By Jessica Kerner and Timothy Gustafson 

The Tennessee Department of Revenue determined in a Letter Ruling that a taxpayer’s sale of remote storage services and virtual computing services are not subject to Tennessee sales or use tax where the data centers and servers used to provide such services are located outside the state. The Department determined neither service was subject to Tennessee sales and use tax because there was no sale, transfer or electronic delivery of tangible personal property or computer software in Tennessee in connection with the furnishing of these services. The Department noted that the taxpayer prohibited customers from downloading any part of its remote storage interface or its virtual computing software. Further, the Department concluded that the services are not specifically enumerated taxable services in the state and ruled that both services were excluded from the state’s definition of telecommunications services based upon the primary purpose of each service. The Department determined that the primary purpose of the remote storage service was the remote storage of digital data, applications and information, and the primary purpose of the virtual computing service was to access processed data or information stored on the taxpayer’s servers located outside the state. Accordingly, the Department categorized both services as data processing and information services, which are specifically excluded from the definition of telecommunications services. Tennessee Letter Ruling 13-12 (Sept. 12, 2013).