A document with a barcode comes into the practice, and the barcode helps
organize/file/route the document to the proper filing location. If the document comes in without a
barcode, this typically indicates that it is coming in from a third party (i.e., not from the Taxpayer’s
customer) which will require an employee to manually file/route the document to the property.
The Taxpayer also takes on responsibility for classifying and processing documents that are sent to
the Customer by third parties (including other physicians, pharmacies, and labs). The Taxpayer’s
dedicated team processes incoming documents, organizes the documentation by patient, and
presents them to the physician’s practice. Documents that the Taxpayer has access to are classified
by type (e.g., lab result, consult letter, etc.), matched to the correct patient chart, tied to outstanding
orders (if applicable), verified for classification, and entered into the Taxpayer’s database. The
Taxpayer may also distribute prescription renewals, referrals, consultation letters, and authorizations,
relieving the physician’s staff of these tasks. Manager also utilizes fax services provided by third party
vendors and telecom providers to carry out its functions. In addition, Manager also has a secure
messaging function where the Customer can send messages to known trusted recipients using a
standard internet connection.
Through the Taxpayer’s co-sourcing model, data entry tasks are completed through a combination of
the Taxpayer’s Products and the efforts of the Customer’s medical practice staff. The Manager offering
incorporates approximately sixteen million documents into the database each month, including
facsimiles received from lab service providers and others. Facsimiles are reviewed, coded, and
integrated into the database by a staff of approximately 1,100 of the Taxpayer’s employees and
contractors, using a multi-level, multi-reviewer scanning, categorization, and data entry process or
through automated processes established by the Taxpayer. Many Customers participate in quality
management programs overseen by government or private parties. The Taxpayer’s personnel support
the Customers’ participation in these programs, including program data submission and audit support
with respect to certain programs. Finally, the Taxpayer offers the Customer the Bundled Package App,
for no separate charge, which serves as an extension of Manager for desktop and iOS devices allowing
the Customer to use Manager to accomplish a subset of clinical tasks.
Transmitter
The Taxpayer’s Transmitter offering provides the Customer with a set of tools that allows on-demand,
automated and live interaction between patients and Customers both pre- and post-visit, including
unlimited use of the patient portal. The Taxpayer’s Transmitter offering consists of three primary
tools: (1) messaging, (2) access to live operators; and (3) patient portal. Transmitter involves significant
human effort from the Taxpayer’s subcontractors as well as automated processes. Transmitter is not
sold as a standalone product but is instead only provided in conjunction with either Manager, Billing
and Claims, or both.
Transmitter includes an automated appointment reminder system that allows patients to either
confirm the appointment or request rescheduling through a live operator. It is also used to remind
patients to make appointments for various wellness visits including cancer screenings, annual
physicals, and vaccinations. Lastly, phone calls and text messages alert patients to the availability of
results.

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Transmitter offers live operators who take redirected calls from the Customers. Where authorized by
the Customer, live operators can schedule patient appointments following the Customer’s scheduling
protocols, collect patient payments, and relay patient messages according to the Customers’ defined
processes, namely through the user interface Customers use for Billing and Claims and Manager. Live
operators are available from 10:00 a.m. to 8:00 p.m. (Eastern Time) Monday through Friday, excluding
major holidays.
Through the patient portal, patients can send secure messages to their healthcare provider and
complete online check-in through the patient portal as well as schedule appointments. The patient
portal allows healthcare providers to securely initiate, receive, and respond to patient messages.
Patients are directed to log in to their patient portal account to view patient health information or
account statements. Customers with Bundled Base Package can use the patient portal for online selfcheck in prior to the appointment. Post-appointment, Customers can send lab results to patients,
send patient questionnaires, send notices for unpaid balances, and collect payments from patients.
The Customer portal used in the Transmitter offering is web-based and hosted by the Taxpayer so
that physician practices do not need downloaded software, servers, or phone lines to use it.

1.

Are Tennessee sales of Billing and Claims subject to Tennessee sales and use tax?
Ruling: Not when sold on its own or with Transmitter. When bundled with Manager and sold
for one charge, then it is subject to sales and use tax.

2.

Are Tennessee sales of Manager subject to Tennessee sales and use tax?
Ruling: Yes. This is a sale of software subject to sales and use tax.

3.

Are Tennessee sales of Transmitter subject to Tennessee sales and use tax?
Ruling: Not when sold with Billing and Claims. Yes, when sold together with Manager.

Retail sales in Tennessee of tangible personal property and computer software are subject to sales
and use tax.1 Computer software is a set of coded instructions designed to cause a computer to
perform a task,2 and it is subject to Tennessee sales and use tax even when the software is accessed
remotely.3

TENN. CODE ANN. §§ 67-6-201, 202, 203 and 231(2022 & Supp. 2024). The definition of “tangible personal property” includes
“prewritten software.” TENN. CODE ANN. § 67-6-102(97)(A). Custom software is subject to tax under TENN. CODE ANN. § 67-6-231.

1

2

TENN. CODE ANN. § 67-6-102(18) (Supp. 2023).

3

TENN. CODE ANN. § 67-6-231(b) (2022).

