Is a call-tracking service — toll-free numbers that route and record sales calls so a retailer can measure its advertising and capture customer data — taxable in Tennessee as a telecommunications service?

Plain-English summary

A company sells "Call Tracking Services" to retailers. Around custom toll-free "vanity" numbers, it routes a prospect's incoming call through servers (run by an out-of-state subcontractor), plays a greeting, forwards the call to the retailer's own local "point-to" number, records the call, and captures and analyzes data — where the caller got the number, which advertisement drove the call, prospective-customer information, and how well the salesperson handled the call. The retailer sees detailed per-call reports (with recordings) over the Internet and can measure which ads work best. The provider charges a flat monthly subscriber fee; the toll-free numbers are bundled in (no separate or per-minute charge). It asked whether these services are taxable. The Department said no.

Looks like telecom, but isn't. Tennessee taxes the furnishing of telecommunications services (§ 67-6-205(c)(3)), defined broadly as the electronic transmission, conveyance, or routing of voice/data/audio/video to or between points (§ 67-6-102(92)(A)). Because the service does move voice and data between points, it appears to fit that definition. But the statute carves out data processing and information services — services that let data be "generated, acquired, stored, processed, or retrieved and delivered by electronic transmission to a purchaser, where such purchaser's primary purpose … is the processed data or information" (§ 67-6-102(92)(B)(i)). Here, the retailer's primary purpose is the marketing data, not the phone transmission, so the service lands in the exclusion.

The "true object" is the data. The Department applied the true-object test: relying on telecommunications to deliver a service doesn't make the service taxable when the true object of the deal is a nontaxable service. It cited Equifax Check Services, Inc. v. Johnson (check-guarantee services weren't taxable telecommunications even though they used telecommunications) and noted that later amendments to the telecom definition don't disable that test.

Not any other taxable service either. The Department characterized Call Tracking Services as marketing or consulting services — collecting and analyzing prospect data, measuring advertising performance, and evaluating call-handling. Tennessee does not tax marketing or consulting services (they aren't enumerated). One caution flagged in a footnote: the sale of final artwork for advertising is taxable (§ 67-6-312), but the provider here creates and transfers no final artwork.

So the Call Tracking Services are not subject to Tennessee sales and use tax.

What this means for you

Call-tracking, analytics, and marketing-tech providers

If your product rides on telecommunications (routing calls, recording them, forwarding to a client) but what your client is really buying is the data and analytics, Tennessee generally treats it as a nontaxable information/marketing service, not a taxable telecommunications service (§ 67-6-102(92)(B)(i)). Keep the offering centered on the processed data the client wants, avoid separately selling the client transmission/minutes or transferring taxable items like software or final artwork, and the flat subscriber fee should stay nontaxable. (Note the underlying toll-free and local phone lines here were billed — with their own taxes — to the subcontractor and to the retailer, not bundled out to the customer as a telecom charge.)

Retailers buying call tracking

Your call-tracking subscription generally isn't a taxable telecommunications purchase; you're buying marketing data and analytics. Your own local phone line used as the "point-to" number is separately billed by your telephone company and carries its own taxes.

Accountants and tax professionals

This is a clean application of the data-processing/information-services exclusion to the telecom definition (§ 67-6-102(92)(B)(i)) plus the true-object test (Equifax). It lines up with Tennessee's other "data processing isn't telecom" rulings (RR 13-03; LR 13-12) and the broader rule that only enumerated services are taxable (e.g., the call-center analysis in LR 13-04). Watch for taxable add-ons — software transfers or final advertising artwork (§ 67-6-312) — that could change the result.

Common questions

Q: Is a call-tracking service a taxable telecommunications service in Tennessee?
A: No, on these facts. Although it routes and records calls, the buyer's primary purpose is the processed marketing data, which falls within the statutory exclusion for data processing and information services (§ 67-6-102(92)(B)(i)).

Q: Doesn't using phone lines and toll-free numbers make it telecom?
A: No. Relying on telecommunications to deliver a service doesn't make the service taxable when the true object is a nontaxable service (Equifax Check Services v. Johnson).

Q: What kind of service is it, then?
A: The Department treated it as marketing or consulting — collecting and analyzing customer data, measuring advertising performance, and evaluating call handling — none of which is an enumerated taxable service in Tennessee.

