A Tennessee company licenses speech-recognition software to run a transcription service and charges its clients a fee per report. Are the fees it charges clients taxable, and is the software the company itself buys taxable or exempt as a purchase for resale?

Plain-English summary

The taxpayer is a Tennessee company that provides management and transcription services to Tennessee clients. To deliver those services it licenses speech-recognition software from a third-party provider on a per-report, fee-based model, and downloads that software to its own servers in a Tennessee data center. The company's clients download a small "client component" of the software to their workstations; a user dictates findings, the software captures the text, and the finished report is stored on the company's server and transmitted to the client's system. The company charges its clients a fee for each transcribed report.

The company asked two questions, and the Department gave two different answers.

1. The fees the company charges its CLIENTS — not taxable. Tennessee's sales tax applies only to sales of tangible personal property and to services that are specifically listed in the Retailers' Sales Tax Act (§ 67-6-205); transcription/storage is not one of them. The true object of what the clients buy is the company's nontaxable transcription and storage service, not the software. The client component the clients download is computer software, but it is "merely incidental or secondary" to that service — the clients don't contract to get the software; they contract for the finished reports. So the per-report fees the company charges its clients are not subject to Tennessee sales and use tax.

2. The fees the company PAYS its software provider — taxable, and not a "sale for resale." Tennessee taxes the retail sale, lease, licensing, or use of computer software, and 2015 legislation confirmed this is true regardless of how the software is delivered — downloaded, on media, or accessed remotely (§ 67-6-231(a); 2015 Tenn. Pub. Acts Ch. 514, § 22). The provider delivers the software electronically and the company downloads it onto its Tennessee servers, so that purchase is taxable. It is not a tax-free sale for resale: a "sale for resale" requires that the buyer later resell the item as such to a dealer (§ 67-6-102(75), (75)(A)). Here the company doesn't resell the software — it uses it to furnish its own service (and is contractually barred from reselling it). A service provider that buys software to use in providing its service is the end user/consumer of that software and owes the tax (§ 67-6-102(75)(B)(i)). The software-resale exemption applies only to a dealer that buys software solely to resell access to it (§ 67-6-231(a)(2)).

The throughline: software you buy to run your own service is taxable to you as the consumer; the service you then sell is taxable only if it is a service the statute specifically enumerates. Don't assume the "for resale" exemption covers software you merely use behind the scenes.

What this means for you

Service businesses that run on licensed software

If you license software — speech recognition, scheduling, analytics, a SaaS platform — and use it to deliver your own service, you are generally the end user of that software and owe Tennessee sales/use tax on what you pay for it. That's true even though your customers never get the software, and even if the software is delivered electronically or accessed remotely (the 2015 law put downloaded, media-based, and remotely accessed software on equal footing). Budget the tax on your software costs as an expense of doing business.

When the "for resale" exemption actually applies to software

You can buy software tax-free for resale only if you are a dealer buying it solely to resell access or use of that software to your customers (§ 67-6-231(a)(2)). If instead you buy software to use it yourself in furnishing a service, that's not a resale — you're the consumer and you owe the tax. The label on the contract doesn't matter; what matters is whether the software passes through to your customer as the thing they're buying, or stays with you as a tool.

Customers buying a service that happens to include a downloadable component

If your vendor's service requires you to download a small client/app component, that doesn't automatically make the whole service taxable. Tennessee looks at the true object of the deal. Where the software is incidental to a nontaxable service (and isn't itself the thing you're paying for), the service stays nontaxable. Where the software is the true object, the charge is taxable.

Accountants and tax professionals

The analysis: (1) sales tax reaches only enumerated services (§ 67-6-205; Covington Pike Toyota; Ryder Truck Rental), so unlisted transcription/storage services are nontaxable; (2) the true-object/primary-purpose test treats the downloaded client component as merely incidental (Thomas Nelson; AT&T; Rivergate Toyota; Ltr. Rul. 14-10); (3) computer software is taxable on sale, license, or use regardless of delivery method (§ 67-6-231(a)(1)–(2); 2015 Tenn. Pub. Acts Ch. 514, § 22), including remotely accessed software; (4) a service provider that consumes software to furnish its service is the end user and cannot buy it for resale (§ 67-6-102(75)(B)(i); Rule 1320-05-01-.62(1)), while the resale carve-out is limited to dealers reselling access (§ 67-6-231(a)(2)).

Common questions

Q: I use licensed software to run my service. Do I owe Tennessee tax on the software?
A: Generally yes. If you buy or license software to use in providing your own service, you are the end user/consumer of that software and owe sales/use tax on it — even if your customers never receive the software.

Q: My service requires customers to download a small app component. Does that make my service taxable?
A: Not by itself. Tennessee taxes only enumerated services, and it looks at the true object of the transaction. If the downloadable component is merely incidental to an otherwise nontaxable service, the service stays nontaxable.

Q: Can I buy software tax-free "for resale"?
A: Only if you're a dealer buying the software solely to resell access or use of it to your customers (§ 67-6-231(a)(2)). Buying software to use it yourself in furnishing a service is not a resale.

Q: The software was delivered electronically (or accessed remotely). Does that change anything?
A: No. Since the 2015 law, Tennessee taxes the sale, license, or use of computer software regardless of how it's delivered — downloaded, on media, or accessed over the internet.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling is binding on 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.):

• § 67-6-231(a)(1) (retail sale, lease, licensing, or use of computer software taxable regardless of delivery method); § 67-6-231(a)(2) (access and use of remotely hosted software; dealer carve-out for software bought only to resell access) — 2015 Tenn. Pub. Acts Ch. 514, § 22 (eff. July 1, 2015)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A), (C), (K) ("sale" — incl. furnishing enumerated services and the transfer/loading of computer software)
• § 67-6-102(68) ("prewritten computer software"); § 67-6-102(18) ("computer software"); § 67-6-102(24) ("delivered electronically"); § 67-6-102(89)(A) ("tangible personal property")
• § 67-6-102(75), § 67-6-102(75)(A) ("sale for resale"; "resale"); § 67-6-102(75)(B)(i) (a service provider that buys software to furnish its service is the end user/consumer)
• § 67-6-205 (sales tax applies only to services specifically enumerated in the Retailers' Sales Tax Act)

Rules:

• Tenn. Comp. R. & Regs. 1320-05-01-.62(1) (2016) (sale for resale applies only to sales to legitimate dealers actually selling the property as such)

Case law:

• Creasy Sys. Consultants, Inc. v. Olsen, 716 S.W.2d 35 (Tenn. 1986) (custom modification/enhancement of software = taxable sale of software)
• Univ. Computing Co. v. Olsen, 677 S.W.2d 445 (Tenn. 1984); Commerce Union Bank v. Tidwell, 538 S.W.2d 405, 408 (Tenn. 1976) (software treated as tangible personal property after the 1977 amendment)
• True object / enumerated services: Thomas Nelson, Inc. v. Olsen, 723 S.W.2d 621 (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); 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); Tenn. Dep't of Revenue Ltr. Rul. 14-10 (Oct. 14, 2014)

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/17-01.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 17-01
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
The application of the Tennessee sales and use tax to software.
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]. The Taxpayer provides
comprehensive management services to [CLIENTS] located in Tennessee, such as [REDACTED] (the
“Clients”).

The Taxpayer enters an agreement with [THIRD-PARTY SOFTWARE PROVIDER] (the “Third-Party
Software Provider”) whereby the Third-Party Software Provider licenses [REDACTED – SOFTWARE], a
speech recognition [REDACTED] reporting software (the “Software”), to the Taxpayer on a
transactional, fee-based model in which the Third-Party Software Provider charges the Taxpayer
according to the number of [REDACTED] reports generated. The Third-Party Software Provider
retains all rights to the Software and licenses it through a non-exclusive, non-transferable license.
The Taxpayer downloads the Software to its servers located at its data center in Tennessee. The
Taxpayer establishes a virtual private network connection between the Third-Party Software
Provider and the Taxpayer’s virtual servers in order for the Third-Party Software Provider to
calculate the number of [REDACTED] reports generated.
The Taxpayer provides transcription services to its Clients through the use of the Software whereby
the Taxpayer transcribes [REDACTED] voice recordings and creates text reports of the transcription.
In order for the Taxpayer to provide the transcription services, the Clients download a client
component of the Software from the Taxpayer’s server to their own workstations. A text-to-speech
processing engine is part of the client component. The client component also allows a Client to
access a specific voice recognition profile, stored on the Taxpayer’s server, for each individual user
logged onto a specific workstation. For a particular [REDACTED] interpretation, the Client will launch
a session in the client component, dictate the findings, confirm the accuracy of the text-to-speech
capture, and finalize the report. The Taxpayer’s server receives and stores the finalized report and
sends it electronically, via [REDACTED], 1 to Client’s [REDACTED] system for storage and use by
[REDACTED]. The Taxpayer charges its Clients a fee for each transcribed report.

