The Tennessee Department of Revenue has issued a letter ruling stating that the monthly fee charged by an out-of-state software vendor to Tennessee taxpayers for online access to customer relationship management (CRM) software is not subject to Tennessee sales and use tax. The vendor initially has its employees travel to Tennessee to perform a system requirements analysis for the taxpayer. The vendor then configures the software to fit the taxpayer’s specific needs at its location outside of Tennessee. The CRM software resides at all times on the vendor’s out-of-state servers. Taxpayers are not permitted to install or transfer the software application onto its computers. While the retail sale, lease, licensing or use in Tennessee of computer software (regardless of method of delivery) is subject to sales and use tax, the vendor in this case is providing access to software housed on an out-of-state server. Any such sale in this case occurs outside of Tennessee. No sale or use of tangible personal property occurs in Tennessee when the taxpayer accesses the software over the internet because the vendor does not transfer title, possession, or control of the software to the taxpayer at any time. Additionally, the provision of access to the software does not constitute a taxable service for Tennessee sales and use tax purposes. The CRM software application falls under the category of data processing and information services, which are excluded from the definition of taxable “telecommunication services” under Tennessee law. Because the vendor is not making sales of tangible personal property and is not providing a taxable service, no part of the transaction can be considered taxable. While the modification of software constitutes the sale of tangible personal property in some cases, no such sale occurs in this case because the modification is not connected to a taxable sale of software. Charges for the analysis of the taxpayer’s system requirements are also not taxable because it is a non-taxable service and is not connected to the taxable sale of software. (Letter Ruling No. 11-58, Tennessee Department of Revenue, October 10, 2011)