State Tax Day - Current, S.11, Tennessee—Miscellaneous Tax: Business Tax Treatment of Software and Cloud Services Determined, (May 20, 2026)

A Tennessee appellate court upheld a lower court's conclusion that sales of computer software were not subject to business tax because they constituted sales of intangible personal property. The lower court also correctly concluded that tax did apply to the company's sales of cloud-based services. However, the appellate court reversed the lower court's decision that the company's cloud hosting sales constituted nontaxable leases of tangible personal property outside the state. The company argued that its cloud hosting and cloud-based services were not delivered in Tennessee, as required by the law, but that was rejected. The company made its hardware and servers, software platform, and cloud-based services accessible to customers electronically in Tennessee; accordingly, delivery was completed when the customers electronically accessed those services from their places of business in Tennessee. Further, because the company produced no evidence that the Tennessee businesses listed on its invoices did not access the cloud hosting and cloud-based services from the locations identified on the invoices, the appellate court concluded that the Department of Revenue properly included those gross receipts in its calculation of the business tax assessment.

SAP America, Inc. v. Gerregano, Court of Appeals of Tennessee, No. M2024-01399-COA-R3-CV, May 13, 2026, ¶402-025