RULINGS
1.

Are the report fees that Taxpayer charges its Clients subject to the Tennessee sales and use
tax?
Ruling: No. The report fees that Taxpayer charges its Clients are not subject to the
Tennessee sales and use tax because the Taxpayer is providing non-taxable services.

2.

Are the report fees that the Taxpayer pays to the Third-Party Software Provider subject to
the Tennessee sales and use tax, and if so, would they qualify as sales for resale?
Ruling: The report fees that the Taxpayer pays to the Third-Party Software Provider are
subject to the Tennessee sales and use tax because the charges relate to software
electronically transferred to the Taxpayer in Tennessee. These sales do not qualify as sales
for resale as the Taxpayer is considered the user and consumer of the software that it
purchases in providing its services, and, thus, it does not resell such software to its
customers.
ANALYSIS
LEGAL BACKGROUND

1

[REDACTED].

2

Under the Retailers’ Sales Tax Act, the retail sale in Tennessee of tangible personal property and
specifically enumerated services is subject to the sales tax, unless an exemption applies. “Retail sale”
3
is defined as “any sale, lease, or rental for any purpose other than for resale, sublease, or subrent.”
TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2016) defines “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.” Tangible
personal property includes “prewritten computer software,” which is defined in TENN. CODE ANN. § 676-102(68) in pertinent part as “computer software, including prewritten upgrades, that is not
designed and developed by the author or other creator to the specifications of a specific
4
purchaser.”
In addition to the transfer of tangible personal property, the term “sale” also includes “the furnishing
5
of any of the things or services” taxable under the Retailers’ Sales Tax Act. One of the “things”
specifically taxable is:
[t]he retail sale, lease, licensing or use of computer software in this state, including
prewritten and custom computer software . . . regardless of whether the software is
delivered electronically, delivered by use of tangible storage media, loaded or programmed
6
into a computer, created on the premises of the consumer or otherwise provided.
“Computer software” is “a set of coded instructions designed to cause a computer . . . to perform a
7
task.” Computer software is “delivered electronically” if delivered “by means other than tangible
8
storage media.” The Tennessee Supreme Court has stated that the fabrication of, or customized

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)).
3

TENN. CODE ANN. § 67-6-102(76) (Supp. 2016).

4

Tangible personal property” includes “property that can be seen, weighed, measured, felt, or touched, or that is in any other
manner perceptible to the senses.” TENN. CODE ANN. § 67-6-102(89)(A).

With regard to prewritten computer software, TENN. CODE ANN. § 67-6-102(68) provides that “‘[p]rewritten computer software’
or a prewritten portion of the computer software that is modified or enhanced to any degree, where the modification or
enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer
software.” Note, however, that “where there is a reasonable, separately stated charge or an invoice or other statement of the
price given to the purchaser for the modification or enhancement, the modification or enhancement shall not constitute
prewritten computer software.” TENN. CODE ANN. § 67-6-102(68).
5

TENN. CODE ANN. § 67-6-102(78)(C).

