Understanding Sales and Use Taxes in Indiana
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Indiana.
Indiana imposes a seven percent sales tax on the retail sales price of tangible personal property. This tax is imposed on the sellers. This
means that those of you who are retail sellers are responsible for paying and collecting the 7 percent tax.
Although the merchant is responsible for paying Indiana sales taxes, but the law requires that the tax be collected from the customers. State law does not allow you to pay the tax out of your pocket — known as "absorbing the tax." Furthermore, you may not use a "no sales tax" advertising strategy to drum up business.
Indiana Does Not Tax Most 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
However, 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.
Indiana Taxes Leases of Tangible Personal 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.
Many Sales Are Exempt from Tax
Indiana provides sales tax exemptions based on the type of transaction (such as for resale), or the nature of the organization purchasing the product (such as a charitable organization). If you qualify for any of these exemptions, you must present the seller with a valid exemption certificate that contains an active registration number.
No Tax Is Imposed on Items Purchased for Resale
If you purchase goods or products and will resell them in your business, or include them as part of the service you provide, you may claim a resale exemption from sales or use taxes. However, you will have to collect sales tax from your customers when they purchase the goods or products.
Resale exemption certificate. In order to obtain a resale exemption, the seller may require the buyer to present, in good faith, a resale certificate. Indiana doesn't provide a specific certificate form, so you're free to develop your own resale certificate document. With that said, though, the document should at least contain the following information:
- the name and address of both the buyer and the seller;
- an indication of the general character of the property purchased;
- the buyer's retail merchant's certificate number
Indiana Allows Blanket Resale Certificates
Indiana allows you to use blanket resale certificates. A blanket resale certificate is a resale certificate that a buyer provides to a seller from whom the buyer will make numerous exempt resale purchases. The idea is that by providing a blanket resale certificate, both the buyer and the seller can avoid the hassle of having to deal with a new certificate every time there is a purchase. The law does not set forth any specific procedures for accepting a blanket resale certificate. However, the buyer should present, in good faith, a blanket resale certificate to the seller that includes the same information as a regular resale certificate.
In Indiana, the blanket resale certificate remains valid for an indefinite time period.
Physical Presence Triggers Tax Liability
Indiana has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if your business has physical presence within Indiana. To determine if you have a physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Indiana? Maintaining retail or warehouse facilities means that your business has a physical presence within the state. Also, if you have an office for employees, even for business activities unrelated to mail order sales, your business will have a physical presence within the state.
- Do my employees or I enter Indiana for purposes of taking and transmitting orders from customers in Indiana? If your employee or independent contractor enters Indiana for purposes of taking or transmitting orders, your business has a physical presence in Indiana. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence within the state.
- Do my delivery vehicles frequently enter Indiana for purposes of delivering property? Frequent deliveries in Indiana by your trucks will give you physical presence in Indiana. An occasional delivery, however, may not constitute a physical presence within the state.
How to Calculate Sales Tax
You calculate sales taxes by taking the 7 percent tax rate and multiplying it by your gross receipts. Gross receipts are based on your total retail sales or tangible personal property transferred to your customers through the services you provided.
The state allows you to take a credit against use tax if you have already paid sales or use tax to another state on tangible personal property purchased. This credit, however, cannot exceed the amount of sales tax assessed in Indiana. Furthermore, the credit does not apply to use tax paid on vehicles, aircraft, or watercraft, registered or licensed by Indiana.
You Must Claim Refund of Overpaid Taxes
If you frequently audit your sales transaction reports, you may discover that through an error, sales or use tax was overpaid on a transaction. If you or your customer discovers such an overpayment, the state allows you or your customer to file a claim for a credit or refund. You or your customer should submit the claim on the form furnished by the Indiana Department of Revenue. The state provides Form GA-110L on which to file a claim. The claim form must contain:
- the amount of the refund claimed
- a detailed explanation of the basis of your claim so that the Department may determine its correctness
- the year and date that the overpayment was made
Time limitations for filing a refund claim. If you're going to file a refund claim for overpayment of sales or use tax, you'll have to do it within three years from the date you paid the tax. If you file a refund claim after that time, the state will not approve it.
Indiana Imposes Use Tax on Out-of-State Purchases
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 on your income tax form for the year.