Tennessee issued a letter ruling stating tax should be paid on a subscription-based product which allows users to create and manage advertisements for rental properties. The taxpayer, a non- Tennessee based corporation, argued the product should not be taxed because it should be classified as advertising services; after a review of the product’s primary functions, Tennessee declared the product to be computer software and thus taxable.
The product allows users to create and distribute advertisements for rental properties on sites such as Facebook, Craigslist, and Google. Only content published to Craigslist can be published by the product; users self- publish to any other platforms. Once published, the product consolidates leads and information onto a user dashboard, allowing customers to communicate with prospective renters. There is also a marketing function which allows users to track leads and bookings through the various platforms. However, the users input the data, create the advertising, and deploy to platforms, which lead the Department of revenue to declare the product did not provide users with advertising services, only with software. As a result, the product has been correctly categorized and is subject to tax.
The ruling also notes that the taxpayer argued they should receive the same categorization as the taxpayer in Ruling 19-01 (May 2019). In this Ruling, the Department of Revenue points out the product in Ruling 19-01 was used both to create listings and then publish them on that taxpayer’s platform. The taxpayer in Ruling 22-07 does not provide a platform and users must publish to external platforms, highlighting that the subscription fee in this case is primarily to purchase access to the software. (TN Department of Revenue, Letter Ruling 22-07 approved by D. Gerregano, Commissioner of Revenue, 10/5/2022)