6
TENN. CODE ANN. § 67-6-231(a)(1) (Supp. 2016). The term “sale” specifically includes the transfer of computer software,
including the creation of computer software on the premises of the consumer and any programming, transferring, or loading
of computer software onto a computer. TENN. CODE ANN. § 67-6-102(78)(K).
7
TENN. CODE ANN. § 67-6-102(18).
8

TENN. CODE ANN. § 67-6-102(24).

modification or enhancement to, computer software is considered a taxable sale of computer
9
software.
Additionally, the term “sale” specifically includes the transfer of computer software, including the
creation of computer software on the premises of the consumer and any programming,
10
transferring, or loading of computer software onto a computer.
In response to advances in technology that allow persons to remotely access and use software over
the Internet, the Tennessee General Assembly adopted into law 2015 Tenn. Pub. Acts Ch. 514, § 22
(effective July 1, 2015). This new law effectively treats all purchases of computer software in this
state equally, regardless of how the software is provided to and used by a purchaser in this state. It
amends TENN. CODE ANN. § 67-6-231(a) to include a new subdivision (2), which states in pertinent part
that
[f]or purposes of subdivision (a)(1), “use of computer software” includes the access
and use of software that remains in the possession of the dealer who provides the
software or in the possession of a third party on behalf of such dealer. If the
customer accesses the software from a location in this state as indicated by the
residential street address or the primary business address of the customer, such
access shall be deemed equivalent to the sale or licensing of the software and
electronic delivery of the software for use in the state.
As a result, effective for all billing periods beginning on or after July 1, 2015, the access and use of
11
computer software in this state, which has generally been subject to tax since 1977, remains
subject to sales and use tax regardless of a customer’s chosen method of use.
The sales tax also applies to retail sales of services specifically enumerated in the Retailers’ Sales Tax
12
Act. Notably, the application of the sales tax to retail sales of services in Tennessee remains
unaffected by the enactment of 2015 Tenn. Pub. Acts Ch. 514, § 22. The sales tax remains applicable
13
only to those services specifically enumerated in the Retailers’ Sales Tax Act. As reassurance of this

9

See Creasy Sys. Consultants, Inc. v. Olsen, 716 S.W.2d 35, 36 (Tenn. 1986).

10

TENN. CODE ANN. § 67-6-102(78)(K).

11

The General Assembly amended the definition of “tangible personal property” in 1977 to specifically include computer
software in response to the Tennessee Supreme Court’s holding to the contrary in Commerce Union Bank, 538 S.W.2d at 408.
1977 Tenn. Pub. Acts Ch. 42 (defining “tangible personal property” to include computer software); see also Univ. Computing Co.
v. Olsen, 677 S.W.2d 445, 447 (Tenn. 1984) (detailing the General Assembly’s actions taken to subject computer software to
sales and use tax).
12

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) (sales tax does not apply to all services;
rather, it only applies to retail sales of services specifically enumerated by the statute).
13
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; 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) (sales tax does not apply to all services; rather, it only
applies to retail sales of services specifically enumerated by the statute).

fact, the General Assembly included language in Section 22 stating that nothing in the new
subdivision (a)(2) of TENN. CODE ANN. § 67-6-231
shall be construed to impose a tax on any services that are not currently subject to
tax under this chapter, such as, but 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,
14
and distributing digital products.
Therefore, while the new TENN. CODE ANN. § 67-6-231(a)(2) modernizes taxation of computer software
in this state, it has no effect on the taxation of services.
Additionally, whenever two or more items are sold for a single sales price and at least one of the
15
items is subject to sales tax, the entire sales price is subject to sales tax as a bundled transaction.
Finally, when a transaction involves taxable and nontaxable components and the transaction’s true
16
17
18
19
20
object or a “crucial,” “essential,” “necessary,” “consequential,” or “integral” element of the
21
transaction is subject tax, the entire transaction is subject to sales tax. Only if the true object of the
transaction is not independently subject to sales tax and the items that would be subject to sales tax
are “merely incidental” to the true object of the transaction will the transaction not be subject to
22
sales tax.
14

2015 Tenn. Pub. Acts Ch. 514, § 22 (codified at TENN. CODE ANN. § 67-6-231(a)(2) (Supp. 2016)).

15

See generally Tenn. Dept. of Rev. Ltr. Rul. 14-10 (Oct. 14, 2014) [hereinafter “Ltr. Rul. 14-10”] (discussing Tennessee law
regarding bundling and the “true object” test), available at http://www.tennessee.gov/assets/entities/revenue/attachments/1410.pdf.
16

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).
17

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).
18

See supra note 16.

