Sales/Use/Indirect:
Tennessee: Letter Ruling Says Nontaxable Services Provided through Digital Platform Remain Nontaxable

Letter Ruling No. 23-05, Tenn. Dept. of Rev. (6/30/23). The Tennessee Department of Revenue (Department) issued a letter ruling concluding that an out-of-state technology company offering staff augmentation and payment processing services accessed through a digital platform (i.e., via a mobile application (“APP”)) is not subject to Tennessee sales and use tax on such transactions because they are not enumerated taxable services under state law – reasoning the same conclusion would apply had the company been offering its services through more traditional forums such as “labor halls, hiring halls, and employment agencies.” The Department also held that while the company’s provision of services via an APP arguably could be subject to Tennessee sales and use tax as a taxable use of computer software, such was not the case here as the APP is used to gain access to the platform and is merely incidental to the nontaxable services the company provides. That is, according to the Department, connecting businesses and workers for purposes of arranging short-term employment is the true object of the transactions. The Department pointed out that, under the facts:

1. There is no charge for customers to download the APP,
2. The APP is primarily used to gain access to the nontaxable services, and
3. The APP, along with the limited functionality of providing templates and creating lists of favored workers, is worthless without the provided nontaxable services.

Lastly, the Department noted that although the company provides the means for customers and workers to communicate through the APP regarding job details and logistics, the company is not furnishing taxable telecommunication services because these services also are merely incidental to the nontaxable true objects of the transactions. Please contact us with any questions.