A Tennessee company assembles a manufacturer's products from parts the manufacturer supplies, drop-ships them, and also provides technical support and warranty support. Which of those charges are subject to Tennessee sales and use tax?

Plain-English summary

The company (a Tennessee business; its identity and product line are redacted) is a foreign manufacturer's North American assembly and support partner. The manufacturer ships parts to the company at no charge; the company assembles them into finished products, tests and packages them, and drop-ships them directly to the manufacturer's customers in the U.S. and Canada — some end users, some resellers. The manufacturer keeps title to both the parts and the finished products. The company bills the manufacturer a flat fee per unit assembled, plus "Materials Fees" (for any parts or packaging the company buys itself, at cost or with a markup) and "Shipping Fees." Separately, it provides lifetime technical support (online chat, phone, web forms, email) and warranty support (sending spare parts or repairing units under the manufacturer's one-year warranty), each for a flat per-unit fee plus shipping. The company asked how Tennessee sales tax applies to these three streams.

The Department gave a three-part answer:

1. Assembly (fabrication) fees — taxable, but only on Tennessee drop-ships and only without a resale/exemption certificate. Tennessee's definition of a "sale" expressly includes "the fabrication of tangible personal property for consumers who furnish ... the materials used in fabrication work" (§ 67-6-102(78)(A)). Because the company builds finished products from parts the manufacturer supplies, its assembly work is a taxable sale of tangible personal property — and the taxable price includes the assembly fee plus the Materials Fees and Shipping Fees. But a sale is taxable in Tennessee only where possession passes in the state. Here title never passes to the company, so the only Tennessee sales are the units the company drop-ships to the manufacturer's Tennessee customers. Even those are exempt if the manufacturer provides proper documentation under the drop-shipment rules (Rule 68 resale certificate, Rule 29 foreign-dealer certificate, and Rule 96 for drop shipments to a Tennessee user/consumer); without it, the company must collect and remit the tax.

2. Technical-support fees — not taxable. Tennessee taxes only services it specifically lists, and technical support (answering customer questions by chat, phone, web, and email) is not one of them. So those fees are not subject to sales tax.

3. Warranty-support fees — taxable as a warranty/service contract, unless resold. The retail sale of a warranty or service contract covering repair or maintenance of tangible personal property is taxable under § 67-6-208 when it meets the statute's criteria (for example, the property is in Tennessee, or the purchaser's address is in Tennessee). The company's warranty-support arrangement is such a contract, and associated shipping is part of its price. But because the manufacturer turns around and provides that same warranty to its own customers as its one-year warranty, the manufacturer is buying it for resale — so if it gives the company a valid resale certificate, the warranty fees (and related shipping) are exempt.

The throughline: assembling goods from a customer's parts is a taxable "sale" even though it feels like a service; bare technical support isn't taxed because it isn't enumerated; and warranty/service contracts are their own taxable category that can be bought tax-free for resale.

What this means for you

Contract manufacturers and assemblers

If you build or assemble finished goods from parts a customer supplies, Tennessee treats that as a taxable sale of tangible personal property, not an untaxed service — and the taxable price includes your labor, any materials you add, and shipping. The tax attaches where possession transfers, so the key questions are where the goods are delivered and whether your customer gives you a resale or exemption certificate.

Drop shippers

When you drop-ship a customer's goods to a Tennessee buyer, you may be on the hook to collect Tennessee tax unless you hold the right paperwork. Tennessee's Rule 96 sets out what's needed for drop shipments to a Tennessee user or consumer; a foreign reseller can use a Rule 29 out-of-state resale certificate, and a Tennessee-exempt end customer's exemption certificate (together with the reseller's foreign certificate) can also support the exemption. Keep the certificates on file.

Businesses that bill for technical support

Stand-alone technical support — helping customers use a product via phone, chat, web, or email — is not an enumerated taxable service in Tennessee, so charging for it generally doesn't trigger sales tax. (Bundling it with taxable items can change the analysis.)

Businesses that sell or administer warranties and service contracts

A warranty or service contract covering repair or maintenance of tangible personal property is independently taxable under § 67-6-208 when its criteria are met, and shipping tied to it is part of the taxable price. If you sell a warranty to someone who will resell it (for example, a manufacturer that passes it to end customers), the sale can be exempt for resale with a valid resale certificate.

