Are Services Taxable in Tennessee
Its a question without a clear yes or no answer. Sales tax collected for services in the state of Tennessee will depend on the type of service being performed.3 min read
Are services taxable in Tennessee is a question without a clear yes or no answer. Sales tax collected for services in the state of Tennessee will depend on the type of service being performed. If creating, manufacturing, repairing, or installing a product is part of the service, taxes will need to be collected, while the services of an accountant, for example, would not require sales tax.
Letter Ruling #13-16
The Tennessee Department of Revenue issued two letter rulings on January 22, 2014. The rulings show that determining whether a good or service is taxable should not be taken for granted. While the traditional approach of applying taxes on the sale of tangible items but only on certain services has expanded in many states, Tennessee has kept a more traditional approach.
In Tennessee, services that are generally not subjected to either sales or use taxes include data processing, information services, and management consulting services. Businesses that offer management consulting or management services are required to pay a local gross receipts tax. This isn't applied for services that have exemption status such as healthcare services, including medical and dental.
Letter Ruling #13-21
Letter #13-21 focused on sales and use tax in reference to technology consulting services. In this case, a virtual lab was used by the business to demonstrate and test software for the customer. Consulting and testing services in Tennessee are typically not taxable, while the sale or licensing of computer software and hardware and any related installation services are taxable.
If any of the non-taxable services are needed for the taxable good that is sold, the non-taxable services are then subject to taxation. However, in letter #13-21, it was determined that although the virtual lab served as a way for the seller to complete software testing and demonstrate services and although the software on the computer is normally a taxable service, it did not apply in this case because the software and hardware being demonstrated was owned by the company, not the customers. Taxation would only be applied if the customer purchased the software and received a license from the seller; otherwise, the service is not taxable.
Registering for Sales Tax
In order to collect Tennessee sales tax on goods and applicable services, you must first register with the state. The information required includes:
- The business name, phone number, and address.
- The name, address, and phone number of all owners, officers, partners, and whoever is submitting the application.
- The Social Security number of all owners, officers, and partners.
- The Federal Employer Identification Number (FEIN).
- A business description describing the nature of the business.
- The type of ownership and the incorporation date if the entity is a corporation.
- The previous owner's name and current address, if applicable.
The application must be signed by the sole proprietor, partner, or officer of the corporation applying. You are also required to estimate yearly gross sales, with a minimum of $4,800. If not, the sales tax license may be withdrawn.
Collecting sales tax in Tennessee is origin-based which means the tax rate is based on where the business is located. If the business is not based in Tennessee the sellers have two options. The first is to collect the sales tax based on where the buyer is located or collect the 7 percent state tax rate then add an extra 2.25 percent for a total of 9.25 percent.
Tennessee Sales Tax Return Dates
Tennessee requires that you file sales tax on a monthly, quarterly, or annual basis. This can be based on either a fiscal or annual calendar. Tennessee requires that all tax returns and subsequent tax payments must be completed online. Even if there is no sales tax to report, Tennessee still requires a sales tax return be filed. Sales tax deadlines in Tennessee are the 20th day of the month. If the 20th is a federal holiday or a weekend, the deadline will be the following business day.
If taxes are filed late, penalties will be assessed. The penalty will be 5 percent per month with a maximum of 30 percent. Any unpaid tax is assessed with a 7.5 percent compounded interest rate per year.
The Tennessee Department of Revenue website lists the services that are subject to tax, but if you're still wondering are services taxable in Tennessee, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.