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Sales, Use and International Tax Articles

Sales, Use and International Tax Activity Update - November 2012

Fee charged for access to online content is taxable in Tennessee

In Letter Ruling 12-11, the Tennessee Department of Revenue determined that a fee charged by a taxpayer to its customer for accessing a variety of online content via their website is taxable for periods beginning on or after January 1, 2009 and exempt from sales tax for periods prior to January 1, 2009.

Some of the online content includes a library with periodicals and reference sources, such as dictionaries and encyclopedias, as well as application service provider computer simulation programs, which are stored on the taxpayer’s servers outside of Tennessee and are not transferred to its customers.  This content was not taxable prior to January 1, 2009 for several reasons.  Digital books were not taxable, there was no sale of tangible personal property, the provision of the online content was not an enumerated taxable service, and the taxpayer retained title, possession, and control of the computer simulation programs.

On January 1, 2009, Tennessee’s statute was revised to include “specified digital products sold with rights of less than permanent use” as “retail sales, leases, licensing, or use subject to tax” under code section 67-6-233(b)(1). The dictionaries and encyclopedias that are part of the online content that the taxpayer provides fall within the meaning of “digital books,” which are “specified digital products” under code section 67-6-102(31). These “digital books” can be viewed, downloaded, or printed by the taxpayer’s customers as part of the fee that they are charged.  Although there is nontaxable online content that is offered in connection with the fee, the entire fee is taxable because the nontaxable items and taxable items are part of a single charge and are not separately stated.

A copy of letter ruling 12-11 can be found at:

http://www.state.tn.us/revenue/rulings/sales/12-11.pdf


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