Which Services Are Taxable in Tennessee?
Navigate Tennessee's specific sales tax requirements for services. Gain essential insights on applicability, exemptions, and compliance for businesses.
Tennessee imposes a sales and use tax on the retail sale of tangible personal property and certain services. While many goods are generally taxable, services have specific rules that determine their taxability. The general principle in Tennessee is that services are not taxable unless explicitly identified by law. This article clarifies which services are subject to sales tax and which are exempt.
Understanding Taxability of Services
In Tennessee, services are generally not subject to sales tax unless they are specifically listed, or “enumerated,” in the law. A service is presumed non-taxable unless the Tennessee Legislature has explicitly identified it as taxable. The distinction between the sale of tangible personal property and the performance of a service is important. Tangible personal property is typically taxable, while services are usually not, absent a specific statutory inclusion.
However, the nature of a transaction can sometimes blur this distinction. If a service is performed as an integral part of the sale of tangible personal property, the service charge may become taxable. For instance, installation charges for taxable goods are generally considered part of the taxable sales price.
Categories of Taxable Services
Tennessee law specifically enumerates several categories of services that are subject to sales tax.
Repair, Installation, Maintenance
These include services related to the repair, installation, and maintenance of tangible personal property. All charges for repair services, including parts and labor, for items like automobiles, appliances, or computer software, are taxable. Installation services for tangible personal property that remains tangible after installation, or for computer software, are also subject to tax.
Telecommunication Services
Telecommunication services are broadly taxable in Tennessee. This encompasses local, long-distance, and international phone services, including Voice over Internet Protocol (VoIP) and mobile phone services. Ancillary services, such as caller ID, voicemail, and call waiting, are also taxable. The sale or recharging of prepaid calling cards and phones falls under this category as well.
Computer Software and Related Services
Computer software and related services are extensively taxed. This includes prewritten software and certain Software as a Service (SaaS) offerings. Charges for software maintenance contracts are also taxable. Even custom programming can become taxable if it modifies or becomes part of prewritten software.
Other Taxable Services
Other taxable services include admission to amusement and recreation activities, such as sporting events, concerts, theaters, and amusement parks. Accommodation services, like hotel rooms and short-term rentals, are subject to sales tax if the stay is for less than 90 continuous days. Laundry and dry cleaning services are also taxable. Finally, parking or vehicle storage services provided in parking lots or garages are subject to sales tax.
Common Exemptions for Services
While specific services are taxable, many others are generally not subject to sales tax in Tennessee. Professional services, for example, typically remain exempt. This category includes legal, accounting, medical, and architectural services. However, if these professional services involve the incidental sale of tangible personal property, the tangible property portion may be taxable.
Personal services are also generally not taxable. This encompasses services such as haircuts, manicures, and massage therapy. Similarly, services related to real property, like landscaping, general construction, and the cleaning of real property, are usually exempt. The distinction often hinges on whether the service directly affects tangible personal property or real property.
Educational services, including tuition for schools and colleges, are typically not subject to sales tax. Advertising services also fall into the non-taxable category. Certain business services, such as consulting and management services, are generally exempt unless they directly fall under one of the enumerated taxable service categories.
Sales Tax Collection and Remittance
Businesses providing taxable services in Tennessee must register with the Tennessee Department of Revenue to obtain a sales tax account number. This registration can be completed online through the Tennessee Taxpayer Access Point (TNTAP), and there is no fee for this process. Businesses averaging more than $100 per month in sales of taxable services are required to register.
Once registered, businesses are obligated to collect sales tax from customers at the time of sale. Accurate records of all sales, collected taxes, and any applicable exemptions must be maintained. Sales tax returns are filed and remitted to the Tennessee Department of Revenue, typically on a monthly, quarterly, or annual basis, depending on the business’s sales volume. Returns are generally due by the 20th day of the month following the reporting period.
The state sales tax rate in Tennessee is 7%. Local jurisdictions may impose additional local option sales taxes, which can range from 0% to 3%, resulting in combined rates typically between 7% and 10%. Businesses must apply the combined state and local rate applicable to the customer’s location.