Accountants and tax professionals

Three distinct doctrines stack here: fabrication-as-sale (§ 67-6-102(78)(A); Rule 1320-5-1-.41), the situs/drop-shipment rules (Rules 68/29/96), and the warranty/service-contract tax (§ 67-6-208) with a resale exemption (§ 67-6-102(75)(A)). The sales price includes materials and delivery charges even if separately stated (§ 67-6-102(79)(A)). Technical support falls outside tax only because it isn't enumerated (§ 67-6-205; Covington Pike Toyota; Ryder Truck Rental).

Common questions

Q: I assemble products from parts my customer ships me. Is my fee a nontaxable service?
A: In Tennessee, no — "fabrication of tangible personal property for consumers who furnish the materials" is part of the statutory definition of a taxable "sale." Your assembly fee, added materials, and shipping are all part of the taxable price where the sale is taxable.

Q: When does Tennessee tax actually apply to those assembly charges?
A: Where possession of the finished goods passes in Tennessee. In this ruling, that meant only the units drop-shipped to the manufacturer's Tennessee customers — and even those were exempt if the manufacturer provided proper resale/exemption documentation under Rules 68, 29, and 96.

Q: Are technical-support charges taxable?
A: Not on their own. Tennessee taxes only specifically enumerated services, and technical support isn't one, so stand-alone support fees aren't subject to sales tax.

Q: Are warranty and service-contract charges taxable?
A: Yes — the retail sale of a warranty or service contract covering repair or maintenance of tangible personal property is taxable under § 67-6-208 when the statute's criteria are met, and related shipping is part of the price, unless the buyer is purchasing it for resale and provides a valid resale certificate.

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 facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-6-102(78)(A) ("sale" includes the fabrication of tangible personal property for consumers who furnish the materials); § 67-6-102(78)(C) ("sale" includes the furnishing of taxable things or services)
• § 67-6-202(a) (tax imposed on the sales price of tangible personal property sold at retail); § 67-6-102(79)(A) ("sales price"; no deduction for the cost of materials used or for delivery charges, even if separately billed); § 67-1-102(25)(A) ("delivery charges")
• § 67-6-208 (retail sale, use of, or subscription to a warranty or service contract is taxable when the criteria in subsection (c) are met)
• § 67-6-205 (sales tax applies only to specifically enumerated services); § 67-6-102(75)(A) ("sale for resale")

Tennessee rules (Tenn. Comp. R. & Regs.):

• 1320-5-1-.41 (proceeds from fabricating articles from customer-selected or -furnished materials are taxable)
• 1320-5-1-.68 ("Rule 68" — resale certificate required to support a sale for resale)
• 1320-5-1-.29 ("Rule 29" — a foreign dealer may furnish an out-of-state resale certificate)
• 1320-5-1-.96 ("Rule 96" — additional requirements for drop shipments to a Tennessee user or consumer)

Case law:

• "Fabricate" given its ordinary meaning where the term is undefined: Beare Co. v. Tenn. Dep't of Revenue, 858 S.W.2d 906 (Tenn. 1993); Tenn. Farmers Assurance Co. v. Chumley, 197 S.W.3d 767 (Tenn. Ct. App. 2006)
• Enumerated-services rule: Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132 (Tenn. 1992); Ryder Truck Rental, Inc. v. Huddleston, 1994 WL 420911 (Tenn. Ct. App. 1994)
• Drop-shipment/resale documentation: Upper East Tennessee Distributing v. Johnson, 1997 WL 243503 (Tenn. Ct. App. 1997)

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/16-06.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 16-06
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and circumstances
presented, and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes, and is not intended as
a statement of Departmental policy. Taxpayers should consult with a tax professional before
relying on any aspect of this ruling.
SUBJECT
Application of the Tennessee sales and use tax to the fabrication of tangible personal property and
the provision of technical support and warranty support 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] (the “Taxpayer”) is a Tennessee [REDACTED – ENTITY] that assembles and supports
[REDACTED – PRODUCTS]. The Taxpayer contracts with [REDACTED – SELLER], a [REDACTED]

