Tennessee has clarified the taxability of software regardless of the method of delivery. Effective July 1, 2015, taxable computer software includes the access and use of software that is remotely accessed by a Tennessee customer when the software remains in the possession of the seller. The state also enacted an exemption, effective July 1, 2015, for 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 software is accessed and used solely by a person or the person’s employee exclusively for fabricating software that is both owned by that person and for that person’s own use and consumption. The exemption for the use of computer software developed and fabricated by an affiliated company is available regardless of whether the software is accessed or used remotely or delivered by other means.Per the enacted legislation, “use of computer software” means 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 Tennessee, such access will be deemed equivalent to the sale or licensing of the software and electronic delivery of the software for use in the state. If the sales price or purchase price of the software relates to users located both in Tennessee and out of state, the dealer or customer can allocate to Tennessee a percentage of the sales price or purchase price that equals the percentage of users in the state. This partial use in Tennessee exemption should be claimed on the Streamlined Exemption certificate. Dealers that purchase computer software only for reselling access and use of it may purchase such software exempt from tax subject to the same rules that apply generally to sales of tangible personal property for resale. However, software purchased by a qualified data center for access and use by an affiliated company will be deemed to be used and consumed by the qualified data center and not resold to the affiliated company.
The Tennessee Department of Revenue has issued guidance regarding the legislation, which provides that the use of computer software in Tennessee that is subject to sales and use tax includes the access and use of software that remains in the possession of the seller and is remotely accessed by a customer for use in Tennessee. As a result, software remains subject to Tennessee sales and use tax regardless of a customer’s method of use.
Computer services such asinformation 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, and distributing digital products are not subject to tax even if the purchaser uses remote access to utilize or receive the service. (H.B. 644, Laws 2015, effective as noted; Important Notice No. 15-14, Tennessee Department of Revenue, June 2015)