SALT Report 1227 – The Tennessee Department of Revenue ruled that the monthly fee charged by a software vendor to its customer for online access to the vendor’s Customer Relationship Management (CRM) software is not subject to Tennessee sales and use tax.
The CRM software is a preexisting software application owned and operated by the vendor. The vendor licenses the CRM’s use to their customers and configures the application’s functionality to fit the customer’s specific needs. The customer is granted a license to use the CRM software on a subscription basis and is charged a monthly subscription fee. The customer is not permitted to install or transfer the CRM software onto its own computers and the software resides at all times on the vendor’s server. At no time does the vendor transfer title, possession, or control of the software application to the taxpayer. Therefore, under Tennessee law no sale or use of tangible personal property occurs if the customer is only able to access the software via the Internet.
Additionally, any modification of the CRM software to fit the taxpayer’s needs is not subject to tax because the modification is not provided in connection with a taxable sale of software. Further, charges for the initial analysis of the customer’s system requirements are not taxable because it is not a taxable service itself and is not provided in connection with a taxable sale of goods or services.
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