Indiana Computer, Software, and SaaS Tax Guide

Prepared by Sales Tax Helper

Table of Contents

1. Introduction
2. Nexus Considerations
3. General Rules and Compliance Considerations
4. Specific Exemptions
5. Sourcing Rules
6. Audit Considerations
7. Voluntary Disclosure Agreements (VDAs)
8. Conclusion
9. References & Resources

1. Introduction

For software companies, SaaS providers, and technology firms conducting business in Indiana, the state's sales and use tax rules present unique challenges that can significantly impact financial operations and compliance requirements. Unlike some states with more straightforward approaches, Indiana maintains distinct tax treatments for different categories of software and technology services based on critical factors such as delivery method, customization level, and service classification.

Indiana's approach to taxing technology is particularly nuanced – the state generally taxes prewritten (canned) software regardless of delivery method, while exempting custom software as a professional service. Perhaps most notably for modern technology companies, Indiana currently offers a temporary exemption for remotely accessed software (SaaS) through June 30, 2024, creating both immediate tax planning opportunities and future compliance challenges when this provision expires.

Purpose of This Guide

This guide is designed to help businesses navigate Indiana's complex sales and use tax rules
related to software and technology services. It focuses on:

• Nexus Considerations: Understanding when businesses must register and collect Indiana
  sales tax due to physical or economic presence, including Indiana's revised $100,000
  economic nexus threshold that applies to all retail sales (without the transaction count
  threshold that existed prior to January 1, 2024).
• Taxability of Software & Services: Clarifying the tax treatment of prewritten vs. custom
  software, cloud computing services, and related technology offerings, with particular
  attention to Indiana's unique temporary SaaS exemption under IC 6-2.5-4-16.7.
• Sourcing Rules: Determining how and where transactions are taxed based on customer
  location and method of software delivery under Indiana's destination-based sourcing
  approach.
• Audit Considerations: Identifying common tax audit triggers and best practices for
  compliance, including documentation requirements specific to Indiana's software
  classification standards.
• Voluntary Disclosure Agreements (VDAs): Explaining the process for businesses to
  rectify past noncompliance while mitigating penalties and limiting back-tax liability
  through Indiana's formal disclosure program.

Why This Matters for Technology Companies

Indiana's sales tax laws have direct financial and operational implications for software
companies, SaaS providers, and technology firms in multiple ways:

• Sales Tax Collection Requirements: Technology businesses selling to Indiana
  customers face a duty to collect and remit sales tax at the rate of 7% on taxable
  transactions, potentially creating significant tax liability if misclassified.
• Cloud Computing & SaaS Complexity: Indiana's treatment of SaaS is particularly
  complex due to the temporary exemption ending June 30, 2024 (under IC 6-2.5-4-16.7),
  creating a compliance timeline that businesses must actively prepare for.
• "Incidental" Service Determinations: Indiana's unique 10% threshold for determining
  when software is "incidental" to a service requires careful transaction structuring and
  documentation.
• Documentation Requirements: Indiana auditors specifically look for clear separation of
  taxable and non-taxable elements on invoices and contracts, with failure to properly
  document potentially resulting in taxation of the entire transaction.
• Compliance Risks: Failure to correctly assess and collect sales tax can result in
  significant penalties (typically 10% of unpaid tax), interest (currently charged at variable
  rates published quarterly by the DOR), and extended audit exposure.

This comprehensive guide walks through Indiana's specific sales tax rules governing software,
SaaS, and technology-related services while referencing applicable statutes, administrative rules, and Indiana Department of Revenue (DOR) guidance. Throughout the guide, official Indiana Department of Revenue sources are linked for further reference, providing authoritative support for the tax positions discussed.

You're currently viewing a preview. To access the full guide and unlock tools designed to simplify your sales tax obligations, just create a free account.

Your free Sales Tax Helper account gives you:

• Full access to this and other expert-written guides
• Our Nexus Checker to assess your exposure across states
• State- and industry-specific insights and compliance tips
• Updates on new rules and best practices to stay ahead

No credit card required — just expert tools built to keep you compliant and confident.
Create your free account now to unlock the rest of this guide.