By Jessica Allen and Jeff Friedman
The Tennessee Department of Revenue (Department) released a letter ruling stating that a taxpayer’s charges for use of its web-based interface are subject to sales and use tax as the sale of ancillary services. The taxpayer’s proprietary software allows users to communicate through text and other messages on a single centralized web-based interface. The Department explained that the state imposes tax on the sale of telecommunications services and ancillary services. Telecommunication services are defined to include the transmission of data. Ancillary services include services associated with telecommunication services. Because the taxpayer’s web-based interface was “associated with, or incidental to, the provision of telecommunication services,” the interface qualifies as the sale of taxable ancillary services and therefore is subject to sales and use tax. Tenn. Letter Ruling 16-09, Tenn. Dep’t of Revenue (issued Nov. 10, 2016).