Tennessee Judges Parse Nature of Software in SAP Tax Dispute

Two Tennessee Court of Appeals judges asked careful questions at oral argument Wednesday to determine whether SAP America Inc.'s software is a service subject to the state’s business tax or nontaxable intangible property.

Tennessee Commissioner of Revenue David Gerregano wants the court to overturn a 2023 opinion holding that SAP’s software is intangible property that isn’t subject to taxation under the state’s business tax act. The company challenged the department’s $485,000 assessment of tax, interest, and penalties for tax years 2014-2018.

Courts around the country have grappled with how to classify software for tax purposes now that it’s no longer ...