An online education company sells two kinds of courses: self-study online courses a student works through alone, and live webinars taught by an instructor in real time. Are these subject to Tennessee sales tax?

Plain-English summary

An out-of-state company that sells online professional-licensing and continuing-education courses (for fields like real estate, nursing, cosmetology, surveying, and engineering) asked the Department whether its online courses are subject to Tennessee sales tax. The answer depends entirely on format: self-study online courses are taxable, but live instructor-led webinars are not. It's a textbook application of Tennessee's true-object test to e-learning.

Self-study online courses — taxable as remotely accessed software. In a self-study course, the student works through the material by interacting with a computer program: reading on-screen text, answering "knowledge checkpoints" (multiple choice, matching, short answer), and getting automated feedback — a narrative explanation plus pre-recorded audio or video — based on those answers. The Department said that's the use of software: the student is essentially buying access to a program, much like buying a study DVD or a language-learning program. Since 2015, Tennessee taxes remotely accessed software wherever the customer accesses it (§ 67-6-231(a)), so the self-study courses are taxable when sold to a Tennessee student.

Live instructor-led webinars — not taxable. A webinar runs in real time: students connect remotely to a virtual classroom where a live instructor presents, and they interact with the instructor and each other. The platform is computer software, and students reach it from Tennessee — but here the Department held the platform is "merely incidental" to the live class. Once the student logs in, they're not interacting with a computer program; they're interacting with a person. So the true object is a training service, not software. Tennessee taxes only specifically enumerated services (§ 67-6-205), and training/education isn't one of them, so the webinars are not taxable.

The dividing line in one sentence: if the student is mainly interacting with software, the course is taxable; if the student is mainly interacting with a live instructor, the course is a nontaxable service and the software is just the delivery channel.

What this means for you

Online course and e-learning providers

How you build the course controls the tax. A self-paced course a student clicks through alone is treated as software and is taxable in Tennessee. A live, instructor-led session is a service and isn't taxable. If you sell both, you generally need to tax the self-study products and not the live ones — and watch bundles that mix the two (a single price covering both can pull the whole charge into tax).

Continuing-education and test-prep businesses

Selling licensing CE or exam prep to Tennessee residents? Pre-recorded, interactive, work-at-your-own-pace modules look like taxable software. Scheduled classes with a live teacher look like nontaxable instruction. The certificate of completion, the subject matter, and the price don't change the analysis — what matters is whether the student interacts with a program or a person.

Buyers of online training

If you're a Tennessee business or individual buying online courses, expect self-study/on-demand courses to carry sales tax and live virtual classes generally not to. If a vendor doesn't charge tax on a taxable self-study course, use tax can apply.

Accountants and tax professionals

Straightforward true-object analysis (Thomas Nelson; AT&T; Rivergate Toyota) on top of the remotely-accessed-software rule (§ 67-6-231(a)(1)–(2); 2015 Tenn. Pub. Acts Ch. 514, § 22) and the enumerated-services limit (§ 67-6-205; Covington Pike Toyota; Ryder Truck Rental). Self-study = use of software (true object = the program); live webinar = nontaxable training service (platform incidental). Note this is a Revenue Ruling — advisory and not binding even on the Department. Companions on the same true-object axis: LR 17-15 and LR 16-01 (software the true object → taxable) versus LR 18-09, LR 16-02, and LR 17-18 (software incidental → nontaxable service).

Common questions

Q: Are online courses taxable in Tennessee?
A: It depends on the format. Self-study, work-at-your-own-pace online courses are taxable as remotely accessed software. Live, instructor-led virtual classes are not taxable — they're a training service.

Q: Why is a self-study course taxed but a live webinar isn't?
A: In a self-study course the student interacts with a computer program (text, quizzes, automated feedback), so the true object is the software. In a live webinar the student interacts with a real instructor, so the platform is merely incidental and the true object is the class.

Q: I sell both kinds. How do I handle tax?
A: Generally tax the self-study products and not the live ones. Be careful with bundles: if taxable and nontaxable items are sold for one price, the whole charge can become taxable.