Q: Would anything flip it to taxable?
A: Selling the client tangible personal property or software, or transferring final advertising artwork (taxable under § 67-6-312), could change the analysis. Here the provider transferred none of those.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• § 67-6-205(c)(3) (sales tax on telecommunications services)
• § 67-6-102(92)(A) ("telecommunications service" definition); § 67-6-102(92)(B)(i) (exclusion for data processing / information services where the buyer's primary purpose is the data)
• § 67-6-101 (Retailers' Sales Tax Act — only enumerated services taxable; marketing/consulting not enumerated); § 67-6-102(80)(D) ("sale" includes furnishing taxable services)
• § 67-6-312 (sale of final artwork for advertising is taxable — not present here)

Case cited by the ruling:

• Equifax Check Services, Inc. v. Johnson, 2000 WL 827963 (Tenn. Ct. App. 2000) (true-object test; reliance on telecommunications doesn't make a nontaxable service 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/12-05.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-05

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
The application of the Tennessee sales and use tax to call tracking services.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[TAXPAYER’S NAME] (the “Taxpayer”) provides services to [REDACTED] (“Retailers”),
whereby the company collects and analyzes certain information regarding prospective customers,
measures advertising performance, and evaluates employee call handling skills (collectively
referred to as “Call Tracking Services”). The Taxpayer has Retailers within the State of
Tennessee that purchase its various Call Tracking Services.

1

Even though the Taxpayer is the party contractually providing the Call Tracking Services, it has
engaged a third-party call measurement, monitoring, and tracking service provider
(“Subcontractor”) as a subcontractor to provide the Call Tracking Services on its behalf.
Subcontractor is headquartered in [LOCATION – NOT TENNESSEE] and has a call center
located in [LOCATION – NOT TENNESSEE].
To facilitate the call tracking and measurement services, Subcontractor arranges for one or more
custom “vanity” numbers (i.e., toll-free 1-8YY telephone numbers that can be customized) to be
used by the Retailers (that is, the customers of the Taxpayer). The quantity of toll-free numbers
that are used by a Retailer is determined by the Retailer when the Retailer contracts with the
Taxpayer for a particular Call Tracking Services package. Various packages include the use of
one to ten toll-free numbers. If the Retailer wants any of the numbers to have custom digits, the
Retailer has the right to request the desired number, contingent on that number being available.
The toll-free numbers are used in advertisements on the Taxpayer’s website and on the Retailer’s
website. Under certain premium plans, the toll-free numbers can also be used in advertising
media of the Retailer’s choice, such as newspapers, radio and television ads, and so on.
All vanity numbers ring directly to Subcontractor’s call center in [LOCATION – NOT
TENNESSEE]. The numbers do not ring directly to the Retailer’s location, nor does the Retailer
have any other use of the toll-free numbers. Subcontractor is the “customer of record” for any
numbers used. Subcontractor maintains exclusive rights to any such numbers beyond the term of
the agreement with the Taxpayer and/or the Retailer.
The telecommunications providers bill Subcontractor for the use of the toll-free numbers. Per the
agreement with Subcontractor, all applicable federal, state and local taxes are included in the
telecommunications service provider’s invoice to Subcontractor and are paid by Subcontractor.
No federal, state or local taxes are charged to the Taxpayer by Subcontractor.
When a potential customer of the Retailer dials the toll-free number, the call is connected to
Subcontractor’s servers, which are located in [LOCATION – NOT TENNESSEE].
Subcontractor’s servers pick up the call and play a “welcome” message; the server then makes a
second call dialed to the “point to number” at the Retailer. The second call is transparent to the
customer. The “point to number” is the Retailer’s own separate pre-existing or dedicated local
telephone number, to which the toll-free number is forwarded. The call rings at the Retailer’s
location. The toll-free number is required for the Call Tracking Services. The Retailer is the
“customer of record” for the local telephone number(s) used as part of the service. The local
telecommunications service provider bills the Retailer for the local service in Tennessee, which
includes all applicable federal, state and local taxes.
A salesperson at Retailer’s location answers the phone and a recording is played indicating who
is on the line, where the customer obtained the toll-free number, and asking whether the
salesperson wishes to be connected to the customer. If prompted, the salesperson is then
connected to the customer. Subcontractor’s servers continue to participate in and record the call.
Subcontractors also provide the information obtained from and about the customer to Retailer via
the Internet. The salesperson at Retailer’s location has access to this information during the call.

