Cloud Based Software is Subject to TN Sales and Use Tax

I probably should have posted this earlier, and some continuing education on state tax law changes pushed me to do a bit more research and consider how it might affect our clients. Here’s the basics: TN changed the sales tax law (effective 7/1/2015) so that software used over the internet was subject to sales and use tax. It’s pretty obvious that this includes tax or accounting software that is used in return for a payment (many accounting firms have moved to this).

Software You Might Not Think Of

After looking at several articles, including this one from JDSBusinessAdvisor and Southernalpha’s article, I realize that it’s bigger than I first realized because it makes software applicable to USE tax as well. This means that (technically) businesses that pay a fee for web hosting (which includes the software that runs the web site) is subject to use tax. Payments to a company like Microsoft for Office 365 or to are subject to use tax. It also means that the fee you pay every month for email marketing (like Mailchimp or Constant Contact) is taxable.

Use Tax on Software

Use tax (just for completeness) is something that the company using the software services is obligated to report and pay. The CPA that presented the continuing education indicated that the TN department of revenue was going to use every means available to enforce the new law.

Please contact your CPA or tax advisor for more information on this and to verify that it applies to you before paying any tax.