Indiana Sales and Use Tax Guide 2024 | Compliance for Retail & E-commerce

Sales and Use Tax Basics in Indiana

Sales Tax

Taxable persons that sell goods or tangible personal property, also known as tangible goods, must register for sales and use tax purposes in Indiana. Once registered, taxable persons fulfill all the legal requirements to make retail sales and will receive a Registered Retail Merchant Certificate (RRMC), which they can display on each business location.

Use Tax

Use tax applies as a complement to sales tax and is due when tangible goods are used, stored, or consumed in Indiana without sales tax having been previously collected and remitted. Therefore, if the seller does not collect and remit sales tax, the liability and responsibility transfer to the buyer, who must report and pay use tax on the annual Indiana income tax return, which is due by April 15 of the following year.

Indiana State Sales and Use Tax Rates

Indiana imposes a 7% statewide sales and use tax on retail sales of tangible goods and listed taxable services. There are no local sales and use taxes. However, some counties or municipalities may impose special taxes on taxable persons, such as a food and beverage tax, a county tax on the rental of rooms and accommodations for periods of less than 30 days, or a prepaid wireless service charge.

Taxable persons that engage in these business activities, in addition to registering for sales and use tax, must also complete additional tax registration procedures for special taxes.

Tax-Exempt Transactions

Generally, retail sales of tangible goods are subject to Indiana sales and use tax, unless otherwise stated as exempt transactions. Under Indiana legislation, transactions involving animals, feed, seed, plants, fertilizer, insecticides, fungicides, and other tangible goods are exempt if they meet specific conditions. These conditions include that the goods are acquired for direct use in the direct production of food and food ingredients, and that the buyer is occupationally engaged in the production of food and food ingredients.

Under similar conditions, transactions related to the sale of agricultural machinery, tools, and equipment are also exempt from tax. Additionally, transactions involving materials used in the construction business, public streets, or utility services, new motor vehicles, property acquired for resale, rental, or leasing in the course of business, and aircraft are all tax-exempt if the set conditions are met.

Nexus Rules in Indiana

In Indiana, taxable persons may become liable for sales tax registration, collection, and remittance if they have physical presence in the state, or if they fulfill requirements set for out-of-state or remote sellers, and marketplace facilitators.

Physical Nexus

Physical nexus means that taxable persons have a physical presence in the state, which can be established when individuals or businesses making taxable sales have a storage, warehouse, or office in Indiana. Additionally, employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders is sufficient for establishing a physical nexus.

Economic Nexus

Economic nexus was introduced in Indiana in 2018, with the threshold for remote or out-of-state sellers set at either USD 100,000 in the previous or current calendar year or 200 or more transactions. However, in 2023, Indiana announced the decision to remove the transaction threshold. 

Therefore, since January 1, 2024, Indiana only has a USD 100,000 threshold. This means that individuals or businesses must register for, collect, and remit sales tax if their gross revenue from sales into Indiana in the previous or current year exceeds USD 100,000.

Marketplace Nexus

In 2019, Indiana introduced a marketplace nexus, designed to subject marketplace facilitators to sales tax if they receive gross revenue from sales into Indiana exceeding USD 100,000 or have 200 or more transactions. With the change of the economic nexus threshold, the marketplace nexus threshold also changed. 

Thus, since January 1, 2024, marketplace facilitators must register for, collect, and remit sales tax if, in a previous or current calendar year, they generate gross revenue from sales into Indiana exceeding USD 100,000, including sales that are not subject to sales tax or are considered tax-exempt.

Taxable Goods and Services in Indiana

Any retail sales of tangible goods, meaning those that can be seen, weighed, measured, felt, or touched, or are in any other manner perceptible to the human senses, are taxable. Transactions relating to the sale of electricity, water, gas, steam, and prewritten computer software are considered as retail sales of tangible goods and are taxable.

Concerning services, they are typically non-taxable in Indiana, unless strictly defined as taxable. Therefore, services such as lodging accommodations, rental of tangible goods, delivery and installation services, repair and maintenance services, admissions to amusement parks, athletic events, and entertainment venues, as well as membership fees for clubs and organizations, and certain telecommunications services are subject to taxation.

Bundled Transactions and the True Object Test

In 2023, the Indiana Department of Revenue released a document outlining the distinction between bundled and unitary transactions, as well as the applicable tax rules. The term bundled transaction is defined as a retail sale of two or more distinct, identifiable products sold for a single, non-itemized price. If the transaction meets these requirements, it is subject to taxation under Indiana's sales tax rules.