19

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”).
20

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

21

See generally Ltr. Rul. No. 14-10, supra note 15.

22

See generally id.

APPLICATION
1.

FEES THE TAXPAYER CHARGES ITS CLIENTS

The report fees that the Taxpayer charges its Clients are not subject to the Tennessee sales and use
tax as they relate to the Taxpayer’s provision of nontaxable [REDACTED] transcription services.
Here, the Taxpayer provides its Clients with a client component, which a Client downloads to its
workstation to dictate [REDACTED] into a report. The client component constitutes computer
23
software for Tennessee sales and use tax purposes. The Client’s use of the client component,
however, is merely incidental or secondary to the true object of the service that the Taxpayer
provides.
The client component interacts with the Taxpayer’s server to access specific voice recognition
profiles and provides the means for the Client to create transcription reports. The Taxpayer uses
[REDACTED] to electronically exchange finalized [REDACTED] transcription reports between
dissimilar information platforms, which are stored on the Taxpayer’s server and subsequently
transmitted to the Client’s [REDATED] system for storage and use by [REDACTED].
Notably, the Client does not contract with the Taxpayer to download the client component. Instead,
the Client contracts with the Taxpayer for its provision of storage services and transmission of
[REDACTED] transcriptions.
Accordingly, the report fees that the Taxpayer charges its Clients are not subject to the Tennessee
sales and use tax.
2.

FEES THIRD-PARTY SOFTWARE PROVIDER CHARGES THE TAXPAYER

The report fees that the Taxpayer pays the Third-Party Software Provider are subject to Tennessee
sales and use tax. They do not qualify as sales for resale.
The sale, lease, license, or transfer of such software was subject to taxation before the General
Assembly adopted 2015 Tenn. Pub. Acts Ch. 514, § 22, and it remains taxable, regardless of the
method of delivery.
The report fees that the Taxpayer pays are based upon the Taxpayer’s license of the Software from
the Third-Party Software Provider. The Third-Party Software Provider delivers the Software
electronically to the Taxpayer, and the Taxpayer downloads the Software to its Tennessee servers.
The term “retail sale” means “any sale, lease, or rental for any purpose other than for resale,
24
sublease, or subrent.” Thus, sales for resale are not subject to the Tennessee sales and use tax.

23

See TENN. CODE ANN. § 67-6-102(18).

24

TENN. CODE ANN. § 67-6-102(76) (emphasis added).

TENN. CODE ANN. § 67-6-102(75) defines a “sale for resale” as “the sale of the property, services, or
taxable item intended for subsequent resale by the purchaser” and requires any sales for resale to
be “in strict compliance with rules and regulations promulgated by the commissioner.” The term
“resale” means “a subsequent, bona fide sale of the property, services, or taxable item by the
25
purchaser,” and only applies when sold to “legitimate dealers actually selling such property or
26
services as such.”
With regard to computer software, TENN. CODE ANN. § 67-6-231(a)(2) clarifies that “[a]ny dealer that
purchases computer software only for the purpose of reselling access and use of such software . . .
shall be entitled to purchase such software exempt from” the Tennessee sales and use tax.
However, a service provider that purchases computer software to be used in the furnishing of its
service is the end user of the software, and is therefore subject to the Tennessee sales and use tax
27
on such software purchases.
Here, the Taxpayer does not purchase the Software from the Third-Party Software Provider to resell
as such. Rather, the Taxpayer uses the Software to facilitate the provision of its [REDACTED]
transcription services. The Software enables the Taxpayer to provide its Clients with transcription
services and the generation of [REDACTED] reports, which the Taxpayer stores on its servers for its
Clients. Furthermore, the Taxpayer is contractually prohibited from reselling the Software to other
parties.
Accordingly, the report fees that the Taxpayer pays for license of the Software from the Third-Party
Software Provider are subject to Tennessee sales and use tax and do not qualify as sales for resale.

Gary Williams
Assistant General Counsel

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

February 9, 2017

25

TENN. CODE ANN. § 67-6-102(75)(A).

26

TENN. COMP. R & REGS. 1320-05-01-.62(1) (2016).

27

See TENN. CODE ANN. § 67-6-102(75)(B)(i).