Software Consulting and Testing Services Not Taxable in Tennessee

Tuesday, February 4th, 2014


The Tennessee Department of Revenue ("Department") recently released a ruling that a taxpayer's system testing and consulting services were not subject to tax.

Tennessee taxes sales of specific services, including the installation of computer software and the sale of software delivered electronically. Tennessee does not tax sales of consulting, testing, or designing services.

The taxpayer provided consulting services for customers who wanted to add new software to their existing systems. The taxpayer helped the customer determine what software and hardware configuration worked best for the customer. As part of this service, the taxpayer tested the recommended software and hardware configuration to ensure it would work properly. To test the configuration, the taxpayer would temporarily install and configure software on the customer's system. During this testing, the taxpayer would use either a licensed trial version of the software or the taxpayer's own software. Once the taxpayer completed testing, the taxpayer would remove this software from the customer's system.

The Department ruled that the installation of the software on the customer's system was not a sale of software. The taxpayer did not transfer title, possession, or control of any software to its customers when it tested the configuration. The taxpayer kept title, possession, and control of all the software it installed on the customer's system. There was also no taxable installation service. The Department held that the common understanding of "installation" did not include situations where a seller set up property for its own one-time use and then removed it once that use was complete. The taxpayer's services were therefore not taxable.

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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

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