Q: Does a completion certificate or the course topic change the answer?
A: No. The analysis turns on whether the student is using software or attending a live class — not on the subject, the certificate, or the price.

Q: Can I rely on this revenue ruling?
A: No. A Tennessee revenue ruling is advisory and is not binding even on the Department; 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 accessed software taxed where the customer accesses it; does not make otherwise-nontaxable services taxable) — 2015 Tenn. Pub. Acts Ch. 514, § 22 (eff. July 1, 2015)
• § 67-6-205 (sales tax applies only to services specifically enumerated in the Retailers' Sales Tax Act)
• § 67-6-102(76) ("retail sale"); § 67-6-102(78)(A), (C), (K) ("sale")
• § 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")

Case law:

• 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/17-17.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 17-17
Revenue rulings are not binding on the Department. This ruling is based on the particular
facts and circumstances presented and is an interpretation of the law at a specific point in
time. The law may have changed since this ruling was issued, possibly rendering it obsolete.
The presentation of this ruling in a redacted form is provided solely for informational
purposes, and is not intended as a statement of Departmental policy. Taxpayers should
consult with a tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax to instructor-led webinars and self-study online
courses.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
The Taxpayer is a limited liability company domiciled outside of Tennessee. The Taxpayer provides
professional licensing education & test preparation services through continuing education courses
and online courses to individuals in various fields of study, such as real estate, home inspection,
nursing, cosmetology, land surveying, engineering, and others. The Taxpayer's online product
offerings (collectively “online training courses") include self-study online courses and instructor-led
webinars with the target audience of individual persons striving to advance or start a new career. All
online training courses are designed to be a substitute for in-person live training and achieve the
same results.
Online self-study courses provide written material and interactive knowledge checkpoints without
live communication with an instructor. These checkpoints involve a question and answer and take
the form of multiple-choice, concepts matching, and short answer. The content of the online selfstudy course is only available online and may not be downloaded on the purchaser's computer. The
content is provided in the form of a written text on the computer screen that may be accompanied
by an audio recording explaining the concepts. Additionally, certain online self-study courses contain
video clips of pre-recorded conversations or staged videos guiding the learner through the concepts
of the online self-study course. During the online self-study course, a student has an option to
collaborate with other students through the chat function. In addition, experienced professionals
are available at the request of the student to discuss specific areas of the online self-study course
through email or over the phone. Once the online self-study course has been completed, the student
receives a certificate of completion and may not retake the online self-study course unless he or she
enrolls again.

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The webinars are typically conducted in real time with students connecting remotely to the virtual
classroom where a live instructor is presenting the material to the audience through the Taxpayer’s
platform. There is a direct interaction and information exchange between students and the
instructor, the attendance is recorded, and a completion certificate is issued at the end of the
course.
To take any online training course, a prospective student has to create an account on the Taxpayer's
server, sign up for the chosen course, and pay a specific fee based on the type of course.
RULINGS

1. Are the Taxpayer’s self-study online training courses subject to the Tennessee sales and use
   tax?
   Ruling: Yes, the Taxpayer’s self-study online training courses are subject to Tennessee sales
   and use tax because the student is paying for the use of computer software.
2. Are the Taxpayer’s live instructor-led webinars subject to Tennessee sales and use tax?
   Ruling: No, the Taxpayer’s live instructor-led webinars are not subject to Tennessee sales
   and use tax because the student is paying to participate in a live class.
   ANALYSIS
   Legal Background
   1

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”
2
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
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purchaser.”
1

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)).
2

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

3

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

2

In addition to the transfer of tangible personal property, the term “sale” also includes “the furnishing
4
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
5
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
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task.” Computer software is “delivered electronically” if delivered “by means other than tangible
7
storage media.”
In 2015, the Tennessee General Assembly adopted into law 2015 Tenn. Pub. Acts Ch. 514, § 22
(effective July 1, 2015). This 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 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 of licensing of the software and
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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
computer software in this state is subject to sales and use tax regardless of a customer’s chosen
method of use.