company that sells [REDACTED – PRODUCTS], as [REDACTED – SELLER’S] North American assembly
and support partner.
To fulfill its sales obligations to customers in the United States and Canada, [REDACTED – SELLER]
ships the necessary parts for assembling (the “Assembly Stock”) its [REDACTED – PRODUCTS] to the
Taxpayer at no cost. The Taxpayer assembles the parts into functioning [REDACTED – PRODUCTS]
and tests and packages the [REDACTED – PRODUCTS] on [REDACTED – SELLER’S] behalf. [REDACTED
– SELLER] retains title to both the Assembly Stock and the [REDACTED – PRODUCTS]. The Taxpayer
occasionally purchases its own parts or packaging from a third party and uses those items instead of
the parts and packaging supplied by [REDACTED – SELLER]. The Taxpayer bills [REDACTED – SELLER]
for those additional items either at cost or with the addition of a markup (the “Materials Fees”),
depending on the circumstances.
After the Taxpayer assembles and packages the [REDACTED – PRODUCTS], it ships the [REDACTED –
PRODUCTS] directly to [REDACTED – SELLER’S] North American customers, who are both end-users
and resellers. The Taxpayer charges [REDACTED – SELLER] a flat fee for each the [REDACTED –
PRODUCT] it assembles as compensation for these services. 1 The Taxpayer charges [REDACTED –
SELLER] for the costs incurred to ship the assembled [REDACTED – PRODUCTS] to [REDACTED –
SELLER’S], plus either a per-unit flat fee or a percentage markup on the fees (the “Shipping Fees”),
depending on the nature of the shipment.
The Taxpayer contracts with [REDACTED – SELLER] to provide lifetime technical support to
[REDACTED – SELLER’S] end-customers in its United States market. Technical support involves the
Taxpayer communicating with the end-customers through various channels, such as online chat,
telephone calls, web-based forms, and e-mail. The Taxpayer charges [REDACTED – SELLER] a flat fee
for every [REDACTED – PRODUCT] that the Taxpayer is obligated to support, which may include
[REDACTED – PRODUCTS] that the Taxpayer did not itself assemble.
The Taxpayer further contracts with [REDACTED – SELLER] to provide warranty support as part of
[REDACTED – SELLER’S] manufacturer’s limited, one-year warranty on its [REDACTED – PRODUCTS]. If
a support incident requires the provision of spare parts under warranty, the Taxpayer sends those
parts to the end-customer on [REDACTED – SELLER’S] behalf. To this end, the Taxpayer maintains a
separate stock of spare parts for fulfilling warranty obligations (the “Warranty Stock”) that
[REDACTED – SELLER] provides to the Taxpayer at no cost. Alternatively, if a [REDACTED – PRODUCT]
under warranty needs repair, the end-customer sends the [REDACTED – PRODUCT] to the Taxpayer’s
factory. The Taxpayer evaluates, repairs, and tests the [REDACTED – PRODUCT] as necessary and
sends the repaired [REDACTED – PRODUCT] back to the end-customer. The Taxpayer charges
[REDACTED – SELLER] a flat fee for every [REDACTED – SELLER] [REDACTED – PRODUCT] in the
United States market for which the Taxpayer is contracted to support. The Taxpayer also charges
[REDACTED – SELLER] for shipping costs, plus a percentage markup on its shipping costs associated
with this support.

1

The Taxpayer invoices [REDACTED – SELLER] at the start of the assembly, when the parts are received, and again when the
work is completed.

RULINGS
1.

Are the fees that the Taxpayer charges for assembling [REDACTED – SELLER’S] [REDACTED –
PRODUCTS], including any Shipping Fees and any Materials Fees, subject to the Tennessee
sales and use tax?
Ruling: Under TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2015) a taxable sale includes charges
for fabrication of tangible personal property for consumers who furnish materials used in
fabrication work. Thus, when the Taxpayer drop ships [REDACTED – PRODUCT] that it
fabricates to an [REDACTED – SELLER] customer located inside of Tennessee, the Taxpayer is
required to collect and remit Tennessee sales and use tax on its fee for assembling the
[REDACTED – PRODUCT] as well as any associated Materials Fees and Shipping Fees as part
of the sales price of a [REDACTED – PRODUCT] unless [REDACTED – SELLER] provides to the
Taxpayer a valid resale and/or exemption certificate in accordance with TENN. COMP. R. &
REGS. 1320-5-1-.68 (2008) and 1320-5-1-.96 (1974), as more fully described in the Analysis
section below.

2.

Are the fees that the Taxpayer charges [REDACTED – SELLER] for technical support subject to
the Tennessee sales and use tax?
Ruling: No, technical support is not a specifically enumerated taxable service under
Tennessee law.