However, if a transaction consists of a service that is the true object of the transaction and a tangible good essential for using the service, or is provided exclusively in connection with the service, it is not considered a bundled transaction. Furthermore, if the retail sale includes both taxable and nontaxable products, and the taxable portion is no more than 10% of the sales price, it is not considered a bundled transaction. This is known as the de minimis test.

Finally, if the transaction includes both exempt and taxable tangible goods, where the selling price of the taxable goods is 50% or less of the total price, the transaction is not considered a bundle.

E-Commerce Framework

Remote or out-of-state sellers, commonly referred to as e-commerce sellers, that do not have a physical presence in Indiana are subject to sales tax obligations if their gross revenue from sales into Indiana exceeds USD 100,000 in the previous or current calendar year. In other words, they are liable for sales tax if they exceed the economic nexus threshold. This also applies to any non-US sellers, making sales to consumers in Indiana.

Since Indiana is a member state of the Streamlined Sales Tax, the most convenient way for e-commerce sellers to register in multiple states is through the Streamlined Sales Tax Registration System.

However, not all remote sellers sell exclusively through their channels or websites. Many also utilize the online marketplace, such as Amazon or eBay, to make offers and sell goods to Indiana consumers. These sellers are referred to as marketplace sellers.

Marketplace Rules

Remote sellers who sell their products through their websites and marketplaces are responsible for reporting and paying sales tax on their non-marketplace sales. In contrast, marketplace facilitators are responsible for collecting and remitting sales tax on sales made through the marketplace.

However, if remote sellers only make sales through marketplace facilitators, they are not required to register for, collect, or remit Indiana sales tax. The only time when marketplace sellers must remit tax to the Indiana Department of Revenue is when a marketplace facilitator incorrectly remits the tax to the seller.

Digital Goods and Services

Under the Indiana sales tax rules and regulations, transactions relating to the so-called specified digital products, such as digital audio works, digital audiovisual works, and digital books, are taxable if the product is sent electronically to the buyer, e.g. downloaded or streamed, and the buyer gets the right to use it permanently, without needing to keep paying it over time.

As previously mentioned, prewritten computer software is considered a tangible good, which makes retail sales of software taxable. However, if the prewritten computer software is sold, rented, leased, or licensed and accessed remotely, that is, if it is stored on the cloud without requiring the software to be downloaded to the user’s computer, the transaction is not considered a retail transaction and is therefore non-taxable. Custom software developed for the specific needs of the buyer is exempt from sales and use tax.

Digital Marketplace

A digital marketplace falls under the scope of the marketplace facilitator rules, where marketplace facilitators are defined as individuals or businesses that own, operate, or otherwise control a marketplace and facilitate retail transactions.

A marketplace is generally a platform that lists and advertises products, including tangible goods, digital products, rooms, accommodations, and selected services. Additionally, marketplaces can transmit or otherwise communicate the offer or acceptance of a retail transaction between sellers and buyers, provide fulfillment or storage services for a seller, and set prices for sellers' products.

However, to facilitate retail transactions, the marketplace must collect the sales prices of the sellers' products, provide access to payment processing services, either directly or indirectly, and charge, collect, or receive compensation or a fee in another manner for transactions made on its digital marketplace.

Notably, payment processors appointed by the seller to handle payment transactions are not considered marketplace facilitators.

Digital Platform Operator

Marketplace facilitators, or digital platform operators, who generate gross revenue from sales in Indiana exceeding USD 100,000, must register for sales and use tax purposes in Indiana. Once registered, the marketplace facilitator is liable and responsible for collecting and remitting sales tax on behalf of marketplace sellers.

Additionally, marketplace facilitators that engage in transactions relating to the rental or furnishing of rooms, lodgings, or accommodations are also required to collect and remit any county innkeepers' taxes (CITs) that apply to the transaction. The same applies to marketplace facilitators that facilitate the sale of food and beverage subject to a county or municipal food and beverage (FAB) tax.

Filing and Payment Requirements in Indiana

Filing frequency is assigned to taxable persons registered for sales tax purposes by the Indiana Department of Revenue and can be monthly, quarterly, or annually. The filing frequency primarily depends on the average monthly liability throughout the tax year. Taxable persons must file a USD 0 return if there is no tax revenue or activity in the reporting period.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Individuals and taxable persons subject to sales tax reporting and payment requirements may face a 20% penalty on the due tax in cases of late filing. The minimum penalty is set at USD 5. Late payment of retail tax may lead to a penalty of 10% of the due tax.