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),
4

TENN. CODE ANN. § 67-6-102(78)(C).

5

TENN. CODE ANN. § 67-6-231(a)(1) (Supp. 2015). 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).
6

TENN. CODE ANN. § 67-6-102(18).

7

TENN. CODE ANN. § 67-6-102(24).

8

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

3

The sales tax also applies to retail sales of services specifically enumerated in the Retailers’ Sales Tax
9
Act. However, 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
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only to those services specifically enumerated in the Retailers’ Sales Tax Act. As reassurance of this
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,
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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
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items is subject to sales tax, the entire sales price is subject to sales tax as a bundled transaction.
When a transaction involves taxable and nontaxable components and the transaction’s true object
13
14
15
16
17
or a “crucial,”
“essential,”
“necessary,”
“consequential,”
or “integral”
element of the
9

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).
10

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).
11

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

12

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.

13

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).
14

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).
15

See supra note 18.

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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
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sales tax.
Application
I.

Self-study Online Courses

The Taxpayer’s self-study online training courses are remotely accessed software and subject to
Tennessee sales and use tax under TENN. CODE ANN. § 67-6-231(a).
The self-study online training courses provide the user with the ability to study or learn a new skill by
accessing computer software via the internet. With respect to the taxable use of computer software
in this state that remains in possession of the dealer, TENN. CODE ANN. § 67-6-231(a)(2) requires the
access and use of the computer software by a customer within this state. Here, as part of its selfstudy online training courses, the Taxpayer provides Tennessee users with web-based access to its
platform where the users can select and pay for a specific program.
The platform provides access to the self-study online training course material where the user
interacts with a computer program by reading the online text and interacting with knowledge
checkpoints by answering questions formatted as either multiple-choice, concepts matching, or
short answer. Based upon the user’s interactions, the computer program provides the user with
feedback in the form of a narrative explanation and plays pre-recorded audio or video. This is
analogous with taxable pre-packaged software accessed via a tangible medium, such as a DVD or
compact disk that users purchase to study for career advancement, college entrance exams, or
learning a new skill, such as a new language.
Therefore, the online training courses are subject to Tennessee sales tax when sold to a Tennessee
customer because they are remotely accessed software.
II.

Instructor-led Webinar

The Taxpayer’s live instructor-led webinars are not subject to Tennessee sales and use tax because
the student is purchasing access to a live class, and the software platform is merely incidental to the
transaction.

16
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”).
17

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

18

See generally Ltr. Rul. No. 14-10, supra note 16.

19

See generally id.

5

The live instructor-led webinars provide the customer with access to live lectures via a computer.
With respect to the taxable use of computer software in this state that remains in possession of the
dealer, TENN. CODE ANN. § 67-6-231(a)(2) requires the access and use of the computer software by a
customer within this state. Here, as part of its webinar, the Taxpayer provides its students with webbased access to its platform where the students can select and pay for a specific course. The
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Taxpayer’s platform constitutes computer software for Tennessee sales and use tax purposes, and
the platform is accessed by the Taxpayer’s students from locations within Tennessee. A student’s
use of the platform software, however, is merely incidental to participating in the live class.
The platform software simply provides access to a real time presentation where the student can
interact with the instructor and view course material. After gaining access, the student is not
interacting with a computer program, but instead interacts with the instructor and other students.
The platform only facilitates course instruction between the students and instructor, and it is merely
incidental to the webinar.
Consequently, the student is not purchasing use of the software, but is, instead, purchasing access
to a training class. With respect to the sale of services in Tennessee, only specifically enumerated
services are subject to tax under the Retailers’ Sales Tax Act. The Taxpayer’s training services are not
specifically enumerated as taxable under TENN. CODE ANN. § 67-6-205.
Accordingly, the Taxpayer’s instructor-led webinars are not subject to the Tennessee sales and use
tax.

Brent C. Mayo
Assistant General Counsel

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APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

10/31/17

See TENN. CODE ANN. § 67-6-102(18).

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