A taxpayer that provides transcription services to clients is subject to Tennessee sales and use tax on report fees paid to a third-party software provider. The software provider licenses a speech recognition reporting software to the taxpayer on a transactional, fee-based model. The software provider charges the taxpayer according to the number of reports generated. The report fees are subject to sales and use tax since the charges relate to software electronically transferred to the taxpayer. The sales do not qualify as sales for resale because the taxpayer is considered the user and consumer of the software to provide its services, and does not resell the software to its clients. The taxpayer provides its clients with a client component of the software, which the client downloads to use in dictating a report. The client’s use of the client component is incidental to the true object of the taxpayer’s service. The report fees that the taxpayer charges its clients are not subject to Tennessee sales and use tax since they relate to the taxpayer’s provision of non-taxable transcription services. (Letter Ruling No. 17-01, Tennessee Department of Revenue, February 9, 2017)