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Tennessee to Expand Sales Tax on Computer Software

  • Jun 11, 2015 | Gail Cole

 Video game digital products soon to be subject to Tennessee sales tax.

Due to the enactment of the Revenue Modernization Act, cloud computing and video game services are subject to Tennessee sales tax effective July 1, 2015.

Video games

Tennessee Code Annotated, Section 67-6-102 is amended with the addition of the following subdivision:

“Video game digital product’ means the right to access and use computer software that facilitates human interaction with a user interface to generate visual feedback for amusement purposes, when possession of the computer software is maintained by the seller or a third party, regardless of whether the charge for the service is on a per use, per user, per license, subscription, or some other basis.

Cloud computing services

Tennessee Code Annotated, Section 67-6-231(a) is amended with the addition of the following subdivision:

For purposes of subdivision (a)(1), use of computer software includes the right to access and use software that remains in the possession of the dealer who provides the software or in the possession of a third party on behalf of such dealer. If the customer accesses the software from a location in this state as indicated by the residential street address or the primary business address of the customer, such access shall be deemed equivalent to the sale or licensing of the software and electronic delivery of the software for use in this state. If the sales price or purchase price of the software relates to users located both in this state and outside this state, the dealer or customer may allocate to this state a percentage of the sales price or purchase price that equals the percentage of users in this state. Nothing in this subdivision (a)(2) shall be construed to impose a tax on any services that are not subject to tax under this chapter, such as information services, payment processing services, internet access, or the mere storage of digital products, digital codes, or computer software.

Preparing for disputes

According to Tennessee Department of Revenue intends to tax the use of software itself rather than impose a tax on services provided through the use of software. A spokesman for the department said they anticipate disputes over the taxation of these services.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.