3.

Are the fees that the Taxpayer charges [REDACTED – SELLER] to provide warranty support to
end-users of [REDACTED – SELLER’S] [REDACTED – PRODUCTS] in the United States, including
any associated shipping fees, subject to the Tennessee sales and use tax?
Ruling: Generally, the fees for providing warranty support are subject to the Tennessee sales
and use tax as the sale of a warranty or service contract if the fees meet one of the criteria
under TENN. CODE ANN. § 67-6-208 (Supp. 2015). Any associated shipping fees are part of the
sale price of the contract. However, if [REDACTED – SELLER] provides the Taxpayer with a
properly completed resale certificate, any fees that are otherwise subject to tax as the sale of
a warranty or service contract in Tennessee, including any associated shipping fees, are
exempt from the Tennessee sales and use tax as the sale of a warranty or service contract
for resale.
ANALYSIS

1. CHARGES FOR FABRICATION OF TANGIBLE PERSONAL PROPERTY, INCLUDING SHIPPING FEES AND MATERIALS
   FEES

Fabrication
2

Under the Retailers’ Sales Tax Act, the retail sale in Tennessee of tangible personal property is
subject to the sales and use tax. TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2015) defines the term
2

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts Ch. 22, 22-54 (codified as amended at TENN. CODE ANN.
§§ 67-6-101 to -907 (2013 & Supp. 2015)).

“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, and includes the fabrication of tangible personal property for
3
consumers who furnish, either directly or indirectly, the materials used in fabrication work.” TENN.
COMP. R. & REG. 1320-5-1-.41 (1983) adds that “[w]here persons contract to fabricate articles of
tangible personal property from materials selected or furnished by customers, the total proceeds
from the sale are subject to the Sales or Use Tax.” The term “fabricate” is not defined by the
Tennessee Code or the Tennessee courts for Tennessee sales and use tax purposes, so it must be
4
given its natural and ordinary meaning. A common definition of the term “fabricate” is “to construct
5
from diverse and usually standardized parts.”
6

For a sale to be subject to Tennessee sales and use tax, the sale must be made “in this state.” As
previously stated, with regard to tangible personal property, a sale takes place upon the transfer of
7
title or possession, or both of tangible personal property.
8

Sales for resale are not subject to Tennessee sales and use tax. The term “sale for resale” means
9
“the sale of property, services, or taxable item intended for subsequent resale by the purchaser.”
Any sale for resale must be in strict compliance with the rules and regulations promulgated by the
10
Commissioner. TENN. COMP. R. & REGS. 1320-5-1-.68 (2008) (“Rule 68”) requires that any sale for
resale must be supported by a valid resale certificate. TENN. COMP. R. & REGS. 1320-5-1-.29 (1974)
(“Rule 29”) provides that a foreign dealer may present a valid resale certificate showing that the
dealer is located outside of Tennessee and would be entitled to purchase the property on a
11
Tennessee resale certificate if the dealer were located in Tennessee. However, when the property
is sold to a foreign dealer for resale, but drop shipped to the foreign dealer’s customer who is a user
and consumer in Tennessee, TENN. COMP. R. & REGS. 1320-5-1-.96 (1974) (“Rule 96”) adds certain
additional requirements:

3

TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2015).

4

The Tennessee Supreme Court has stated that when a statute does not define a term, it is proper to look to common usage
to determine the term's meaning. See, e.g., Beare Co. v. Tenn. Dep't of Revenue, 858 S.W.2d 906, 908 (Tenn. 1993); see also Tenn.
Farmers Assurance Co. v. Chumley, 197 S.W.3d 767, 782-83 (Tenn. Ct. App. 2006).

5

MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 447 (11th ed. 2007).

6

See TENN. CODE ANN. §§ 67-6-201, -202 (2013).

7

TENN. CODE ANN. § 67-6-102(78)(A)

8

See TENN. CODE ANN. §§ 67-6-202(a) (providing that “retail sales” in this state are subject to tax) and 67-6-102(78) (defining
“retail sale” as “any sale, lease, or rental for any purpose other than for resale, sublease, or subrent”).
9

TENN. CODE ANN. § 67-6-102(75)(A).

