The state’s sales tax rate is 7%, and businesses that have established nexus in Indiana must collect and remit sales tax on taxable sales in the state (more on nexus later in this article).
Even though Indiana doesn’t currently tax SaaS, tax laws change frequently. Understanding tax laws in all the states where you do business is essential. Misunderstanding or failing to meet tax obligations can lead to fines, unexpected penalties, audits, reputational damage, and even legal issues.
Taxation rules in Indiana
In Indiana, remotely accessed prewritten software (which covers most SaaS products) is exempt from sales tax, for both B2C (business-to-consumer) and B2B (business-to-business) sales. However, tax policies can change as technology evolves and state revenue priorities shift.
Currently implemented policies, including Indiana Senate Bill 257, have shaped today’s sales tax landscape in Indiana. However, as SaaS becomes a more significant economic driver, future legislation could revisit this policy.
Are digital goods taxable?
Indiana’s tax code specifies that some digital goods, such as e-books, downloadable movies, and certain apps, are subject to sales tax. These products are classified differently from SaaS because they involve some element of physical ownership transfer or allow for a permanent download.
However, other digital items may fall into a gray area, so it can be helpful to consult with state resources or tax professionals before selling in the state. Properly classifying products as taxable or nontaxable helps businesses meet state requirements and avoid penalties.
You might still want to think about compliance
Many states take a different approach to taxing SaaS and digital goods. For example, Iowa and Texas classify SaaS as taxable, meaning that businesses must collect and remit sales tax on sales in those states.
Other states, including Maine and Indiana, take a different approach and exempt SaaS while taxing some digital goods. This emphasizes the need for companies to understand varying state tax rules and how to comply with them. Missing compliance obligations in just one state can result in penalties and unnecessary administrative headaches that no organization wants to deal with.
Businesses that operate across multiple states need to track sales activities to determine where tax obligations exist, which involves knowing where the business meets nexus requirements. Each state sets its own nexus thresholds, and overlooking even a small detail can lead to potential issues.
The importance of nexus in Indiana
The term “nexus” refers to a business’s connection to a state. There are two types of nexus: physical and economic.
- Physical nexus is a physical presence, such as employees, office space, or inventory in a state.
- Economic nexus is established when a business reaches a predefined economic threshold in a state, such as a revenue amount or a number of transactions in a calendar year. In Indiana, these thresholds are $100,000 in sales in the current or previous calendar year. As of January 1, 2024, Indiana removed its 200 transaction threshold.
Staying compliant nationwide
Tax compliance for SaaS businesses operating across multiple states involves more than just understanding state-specific laws. Failing to collect and remit the correct taxes can result in significant penalties, interest charges, and potential legal issues.
Noncompliance can also harm a company's reputation, making it harder to build trust with clients and partners. The complexity of varying tax rules across states adds to the challenge, requiring businesses to stay on top of each state's requirements to avoid missteps.
General steps for staying compliant
Staying compliant in Indiana involves a few essential steps:
- Register: Start by applying for a sales tax permit with the Indiana Department of Revenue, which can be done online through the INBiz portal. You’ll need your basic business information, including your federal employer identification number (EIN), to complete the registration. Once approved, you’ll receive a tax account number, which is required to collect and remit sales tax.
- Collect: After registering, it’s time to start collecting sales tax on transactions involving taxable digital goods. In Indiana, the tax rate is 7%. Make sure your point-of-sale or billing system is configured to apply the correct tax rate to transactions involving taxable products. Since SaaS isn’t currently taxable, it’s important to set up your system to exclude it from tax calculations while properly flagging taxable digital items.
- File: Indiana requires businesses to file sales tax returns on a schedule determined by their sales volume — this could be monthly, quarterly, or annually. Returns can be filed online through the Indiana Taxpayer Information Management Engine (INTIME). The filing process involves reporting total sales, taxable sales, and the sales tax collected during the reporting period.
- Remit: Along with filing, businesses must send the collected sales tax to the state. Payments can be made electronically through INTIME, and it’s essential to remit the full amount on time to avoid late penalties or interest charges. Indiana also offers reminders and resources through the INTIME portal to help businesses stay on track.
Breaking compliance into these basic steps makes the process far more manageable. Indiana provides user-friendly tools like INTIME and INBiz to support businesses, so taking advantage of these platforms can help keep everything organized and on schedule.
Using a tool like Numeral can help SaaS businesses manage tax compliance more efficiently as well — Numeral automates important tasks like tracking nexus thresholds, calculating sales tax, and filing returns, saving time and reducing the risk of errors.
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Additional resources for staying compliant
Staying informed about sales tax compliance is essential for businesses operating in Indiana. The Indiana Department of Revenue (DOR) offers various resources to assist with understanding and fulfilling tax obligations.
Indiana Government Resources
- Information: The DOR provides comprehensive details on sales tax policies, including taxable items and compliance guidelines. Visit their Sales Tax page for more information.
- Streamlined Sales Tax: For businesses involved in multi-state sales, the DOR offers insights into the Streamlined Sales Tax initiative. Learn more on their Streamlined Sales Tax page.
- Tax Forms: Companies can access any necessary forms, such as the General Sales Tax Exemption Certificate (Form ST-105), on the DOR's Sales Tax Forms page.
- Customer Service: For questions regarding payments, billing, general inquiries, refunds, or liability status, contact the DOR at 1-(317)-232-2240, Monday through Friday, 8 a.m. to 4:30 p.m. ET.
- District Offices: The DOR operates district offices across the state, offering in-person assistance. Appointments are recommended to reduce wait times. The District Offices page allows you to find the nearest office and schedule a visit.
- Webinars and Workshops: The DOR periodically hosts educational sessions covering various tax topics; make sure to check their website for announcements on upcoming events.
- Taxpayer Advocate Office: The Taxpayer Advocate Office offers specialized assistance for complex tax issues that cannot be resolved through standard channels. Businesses can contact them via the Taxpayer Advocate Office page.
The bottom line
While Indiana’s rules are straightforward, SaaS companies must also comply with varying tax laws in other states. Complying with state and national tax regulations helps businesses avoid legal issues and maintain strong relationships with their customers.
Tax laws can change, so it’s essential to stay informed by regularly consulting official state resources. For businesses managing sales in multiple states, leveraging tools like Numeral can help simplify the challenges of interstate tax compliance.
With Numeral, tasks like tracking nexus and filing returns can be automated to improve efficiency and reduce the likelihood of mistakes. Taking a proactive approach to compliance can secure your business and support its long-term expansion.
