Sales and Use Taxes in Indiana

April 13, 2006

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Indiana charges a six percent sales tax on the retail sales price of tangible personal property. If you purchase tangible personal property out-of-state, Indiana requires that you pay a six percent use tax on the purchase amount. In order to see how these taxes apply to property you buy or sell, review the following discussions.

Liability for sales tax. Indiana requires sellers to pay sales tax for the privilege of doing business in Indiana. What this means for those of you who are retail sellers is that you have liability for paying and collecting the six percent tax. However, the state requires you to obtain a reimbursement of the tax from your customers. So, if you fail to collect the right amount of tax the state can go after your customers to collect the right amount of tax. While going after your customer may be impractical, the state clearly intended to reserve that right for itself.

Liability for use tax. In order to avoid losing tax revenues on sales transactions taking place outside the state, Indiana also imposes a use tax. The state assesses use tax on all tangible personal property purchased out-of-state that you store, use, or otherwise consume. If the out-of-state seller you purchase property from is a registered retailer in Indiana, you should pay the use tax to the retailer. If the retailer is not registered in Indiana, you should pay the use tax directly to the state.

Sales or use taxes on services. In Indiana, you may provide many services without incurring any sales tax liability. The state, however, will charge you sales tax if you provide the following type of services:

the softening and conditioning of water
the renting or furnishing of certain rooms, lodgings, or other accommodations for a period of less than 30 days
the renting or leasing of tangible personal property to another person

In addition, nontaxable services will be subject to tax if you transfer tangible property with the service, unless:

the price of the tangible personal property being transferred is separately stated from the charge for services,
the cost of the property in relationship to the total bill does not exceed 10 percent,
the person providing the service is in an occupation that primarily furnishes and sells services,
the tangible personal property purchased is used or consumed as a necessary incident to the service, and
the person providing the service pays the sales and use tax on the tangible personal property at the time of acquisition.

Sales and use taxes on leased property. If you lease or rent tangible personal property to your customers, the state requires you to pay sales tax on the rental amount. However, you won't have to pay sales tax on the rent or lease of a motion picture film, video tape, or audio tape.

The following discussions address additional sales and use tax issues which many small business owners confront: