The Tennessee Department of Revenue recently issued Revenue Ruling 25-08, addressing the sales and use tax implications of subscription fees for a mobile healthcare solution. In Tennessee, services are generally exempt from sales tax unless specifically identified as taxable. However, when a subscription involves access to software or a digital platform, the state may treat the transaction as taxable if the software is the true object of the sale. This principle was central to the ruling, which concluded that the taxpayer’s subscription fee was taxable because the primary purpose was access to remotely accessed software used to track health data.
The ruling also addressed bundled transactions. If a subscription includes both taxable and nontaxable components, such as software and medical services, the entire charge may be subject to tax unless the provider can clearly identify and separate the nontaxable portion. In this case, the taxpayer included items like blood pressure monitors, postcards, and posters with the software. While these items are taxable when sold at retail, the taxpayer may use a resale certificate when purchasing them for inclusion in the bundled subscription.
Medical services provided by licensed professionals remain exempt from sales tax. Conversely, digital platforms and software used in conjunction with those services are not automatically exempt unless specifically listed. Tennessee’s approach emphasizes the importance of determining whether the digital product or tangible property is incidental or central to the transaction.
This ruling underscores the importance for companies to thoroughly assess the structure of their offerings. Subscription models that rely heavily on software or digital tools may be subject to sales tax, even if they support exempt medical services. Businesses should review their billing practices and documentation to ensure compliance and consider whether they can substantiate the nontaxable portions of bundled transactions. (Revenue Ruling 25-08, Tennessee Department of Revenue, October 24, 2025, ¶401-999)