In the heart of America, Indiana blends the charm of its basketball legacy and lush farmlands with a robust business environment. Yet, navigating its economic landscape is a unique challenge, especially in understanding sales tax in Indiana and its laws. This knowledge is essential for thriving amidst the vibrant and diverse economic fabric of the Hoosier State.
This guide breaks down everything you need to know about Indiana’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Indiana’s sales tax with confidence and ease.
Sales Tax Nexus in Indiana
When a business creates either a physical or economic nexus, it is required to collect sales tax in Indiana.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Indiana include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Presence at Trade Show: An out-of-state retailer must collect sales taxes in Indiana if they display their products at a trade show or convention. However, merely being present without showcasing products in Indiana at conventions or trade shows doesn’t require you to collect sales tax in Indiana..
- Delivery of goods into Indiana by seller’s truck where title and possession transfers in Indiana.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus.
Starting January 1, 2024, Indiana will only have a
$100,000 threshold for sales tax nexus. If a merchant meets the 200 transaction threshold in 2023 but not the $100,000 threshold, they may close their sales tax account in 2024 if they do not have $100,000 in sales in 2024. However, they will still have to file all required sales tax returns for 2024.
It should be noted that while the nexus criteria mentioned above generally apply to most businesses, additional methods are available for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the
governing laws for economic sales tax nexus requirements in Indiana.
Indiana Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Indiana.
Tangible Products
Almost all goods are taxable in Indiana, including:
- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Home Goods
The goods that are exempt from sales tax are:
For the latest updates and detailed information on sales tax in Indiana, you can visit the
Sales Tax Information Bulletins, which provides current guidelines and bulletins.
Services
In Indiana, the majority of all service-based transactions, such as professional services, advertising, and cleaning services are
not subject to sales tax.
However, there are specific situations where certain services are taxable. For instance, a few taxable services are:
- Rental of Tangible Personal Property
- Services that result in tangible personal property (i.e. designing and selling a custom jewlery piece)
- Room And Lodging Rental For Less Than 30 Days
- Framing Services
- Water Softening and Conditioning
Software-As-A-Service (SaaS)/Digital Products
SaaS (i.e.,
computer software) is not taxable in the state of Indiana.
Digital products (i.e., ebooks, downloadable video content, mobile apps) are taxable only when the seller gives the buyer the right to use them permanently without requiring ongoing payments.
Shipping/Handling
Shipping and handling charges in the state of Indiana are taxable. Sales tax is exempt if delivery charges are billed and furnished by a third party.
Sales Tax Permits and Licenses in Indiana
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Indiana, the next important step is getting your Indiana Seller’s Permit, also known as a sales tax permit.
Seller’s Permit
You can register for an Indiana sales tax permit online at
INBiz.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
Registration fee
There is a
$25 fee to register for a sales tax permit.
Renewal
In Indiana, you have to renew your sales tax permit
every 2 years.
Resale Certificate
A
resale certificate is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In Indiana, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
You can fill out the
General Sales Tax Exemption Certificate Form ST-105 provided by Indiana if you have a sales tax permit in the state after you receive your sales tax permit. You can also fill out the
Streamlined Sales and Use Tax Certificate of Exemption if you would like to get
sales tax exemption for multiple states simultaneously. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The
Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. Indiana is a party to this program, meaning it follows the uniform rules and definitions established by SST.
Check with the
Indiana Department of Revenue for the most current information on Indiana’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in Indiana
Sales Tax Computation
To determine the total sales tax for your calculation, you’ll only need to consider the state sales tax rate, as there are no additional county or city rates applicable for the state of Indiana. Use TaxHero’s Indiana Sales Tax Calculator to compute for sales tax.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Indiana and sells to a customer in Indianapolis, IN, with a ZIP code of 46204. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
Indiana |
7.00% |
| County: |
Marion |
N/A |
| District: |
Seventh District |
N/A |
| City: |
Indianapolis |
N/A |
| Combined Sales Tax Rate = |
7.00% |
|
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax.
Indiana is destination-based, meaning sales tax is determined based on the seller’s location. That means for an Indiana-based seller, sales tax is generally based on the location of the seller when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Ohio to a customer in Indianapolis, Indiana, where you have Nexus, you’d apply Indianapolis’s sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in Indiana
The next step after collection is filing and remitting your Indiana sales tax returns. Filing and remittance can vary in frequency, typically monthly or annually.
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Indiana’s sales tax regulations.
Due Dates
In Indiana, the due date falls for sales tax varies. Monthly filers must submit by the 20th of the month following the reporting period if their average monthly sales and use tax liability exceeded $1,000 in the previous year or if filing a combined sales/withholding tax return.
If the liability did not exceed $1,000, the due date is the 30th of the month following the reporting period. For annual filers, the due date is the last day of the month following the reporting period.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 20 deadline falls on a holiday or weekend, you’ll have until May 21st, the following business day, to submit.
Filing Sales Tax Returns
To file your sales tax return for Indiana, a few options are available:
- File online through INTIME.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales taxes on time as an incentive to process them promptly. Indiana’s timely filing discount amount is 1% of sales tax collected.
Sales Tax Holiday
Currently, for 2024, there are no planned sales tax holidays in Indiana.
Indiana Sales Tax Penalties
Like in most states, sales tax is a big part of how Indiana generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in Indiana:
- Not paying tax: Penalty of 10% of the owed tax or $5, whichever is more. This applies to payments that should be made electronically but aren’t.
- Not filing a tax return, with the Department preparing it: 20% penalty.
- Not filing a tax return with intent to avoid tax: 100% penalty.
- Bad checks: A flat fee of $35.
- Not filing an information return: $10 penalty for each missed filing, up to $25,000 annually. This includes failing to file electronically when required.
- Not filing a corporate or partnership tax return with zero tax: $10 per day late fee, up to $250. Plus, there is an extra $10 penalty for each late Schedule K1 information return.
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