In Important Notice #22-07 issued in May 2022, the Tennessee Department of Revenue (“Department”) presented details regarding the Tennessee Broadband Investment Maximization Act. The intent of the Act is to maximize public and private sector investments in broadband and provide incentives by means of an exemption from sales and use tax for expenditures on infrastructure used to produce broadband communications services or to provide access to the internet.
Governor Bill Lee signed Public Chapter 1102 into law on May 31, 2022. The exemption will take effect on July 1, 2022 and will sunset after June 20, 2025 and is codified via Tenn. Code Ann. § 67-6-350.
Pursuant to Tenn. Code Ann. § 67-6-350, sales and use tax will not apply to purchases and leases of all equipment, machinery, software, ancillary components, appurtenances, accessories, or other infrastructure that is used in whole or in part to produce broadband communications services or provide internet access. The term “broadband communications services” is inclusive of broadcasting, distributing, sending, receiving, storing, transmitting, retransmitting, amplifying, switching, providing connectivity for, or routing communications services.
“Internet access” includes the following:
- Telecommunications to the extent such services are used to provide internet access service or otherwise used to access content, information, or other services offered over the internet;
- Services incidental to the provision of internet access when furnished as part of the internet access service (i.e., homepage, e-mail, and instant messaging, including voice- and video-capable e-mail and instant messaging, video clips, and personal electronic storage capacity); and
- A homepage, e-mail, and instant messaging, including voice- and video-capable e-mail and instant messaging, video clips, and personal electronic storage capacity, that are provided independently or packaged with internet access.
Voice, audio, or video programming, or other products and services that utilize internet protocol or a successor protocol and for which there is a charge, regardless of whether the charge is separately stated or aggregated with the charge for services for internet access, are not included in the meaning of “internet access.”
The exemption is available to providers of telecommunications services, mobile telecommunications services, video programming services, direct-to-home satellite television programming services, and internet access services. Contractors may also apply to purchase items tax free when contractors are engaged with qualified service providers and purchased items are ultimately used to produce broadband communications or internet access. Retail sales of personal consumer electronics, such as smartphones, computers, and tablets as well as consumer-grade modems and Wi-Fi routers, are specifically excluded from the exemption.
The Department has released a form for broadband and internet providers to apply to the Department for authority for exempt purchases or leases of eligible equipment pursuant to Tenn. Code Ann. § 67-6-350. Upon approval, the Department will send the taxpayer a certificate authorizing exempt purchases or leases of items used to produce broadband communications services or internet access. Taxpayers are responsible for issuing exemption certificates to suppliers for qualifying purchases.
Vendors of exempt sales under this statute are directed to retain copies of exemption certificates and follow the Department’s reporting directives. For the exemption period, sales should be reported by vendors as follows:
- Report total sales (taxable and non-taxable) on Page 1, Line 1 (Gross Sales) of the sales tax return; and
- Report all sales of exempt broadband items made during the exemption period on Schedule A, Line 10, and Schedule – Temporary Exemptions.
Schedule A reporting is required so that the state may reimburse local governments for the loss of local sales tax revenues resulting from the exemption.
TECHNICAL INFORMATION CONTACTS:
Susan Bittick
Principal
Ryan
512.476.0022
susan.bittick@ryan.com
Dustin Davis
Principal
Ryan
972.934.0022
dustin.davis@ryan.com
Colin Boyd
Manager
Ryan
630.515.0477
colin.boyd@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.