10
Id.; see also Upper East Tennessee Distributing v. Johnson, No. 03A01-9701-CH-00011, 1997 WL 243503 (Tenn. Ct. App. May 13,
1997) perm. app. denied.
11

Rule 29 provides, in pertinent part:
(2) Bona fide dealers outside the State of Tennessee, who make purchases of tangible personal property
or taxable services in this State which would otherwise be subject to the provisions of the Sales and Use
Tax Law, may make purchases of items or services which they normally sell free of the Sales Tax, provided
such a dealer will furnish his vendor in this State with a valid certificate of resale showing that he is a
dealer located out of this State and would be entitled to purchase such property upon a resale certificate
if he were a dealer in this State.

[S]ales of tangible personal property or taxable services made by a dealer to an outof-state vendor who directs that the dealer act as his (the out-of-state vendor) agent
to deliver or ship tangible personal property or taxable services to his (the out-ofstate vendor) customer, who is a user or consumer, are subject to the Sales or Use
Tax. The dealer so acting as agent for the out-of-state vendor must collect the tax
involved on the transaction unless the transaction comes within the conditions
indicated herein.
In summary, Rule 68 requires that any sale for resale be supported by a valid resale certificate
issued by the purchasing dealer to the supplier. Under Rule 29, ordinarily a foreign dealer may
present a valid foreign resale certificate showing that it is a dealer located outside Tennessee and
would be entitled to purchase the property on a Tennessee resale certificate if it were a dealer in
this state. However when the property is sold to a foreign dealer for resale, but drop shipped to the
foreign dealer’s customer who is a user and consumer in Tennessee, Rule 96 adds certain additional
requirements.
The Taxpayer in this case contracts with [REDACTED – SELLER] to assemble [REDACTED –
PRODUCTS] from standardized parts provided by [REDACTED – SELLER]. This transaction constitutes
the sale of tangible personal property because as set forth in the definition of a sale in TENN. CODE
ANN. § 67-6-102(78)(A), the Taxpayer fabricates tangible personal property from parts furnished by
its customer.
Pursuant to the terms of the Taxpayer’s contract with [REDACTED – SELLER], title to the Assembly
Stock and the assembled [REDACTED – PRODUCTS] never transfers from [REDACTED – SELLER] to
the Taxpayer, so the Taxpayer’s sales to [REDACTED – SELLER] are “in this state” only to the extent
possession passes in Tennessee. Possession of a [REDACTED – PRODUCT] does not transfer in
Tennessee on sales in which [REDACTED – SELLER] directs the Taxpayer to ship the [REDACTED –
PRODUCTS] outside of Tennessee; however, possession does transfer in Tennessee for sales in
which the Taxpayer drop ships the [REDACTED – PRODUCTS] to [REDACTED – SELLER’S] customers
located in Tennessee. For these Tennessee sales, if [REDACTED – SELLER] provides the Taxpayer with
proper documentation in accordance with Rules 68 and 96, such sales are exempt from the
Tennessee sales and use tax.
Thus, if the Taxpayer drop ships the [REDACTED – PRODUCTS] to an [REDACTED – SELLER] customer
who is an end user and consumer in Tennessee, unless [REDACTED – SELLER] presents a valid
Tennessee resale certificate, the Taxpayer is required to collect and remit tax on its sales to
[REDACTED – SELLER]. If [REDACTED – SELLER’S] customer is the end user and consumer of the
property but has a valid Tennessee sales and use tax exemption, such as a non-profit or other type
of entity or use-based exemption, the Taxpayer may accept [REDACTED – SELLER’S] foreign resale
certificate and a copy of its customer’s Tennessee exemption certificate. On the other hand, if the
Taxpayer drop ships to an [REDACTED – SELLER] customer who is a reseller of the property, the
Taxpayer may accept [REDACTED – SELLER’S] foreign resale certificate and a copy of its customer’s
Tennessee resale certificate to document the third party drop shipment as a sale for resale.

Sales Price

TENN. CODE ANN. § 67-6-202(a) (2013) imposes the sales tax on the sales price of each article of
tangible personal property sold at retail in Tennessee. The term “sales price” means “the total
amount of consideration, including cash, credit, property, and services, for which personal property
or services are sold, leased, or rented, valued in money, whether received in money or otherwise,”
without any deduction for the cost of materials used or delivery charges regardless of whether those
12
charges are separately billed.
Thus, when the Taxpayer fabricates and ships the [REDACTED – PRODUCTS] to [REDACTED –
SELLER’S] Tennessee customers and those sales are not properly exempt from Tennessee sales and
use tax as stated above, the taxable sales price of the REDACTED – PRODUCTS] includes the
Taxpayer’s fee for assembling the [REDACTED – PRODUCTS], as well as associated Materials Fees
and Shipping Fees.

