Sales Tax State Activity Update December 2005

Tennessee Telecommunication Bulletin Update

Tennessee recently issued two bulletins dealing with the taxation of telecommunications, audio and video programming, ancillary services and how to deal with the taxation of bundled transactions.

The bulletins stated that Public Chapter 499 Acts of 2005 amended the state’s statutes to conform to the definitions in the Streamlined Sales and Use Tax Program relative to telecommunications services.

Public Chapter 499 also amended the definition and procedures found in Tenn. Code Ann. Section 67-6-539 dealing with the taxation of bundled transactions. The procedures for taxation apply to transactions involving Internet access, telecommunication services, and ancillary services and, effective 7/1/05, to audio and video programming services such as cable, wireless cable or direct-to-home satellite television programming services. These new bundled transaction procedures will not apply to transactions where other types of services or tangible personal property are also included in the bundled sale of products.

The 2005 definition of a bundled transaction is the retail sale of two or more services, where:

• The services are otherwise distinct and identifiable and,
• The services are sold for one non-itemized price.

A bundled transaction does not include the sale of any services in which the sales price varies, or is negotiable, based on the selection by the purchaser of the services included in the transaction.

Since certain services provided by telecommunications service providers are often sold as part of a bundled transaction and those services can be taxed differently, the bulletin provided several examples of bundled service transactions and how they should be taxed. The bulletin stated that sellers can use a “books and records” apportionment method to collect the sales tax on the taxable products in the bundled transaction. Sellers who do not separately account for bundled products in their books and records must collect tax on the single non-itemized price.

For purposes of dealing with the taxation of bundled transactions, the procedures outlined applied to bills dated after 7/1/04 for charges that were not previously billed if the bundled transaction involved only telecommunications services, ancillary services and Internet access. With the 2005 amendments, the procedure applied to bills that were dated on or after 7/1/05 if the bundles also involved audio/video programming services such as cable, wireless cable and direct-to-home satellite services.

(Sales and Use Tax Notices #05-19 and #05-20, Tennessee Department of Revenue, Publication Date: 10/27/05)