SALT Report 2024 – The Tennessee Department of Revenue issued a ruling regarding a Taxpayer’s sales of web services via remote computer access. The Taxpayer’s web services are purchased and used by subscribers, participants invited by other subscribers, and trial users. The Taxpayer does not sell, transfer, or license software or tangible personal property to its customers; however to access the web services the user must download a free applet.
The Taxpayer offers four different types of web service:
Web service #1 allows the subscriber’s customer service technicians to remotely assist and provide support to the subscriber’s employees and/or customers. Subscribers to Web Service #1 may also purchase a complimentary service that allows the subscriber to monitor its networks, devices, and servers, maintain inventory, and perform analysis and reporting.
Web Service #2 is similar to that of Web Service #1, except that it also allows subscribers to access their own computer remotely from any other Internet-connected computer through a private, secure connection.
Web Service #3 provides conferencing services that allow multiple users to view a presenter’s computer screen. This service allows subscribers to meet with others and present information online to a broad audience.
Web Service #4 allows subscribers to conduct online training sessions with their customers. Through this service the subscriber can provide online training sessions, distribute course materials, tests and assessments, publish upcoming courses to a catalogue, and maintain a reusable content library.
In their ruling the Department noted that although a transfer or use of computer software occurs when the Taxpayer provides web service #1 or 2 to its customers, the software transfer is not the true object of the transaction and therefore these services are not subject to sales and use tax.
Web Services #3 and 4 are not subject to tax as a sale of computer software. However, these services involve functions that are considered “ancillary services.” Ancillary services are “services that are associated with, or incidental to, the provision of telecommunication services.” Web service #3 allows subscribers to meet with others and present information online from remote locations using a combination of audio and visual communication. Likewise, web service #4 allows subscribers to conduct online training sessions using a combination of audio and visual communication, in addition to the meeting capabilities offered with web service #3.
Therefore, because web services 3 & 4 “link two or more participants of an audio or video conference call,” they are considered “conference bridging services.” This type of service falls under the umbrella of “ancillary services” that are subject to sales and use tax under Tennessee Code § 67-6-205(c)(9).
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