2. TECHNICAL SUPPORT
   In addition to the transfer of tangible personal property, the term “sale” also includes “the furnishing
   13
   of any of the things or services” taxable under the Retailers’ Sales Tax Act. The Tennessee sales and
   14
   use tax applies to retail sales of services specifically enumerated in the Retailers’ Sales Tax Act.
   [REDACTED – SELLER] provides lifetime technical support to its customers and contracts with the
   Taxpayer to provide these support services, which include communicating with customers through
   various channels, such as online chat, telephone calls, web-based forms, and e-mail. The Taxpayer
   charges [REDACTED – SELLER] a flat fee for every [REDACTED – PRODUCT] that the Taxpayer is
   obligated to support. The Taxpayer’s technical support services are not specifically enumerated
   taxable services pursuant to Tennessee law. Accordingly, the fees the Taxpayer charges [REDACTED
   – SELLER] for its technical support services are not subject to Tennessee sales and use tax.
3. WARRANTY SERVICE CONTRACT, INCLUDING WARRANTY SERVICE CONTRACT SHIPPING FEES
   Pursuant to TENN. CODE ANN. § 67-6-208(a) (Supp. 2015), the retail sale of, use of, or subscription to a
   warranty or service contract is subject to the Tennessee sales and use tax. A warranty or service
   contract covering the repair or maintenance of tangible personal property is subject to Tennessee
   sales and use tax when (1) the contract is sold in connection with the sale of tangible personal
   property that is subject to the Tennessee sales and use tax, (2) the contract applies to tangible
   personal property located in Tennessee, or (3) the location of the tangible personal property
   covered by the contract is unknown but the purchaser’s residential street address or primary
   15
   business address is in Tennessee.
   12

TENN. CODE ANN. § 67-6-102(79)(A)(ii) and (iv). Tenn. Code Ann. § 67-1-102(25)(A) defines delivery charges as “charges by the
seller of personal property or services, including, but not limited to, transportation, shipping, postage, handling, crating, and
packaging.”
13

TENN. CODE ANN. § 67-6-102(78)(C).

14

The Retailers’ Sales Tax Act imposes the sales tax only on services specifically enumerated in the Act. See, e.g., TENN. CODE
ANN. § 67-6-205 (2013); Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132, 135 (Tenn. 1992); Ryder Truck Rental, Inc. v.
Huddleston, No. 91-3382-III, 1994 WL 420911, at *3 (Tenn. Ct. App. Aug. 12, 1994) (providing that sales tax does not apply to all
services; rather, it only applies to retail sales of services specifically enumerated by the statute).
15

TENN. CODE ANN. § 67-6-208(c).

Here, the Taxpayer is selling a warranty or service contract to [REDACTED – SELLER] when it
contracts with [REDACTED – SELLER] to repair the [REDACTED – PRODUCTS] or send parts to end
users of the [REDACTED – PRODUCTS] in the United States and charges [REDACTED – SELLER] a flat
fee for every [REDACTED – SELLER] [REDACTED – PRODUCT] in the United States that it agrees to
support. The fees that the Taxpayer charges [REDACTED – SELLER] to [REDACTED – PRODUCTS] and
16
parts are part of the sales price of the warranty or service contract that the Taxpayer sells.
[REDACTED – SELLER] provides the same warranty or service contract to its customers as a
manufacturer’s limited, one-year warranty when it sells the [REDACTED – PRODUCTS]. Thus, when
[REDACTED – SELLER] purchases the warranty or service contract from the Taxpayer, it makes such
purchase for resale. Therefore, if [REDACTED – SELLER] provides the Taxpayer with a valid
Tennessee or foreign resale certificate pursuant to Rule 68 and Rule 29, the flat fee that [REDACTED
– SELLER] pays the Taxpayer to support its [REDACTED – PRODUCTS] in the United States, as well as
17
any associated shipping fees, are not subject to the Tennessee sales and use tax.

Grant Marshall
Assistant General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

August 30, 2016

16

See supra note 12 and accompanying text.

17

See supra notes 8-11 and accompanying text.