The Tennessee Department of Revenue ruled that membership fees charged from a home exercise equipment company are subject to the state’s sales and use tax. In Letter Ruling #23-01, Tennessee stated the taxpayer is not exempt because the membership contains taxable specified digital products in the form of prerecorded workout videos.
The taxpayer, a home exercise equipment seller, sells online exercise classes via a membership fee. Included in the membership are both live and pre-recorded, on-demand exercise classes. During both live and pre-recorded classes, users can receive feedback based on their biometric data.
In 2008, Tennessee imposed taxes on “specified digital products,” an umbrella term including electronically transferred digital audio-visual works, music, books, and entertainment. The exercise classes are included under digital audio-visual works. Excluded from this term are products for less than permanent use, such as video games, newspapers, and subscriptions to satellite radio.
According to the Tennessee Department of Revenue, the pre–recorded classes are specified digital products. Under specific circumstances, live exercise classes are not considered specified digital products and are therefore exempt. However, as the pre-recorded and the live classes are included in the same fee and not separately, the membership fee is subject to Tennessee sales and use tax.
The taxpayer inquired about two factors that may have precluded the membership fees from taxability. The first was that the interactive nature of the classes would remove them from the definition of specified digital products. The Department of Revenue rejected this inquiry, stating that pre-recorded videos are still considered specified digital products, no matter how much a user interacts with the class.
Secondly, the taxpayer asked if the membership fees would fall under data processing and information services, which are exempt under Tennessee Code 67-6-233(d) (2022). The taxpayer pointed to feedback features included in the classes that collect biometric data of users and provide feedback on their performance. Tennessee stated that the biometric data is incidental to the membership fees and that the primary purpose of the purchases is to participate in the classes, not to track biometric data.
(Letter Ruling No. 23-01, Tennessee Department of Revenue
Tennessee S.B. 4173, Laws 2008
Tennessee Code 67-6-233(d))