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In contrast, sales of services are not generally subject to sales and use tax. Instead, only specifically
enumerated services are subject to sales and use tax.4 In 2015 when the General Assembly imposed
tax on remotely accessed software, they made clear the new law was not intended to impose a tax on
any services not already subject to sales and use tax.5
There are circumstances in which a transaction involves both a taxable component, such as tangible
personal property, and a non-taxable component, such as a non-enumerated service. The application
of sales tax to these transactions generally depends on the products involved and may be impacted
by the pricing structure chosen by the vendor. For example, some transactions may include two or
more stand-alone products sold for one non-itemized price. This type of sale is often referred to as a
“bundled transaction.”6 In Tennessee, whenever two or more items are sold together for a single nonitemized price and at least one of the items is subject to sales tax, the entire sales price is subject to
sales tax.7
Other circumstances involve transactions that may include closely related taxable and non-taxable
components that generally would not be sold as separate products. This type of sale is often referred
to as a “mixed transaction.”8 In such transactions, the true object of the transaction must be
ascertained to determine if the transaction is subject to sales and use tax. 9 The totality of the facts
and circumstances are looked at to determine what objective is really being accomplished by the
transaction.10 When a transaction involves taxable and non-taxable components and the transaction’s
true object or a crucial, essential, necessary, consequential, or integral element of the transaction is
subject to tax, the entire transaction is subject to sales tax, regardless of how it is invoiced. 11 Only if
the true object of the transaction is not independently subject to sales tax and the components that
would be subject to sales tax are “merely incidental” to the true object will the transaction not be
subject to sales tax.12

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). Taxable services
are enumerated at TENN. CODE ANN. § 67-6-205 (2022).
4

TENN. CODE ANN. § 67-6-231(b)(2022)(stating further that services not currently subject to sales and use tax include, but are not
limited to, “information or data processing services, including the capability of the customer to analyze such information or
data provided by the dealer; payment or transaction processing services; payroll processing services; billing and collection
services; internet access; the storage of data, digital codes, or computer software; or the service of converting, managing, and
distributing digital products.”)
5

6

See, e.g., TENN. CODE ANN. § 67-6-538 “Bundled transactions – Telecommunications services”.

Sales price includes “[t]he value of the value of exempt personal property given to the purchaser where taxable and exempt
personal property have been bundled together and sold by the seller as a single product or piece of merchandise.” T ENN. CODE
ANN. § 67-6-102(87)(A) (Supp. 2023); See also Tomkats Catering, Inc. v. Johnson, No. M2000-03107-COA-R3-CV, 2001 WL 1090516,
at *2 (Tenn. Ct. App. Sept. 19, 2001) (applying bundled principles to a transaction involving services and tangible personal
property).
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8

See e.g., Tennessee Department of Revenue Letter Ruling 14-10, for more discussion on mixed transactions, available at:
https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/14-10.pdf, (last accessed 04/10/25).
See generally Qualcomm, Inc. v. Chumley, No. M2006-01398-COA-R3-CV, 2007 WL 2827513, at *4-5 (Tenn. Ct. App. Sept. 26, 2007)
(giving a synopsis of the “true object” or “primary purpose” test in Tennessee).
9

See, e.g., AOL, Inc. v. Roberts, No M2012-01937-COA-R3-CV, 2013 WL 4067977, at *6 (Tenn. Ct. App. Aug. 12, 2013) (basing the
holding on the “totality of the circumstances”).
10

11

See Tenn. Dept. Rev. Ltr. Rul. No. 14-10 (Oct. 13, 2014) for a full discussion of the true object test.

12

See Commerce Union Bank v. Tidwell, 538 S.W.2d 405, 408 (Tenn. 1976).

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Billing and Claims
The Billing and Claims offering is a service not subject to sales and use tax. T ENN. CODE ANN. § 67-6231(b) specifically references billing and collection services when describing services that are not
subject to sales and use tax. The significant work performed by the Taxpayer’s employees to send
insurance claims; receive, process, and post payments from insurance companies and patients; and
work the Customers’ accounts receivable is a clear indicator that the Billing and Claims offering is a
billing and collection service, or otherwise non-taxable service.
Furthermore, the Billing and Claims offering does not appear to provide any kind of software
functionality to the Customers beyond automating certain functions and providing tools that allow
the Customers to determine whether insurance payments comport with the Customers’ contracted
rates. It is not a software program that allows Customers to better manage their revenue cycle.
Instead, the Taxpayer’s personnel use the software to analyze, process, submit, track, and appeal
claims. To the extent that software is utilized to provide the billing and collection service, that software
is either utilized by the Taxpayer’s employees to perform the service or utilized by the Customers to
gain access to the service through a user interface. In any case, the software component is merely
incidental to the billing and collection service offered by the Taxpayer.
Manager
The Manager offering is subject to sales and use tax as remotely accessed computer software.
Through the Manager, Customers may access the following functions which implicate the use of
remotely accessed computer software: determine and configure which information is to be shared
directly with its patients; manage outbound prescriptions, place outbound orders, and obtain results
that the Taxpayer connects to the antecedent order; modify default templates within the user
interface such as screening questionnaires, patient information forms, and clinical templates; access
the Bundled Package App which allows Customers to accomplish a subset of clinical tasks. These
functions indicate that the Manager offering is software that allows Customers to manage their health
records and that provides functionality directly used by Customers to improve their business.
The Manager offering, however, also allows Customers access to elements that are not computer
software, such as: capturing, storing, organizing, classifying, and presenting patient data; exchanging
data with state health reporting organizations and other third-party providers; distributing
prescription renewals, renewals, referrals, letters, and authorizations; and data entry and data
storage. Much of this work is provided by the Taxpayer’s employees and contractors and includes the
non-taxable services of information or data processing services (including the capability of the
customer to analyze such information or data provided by the dealer) and the storage of data.
Both the software functions and the non-taxable service functions appear to be necessary
components of the Manager offering. Furthermore, these components are not offered separately as
stand-alone products. Under the true object test, only if the true object of the transaction is not
independently subject to sales tax and the components that would be subject to sales tax are “merely
incidental” to the true object will the transaction not be subject to sales tax.13 In this case, it would be
13

