CCH Tax Day Report
Charges by a qualified data center for services it provides are not subject to Tennessee sales and use tax because they are nontaxable information and data processing services. No sale, transfer, or electronic delivery of tangible personal property or computer software occurs in Tennessee when the taxpayer charges its customers for its services. Although the taxpayer uses third-party software and internally-developed software to perform the services, the taxpayer does not transfer title, possession, or control of the software programs at any time, nor do its customers electronically download the software programs. Moreover, the taxpayer does not provide taxable services; only specifically enumerated services are subject to tax. In addition, the taxpayer’s charges to its affiliates for remote access and use of third-party software and internally-developed software are likewise not subject to sales and use tax, and those affiliates’ charges to other taxpayer affiliates for remote access and use of the same software are not subject to tax.
Letter Ruling No. 16-04, Tennessee Department of Revenue, June 8, 2016, ¶401-654