Tennessee Rules that Online Cloud-Based Platform is Not Subject to Sales Tax

January 31, 2022

Cloud computing

By: Tina Chunn, SALT Senior Manager

At a glance

  • The main takeaway: As more companies offer products and services through cloud-based applications, the treatment of sales tax has become more complex.
  • Assess the impact: Each state has different definitions of the types of services that are subject to sale tax, and determinations of what a company’s offering is for sales tax purposes involves a certain amount of subjectivity.
  • Take the next step: Aprio’s State and Local Tax (SALT) team can provide guidance and help you determine the appropriate sales tax treatment for your transactions.

The full story:

As technology evolves, the number of products and services offered through cloud-based applications has increased making the treatment of sales tax more complex.

To analyze the sales tax treatment, two questions must be addressed. First, how should the company’s offering be classified for sales tax purposes (i.e., is it software as a service (SaaS) or a specific type of service such as data processing, information or telecommunications)? Second, based on the offering’s classification, it is subject to sales tax?

How should a company’s offering be classified?

The first issue is typically more complex and difficult to answer because each state has different definitions and there can be a level of subjectivity in the analysis resulting in a different classification depending on the state. This was the subject of a recent ruling in Tennessee addressing whether a taxpayer’s online cloud-based platform should be subject to sales tax.[1]

The taxpayer’s platform is used by commercial freight brokers and carriers to arrange for commercial transportation of freight, and it consists of two offerings. The first allows the brokers to advertise hauling requests and for freight companies to search for those opportunities. The carrier will contact the broker outside the platform using their own telecommunications systems to confirm and consummate the transaction because the platform does not provide any means for facilitating communications between the broker and the carrier. Subscribers pay a fee for remotely accessing this offering on the platform, but do not download any software. A free and optional mobile application is available to access the platform on a mobile device.

The second offering compiles and synthesizes data that is gathered voluntarily from the subscribers to help brokers and carriers determine the fair market value of a particular route or hauling engagement. Rate data for confirmed engagements is provided on a voluntary basis and is anonymized. The aggregate data is then presented as the prevailing market rate for postings on the first offering. This data can only be viewed via remote access to the platform upon payment for a subscription or a one-time access fee.

The ruling explains that for the offerings to be subject to sales tax, they would have to be characterized as something that is taxable under its sales and use tax rules, such as tangible personal property, software or a specifically enumerated taxable service. In Tennessee, telecommunications services and remote access to software from a location in the state are subject to sales tax, so the ruling analyzes whether either of the offerings would properly be characterized as such.

In addressing the first offering, the ruling explains that its purpose is to advertise freight hauling opportunities. The taxpayer compiles and processes the data and allows subscribers to view the data via remote internet access. Any communications between the broker and hauler must take place outside the platform. In addition, the subscribers do not gain access to software. Rather, brokers post hauling opportunities that carriers can view to procure hauling engagements. Therefore, the offering does not qualify as taxable telecommunications services or remotely accessed software. It is more appropriately an advertising service which is not a specifically enumerated taxable service in Tennessee.

Similarly, for offering two, the ruling concludes that it does not qualify as taxable telecommunications services or remotely accessed software. Rather, subscribers view aggregated market rate data that the taxpayer processed from raw rate data provided voluntarily. In Tennessee, data processing and information services are not taxable telecommunications services when the “purchaser’s primary purpose for the underlying transaction is the processed data or information” and do not constitute remotely accessed software.[2]

The determination of how a state classifies a product or service has become more complicated because of technological advances that change the method in which such products or services are offered and provided. In addition, state definitions are inconsistent and open to subjective analysis. Therefore, more taxpayers are seeking letter rulings from state taxing authorities, like the one described in this article, to obtain necessary guidance.

The bottom line

Aprio’s SALT team is experienced with analyzing these types of transactions to determine the appropriate sales tax treatment. We can also work with your business to obtain a tax ruling where the existing guidance does not provide a clear conclusion. Our assistance will ensure that your business remains in sales tax compliance and does not incur unexpected liabilities or penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn, SALT Senior Manager, State & Local Tax Services at  tina.chunn@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the January 2022 SALT Newsletter.

[1] Letter Ruling No. 21-08, Tennessee Department of Revenue, Aug. 26, 2021.

[2] See Tenn. Code Ann. §§ 67-6-102(98)(B)(i) and 67-6-231(a)(2).


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.