The Tennessee Department of Revenue issued a Letter Ruling on February 8, 2008 stating that TN could not charge tax on telecommunications sold to an Internet service provider since Federal Law prohibited such taxation. (See TN --Letter Ruling No. 08-08.) If you would like a copy of the full ruling, we can get it for you. Here is their analysis:
"The purchase of telecommunications services by the Taxpayer is not subject to the Tennessee sales and use tax because of the federal Internet Tax Freedom Act, 47 U.S.C. § 151 which prohibits the imposition of a state sales tax upon the retail sale of telecommunications services to providers of Internet access for use in providing Internet access. The Internet Tax Freedom Act is federal legislation that preempts any Tennessee laws relating to the taxation of Internet access or telecommunications services purchased by Internet access providers."