Kentucky & Tennessee and Sales Tax – SaaS, Software & Other - Multi State Tax Solutions

This month, we continue our blog series with a contrast of a couple of southern states – Kentucky and Tennessee – specifically their treatment of technology items for sales tax purposes.

Wait! Already know you need help with Kentucky or Tennessee issues? Please reach out to us at info@milesconsultinggroup.com. Curious about SaaS in other states, check out this comprehensive article on SaaS in 20 states: https://milesconsultinggroup.com/blog/2021/06/01/what-to-know-about-the-taxability-of-saas-in-18-key-states/

Here’s how these two states compare:

Software as a Service (SaaS) in Kentucky vs. SaaS in Tennessee

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states are similar regarding their treatment of sales tax.

In Kentucky:

Effective January 1, 2023, Kentucky started imposing sales and use tax on computer software access services.

In Tennessee:

The state imposed sales and use tax on cloud computing services, including SaaS.

Software in Kentucky vs. Software in Tennessee

When it comes to the taxation of software, there are differences between Kentucky and Tennessee. Here’s a comparison:

In Kentucky:

Sales and use tax are imposed on prewritten computer software sold electronically.
Tangible personal property, including prewritten computer software delivered electronically, is subject to sales and use tax.
The sale of custom computer software delivered electronically is exempt from tax.

In Tennessee:

Prewritten computer software delivered electronically is generally subject to sales and use tax.
Custom computer software delivered electronically is generally subject to sales and use tax.

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Kentucky:

Digital products are subject to taxation.
Kentucky imposes sales and use tax on the sale of digital products, including e-books, music, and streaming video.

In Tennessee:

Digital products are also subject to taxation.
Tennessee law imposes sales and use tax on the sale, lease, licensing, or use of specified digital products transferred to or accessed by a customer within the state. This includes items like e-books, music, and streaming video.

Sales Tax Holidays

In Kentucky:

There are no sales tax holidays currently observed.

In Tennessee:

Tennessee offers sales tax holidays during specific periods:
- A sales tax holiday on food runs from August 1 to October 31.
- Another sales tax holiday allows tax-free purchases of up to $100 in clothing, $100 in school supplies, and $1,500 in computers from July 26 to July 28.

For more detailed information on Tennessee’s sales tax holidays, you can visit this link.

For additional information on sales tax holidays across the United States, you can refer to this resource.

Economy

Kentucky

Early in its history, Kentucky gained recognition for its excellent farming conditions. It was the site of the first commercial winery in the United States (started in present-day Jessamine County in 1799) and due to the high calcium content of the soil in the Bluegrass Region, it quickly became a major horse breeding (and later racing) area. Today, Kentucky ranks 5^th nationally in goat farming, 8^th in beef cattle production, and 14^th in corn production. Kentucky has also been a long-standing major center of the tobacco industry- both as a center of business and tobacco farming.

Today, Kentucky’s economy has expanded to nonagricultural areas as well, especially in auto manufacturing, energy and fuel production, and medical facilities. Kentucky ranks 4^th among U.S. states in the number of automobiles and trucks assembled. Several vehicles ranging from the Chevrolet Corvette to the Ford Exhibition are assembled in the state.

Tennessee

Ranked among the top ten destinations in the U.S., tourism plays a major role in Tennessee’s economy. Domestic, as well as international travel, contributes to tourism in the state. Tourist attractions that people flock to are the Great Smoky Mountains National Park, Graceland, the Ryman Auditorium, the Gaylord Opryland Resort, Lookout Mountain and the Tennessee Aquarium.

Other major industries that contribute to the economy of Tennessee include agriculture and manufacturing. The state has over 82,000 farms, 59% of which supply cattle. Soybeans are heavily planted in the western portion of the state. Major corporations based in Tennessee include FedEx, AutoZone and International Paper. The U.S. Volkswagen manufacturing plant is also located in the state.

Kentucky – A Few Fun Facts

Chevrolet Corvettes are manufactured in Bowling Green, which is the site of the Corvette Museum.
The town of Murray is home to the Boy Scouts of America Scouting Museum located on the campus of Murray State University.
The state is home to the Louisville Slugger baseball bat museum, where the renowned baseball bats are made.
Teacher Mary S. Wilson held the first observance of Mother’s Day in Henderson in 1887. It was made a national holiday in 1916.
Lake Cumberland is the largest artificial American Lake east of the Mississippi River by volume.
Kentucky has a non-contiguous part known as the Kentucky Bend, at the far west corner of the state. It exists as an exclave surrounded completely by Missouri and Tennessee but is included in the boundaries of Fulton County.

Tennessee: A Few Fun Facts

When the constitutional convention met in 1796 to organize a new state out of the Southwest Territory, it adopted “Tennessee” as the name of the state.
Tennessee is nicknamed the Volunteer State, which came about after the War of 1812 due to the imminent role of volunteers supplied by the state in the war effort.
Tennessee is bordered by eight states and one river.
The 1982 World’s fair was held in Knoxville.
Tennessee leads the nation in the percentage of total tornadoes with fatalities.
The Gulf of Mexico is the main driving force in determining the climate of the state.
The state flag has three stars representing the three grand divisions of the state: West, Middle and East Tennessee.
The official state fruit is the tomato. As of 2013, it was the largest fruit crop in Tennessee.

Explore Kentucky and Tennessee further, and their relevant taxation mandates, in these past blogs we’ve crafted: Focus on Kentucky and Focus on Tennessee.

As always, our team at Miles Consulting Group is available to discuss the specifics of your situation, whether in Kentucky, Tennessee, or other U.S. States, to help you navigate the complex tax structures arising from multistate operations.