The sale and use of a computer software maintenance contract is subject to sales or use tax. A computer software maintenance contract obligates one person to another person with future updates, upgrades, and/or support services for computer software. Tennessee law imposes the sales tax whether the price of the software maintenance contract is a mandatory or optional charge made by the software dealer when selling or licensing software. The total sales price of the computer software maintenance contract is subject to the 7% state tax rate plus the local tax rate.
The sale of a support service agreement (e.g., telephone support) that does not include any updates, upgrades, repairs, or installation to computer software and is sold separately from computer software and computer software maintenance contracts is not subject to tax. Support service agreements generally provide for services such as help desk, customer service support, basic usability of the software, and question and answer assistance with software functionality.
Reference: Important Notice 15-25. Tenn. Code Ann. §§ 67-6-208 and 67-6-102(19).