Tennessee – Bundled Software Not Subject to Single Article Cap

SALT Report 1131 – Software packages that include multiple licenses for various software products and maintenance contracts sold together at a bundled price are not subject to the single article cap for Tennessee local option sales tax purposes.

A license agreement for prewritten software is generally considered a single article, provided the agreement separately itemizes the price paid for each product and license.  If a taxpayer sells its software products and maintenance contracts for a single lump-sum price, the sale is not treated as a sale of individual single articles. Consequently, the single article cap does not apply, and the total price of the software packages is subject to local option sales tax.

However, if a taxpayer itemizes the price paid for each product, each component would then be considered a single article, with the exception of maintenance services which are not single articles because they are not tangible personal property.

For Further Information:

Tennessee Department of Revenue Letter Ruling No. 11-34