In Commerce Union Bank, the Tennessee Supreme Court addressed a situation involving the sale of computer software
encoded on a magnetic tape. The taxpayer argued that the sale of software stored on magnetic tapes was a sale of intangible
property, while the Tennessee Department of Revenue argued that the sales were of tangible personal property and should be
subject to tax. See Commerce Union Bank, 538 S.W.2d at 407. The Court held in favor of the taxpayer, finding that what was
actually purchased was intangible information and stated that a “[t]ransfer of tangible personal property under these

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incorrect to say that the software elements of the Manager offering are merely incidental to the
transaction.
The software allows the Customer to better manage patient health records, which is a true object of
the transaction and offering. The non-taxable aspects of the Manager offering involve over a thousand
employees and sixteen million documents incorporated into a database per month, which could
weigh in favor of finding that these data processing and data storage elements are the true object of
this transaction, on sheer volume alone. However, the software elements of the product do not have
to outweigh the nontaxable elements. If the taxable software component is more than “merely
incidental” to the transaction, the transaction is taxable. Accordingly, the Manager offering is subject
to sales and use tax.
Transmitter
The Transmitter offering is not subject to sales and use tax. Telecommunications is an enumerated
taxable service.14 Telecommunications service refers to a service that can be used by a consumer for
general communication with a multitude of parties.15
The Transmitter product allows communication between the Customer and its patients through
messaging, live operators, and a patient portal. This communication is for the purpose of scheduling,
check-ins, transferring patient health information, and delivering account statements. The
Transmitter offering does not allow for general communication with a multitude of parties. The
content of the communications is limited and the parties who may be interacted with are limited as
well. As such, the Transmitter is not a telecommunications service subject to sales and use tax.
While Customers and patients may access the Transmitter offering through a patient portal, which is
arguably the use of computer software, the purpose of using the patient portal is to engage in the
limited communications described above. The use of live operators to take calls for Customers to
schedule patient appointments and relay patient messages indicates that the Customer’s true object
in this transaction is to access a communication service. The use of the patient portal is merely
incidental to accessing the communication service. As such, the Transmitter offering is not software
that is subject to sales and use tax.
Because the Transmitter offering is not a standalone service, it must be sold in conjunction with either
the Billing and Claims offering or the Manager offering, or both. When sold with Billing and Claims,
since both of the offerings are non-taxable, the entire transaction is non-taxable. When sold with the
Manager offering, the entire transaction is taxable because Manager is subject to sales and use tax.16

circumstances is merely incidental to the purchase of the intangible knowledge and information stored on the tapes.” Id. at
408. It reached this result even though the sale of magnetic tapes, as tangible personal property, would have been subject to
sales tax as the sale of tangible personal property. See id. Although the Court did not, at that time, present the analysis as a
“true object” test, it nevertheless employed the same logic. Sales of software were later made subject to sales tax. See Lockheed
Martin Energy Sys. v. Johnson, 78 S.W.3d 918, 922 (Tenn. Ct. App. 2002).
14

TENN. CODE ANN. § 67-6-205(c)(3) (2022).

15

See Equifax Check Services, Inc. v. Johnson, 2000WL 827963 (Tenn. Ct. App. June 27, 2000).

Whenever two or more items are sold together for a single sales price and at least one of the items is subject to sales tax, the
entire sales price is subject to sales tax. See TENN. CODE ANN. § 67-6-102(87)(A)(vi) (Supp. 2023); See also Tomkats Catering, Inc. v.
Johnson, 1090516, at *2 (Tenn. Ct. App. Sept. 19, 2001).
16

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Bundled Base Package
Finally, the bundled analysis applies to the Bundled Base package which includes all three offerings
for one monthly charge.17 Because the Manager offering is subject to sales and use tax, the entire
Bundled Base package is subject to sales and use tax.

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

May 1, 2025

See TENN. CODE ANN. § 67-6-102(87)(A)(vi) (Supp. 2023); See also Tomkats Catering, Inc. v. Johnson, 1090516, at *2 (Tenn. Ct. App.
Sept. 19, 2001).
17

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