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Once the Retailer’s salesperson is done talking to the customer, the customer has the option to
take a survey. If the customer chooses to proceed, Subcontractor’s servers take over conducting
the survey. Once the customer hangs up, the call comes to an end.
The Retailer has access to a report via the Internet that contains the detailed information for each
of these calls, including a link to a recording of the call. Under certain plans, the Retailer can
also create reports to determine which advertisements were most effective based on the number
of calls received using the toll-free number assigned to that advertisement. The Taxpayer also
receives a report summarizing the Retailer’s phone referral reports and usage data for each tollfree number.
The Taxpayer charges the Retailer a flat subscriber fee for the Call Tracking Services. The flat
fee ranges from $[AMOUNT] per month for the basic service, which includes the use and
tracking of one toll-free number to $[AMOUNT] per month for the premium service, which
includes the use and tracking of [REDACTED] numbers. The charge for the use of the toll-free
numbers is included in the flat fee; thus, there is neither a separate fee charged for the toll-free
numbers nor any per minute charges related to the toll-free numbers.
RULING
Are the Call Tracking Services sold by the Taxpayer subject to the Tennessee sales and use tax?
Ruling: No. The Call Tracking Services sold by the Taxpayer are not subject to the
Tennessee sales and use tax.
ANALYSIS
Under the Retailers’ Sales Tax Act, TENN. CODE ANN. § 67-6-101 et seq., the retail sale in
Tennessee of certain specifically enumerated services is subject to the sales and use tax.1
However, the Taxpayer’s Call Tracking Services are not among the services enumerated under
the Retailers’ Sales Tax Act.
First, the Taxpayer’s Call Tracking Services do not constitute the furnishing of a taxable
telecommunications service. TENN. CODE ANN. § 67-6-205(c)(3) (2011) imposes the sales tax on
the furnishing of “intrastate, interstate or international telecommunication services.” The term
“telecommunications service” is defined under TENN. CODE ANN. § 67-6-102(92)(A) 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.” However, TENN. CODE ANN.
§ 67-6-102(92)(B)(i) excludes from the definition of “telecommunications service” data
processing and information services “that allow data to be generated, acquired, stored, processed,
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.”

1

TENN. CODE ANN. § 67-6-102(80)(D) (2011) defines the term “sale” in pertinent part to include “the furnishing of
any of the things or services taxable” under the Retailers’ Sales Tax Act. Because the facts indicate that the
Taxpayer makes no sales of tangible personal property, computer software, or other taxable items, this letter ruling
will discuss only the application of the Tennessee sales and use tax to services.

3

Here, the Taxpayer provides a service whereby it transmits or conveys voice, audio, and/or data
between two points via electronic means, and thus appears to come within the definition of a
“telecommunications service.”
However, the Taxpayer’s Call Tracking Services clearly fall within the exception to the
definition found under TENN. CODE ANN. § 67-6-102(92)(B)(i). First, the Taxpayer’s services
allow marketing data to be generated, acquired, stored, processed, retrieved and delivered by
electronic transmission to the Retailer. Second, the Retailer’s primary purpose for purchasing the
Taxpayer’s services is the processed data or information. While the Taxpayer relies on
telecommunications for the provision of its services, the “true object” of the transaction is the
acquisition of the underlying marketing data. The Tennessee Court of Appeals has held that the
reliance on telecommunications does not render a taxpayer’s service taxable, when the true
object of the transaction is the provision of a nontaxable service. Equifax Check Services, Inc. v.
Johnson, M1999-00782COA-R3-CV, 2000 WL 827963 (Tenn. Ct. App. June 27, 2000) (holding
that check guarantee services did not constitute taxable telecommunications services despite the
use of telecommunications to provide the services).2
Accordingly, the Taxpayer’s Call Tracking Services do not constitute the furnishing of a taxable
telecommunications service.
Second, the Taxpayer’s service cannot be characterized as any other type of service that is
taxable under the Retailers’ Sales Tax Act. The Taxpayer’s Call Tracking Services are most
properly characterized as marketing or consulting services. The Taxpayer describes its services
as involving the collection and analysis of certain information regarding prospective customers,
the measurement of advertising performance, and the evaluation of employee call handling skills.
The Retailers’ Sales Tax Act does not impose the sales tax on the furnishing of marketing or
consulting services.3
Accordingly, the Taxpayer’s Call Tracking Services are not subject to the Tennessee sales and
use tax.
Kristin Husat
General Counsel
APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

May 30, 2012

2

The Equifax decision was determined based on a prior version of the definition of “telecommunications service”
under the Retailers’ Sales Tax Act. However, subsequent amendments to the definition do not render the “true
object” test inapplicable to the Taxpayer’s case.
3

Note that the sale of final artwork suitable for use in advertising materials is subject to the Tennessee sales and use
tax; however, the facts indicate that the Taxpayer does not create or transfer final artwork to its customers. See
TENN. CODE ANN. § 67-6-312 (2011).

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