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Should you be collecting Indiana sales tax on your software-as-a-service offerings?

The answer is not entirely clear, but there is at least one situation where if it applies to you, you should consider doing so.  Sofware-as-a-service (SaaS) products are essentially software-enabled services that are deployed over the Internet and Indiana, like most states, is in the process of figuring out how to sort SaaS offerings as either taxable prewritten software or nontaxable services. So far, Indiana has shown a willingness to categorize certain SaaS offerings as taxable prewritten software.  The Indiana Department of Revenue (IDR), through a revenue ruling, has stated that the sale of access to a web-based program, which was originally offered as a download, is subject to sales tax. 

The IDR reasoned that “[t]he fact that the [prewritten] program is accessed via the Internet as opposed to on the customer’s own computer is irrelevant to the taxability of the program; the program in whatever form constitutes tangible personal property, and the company’s charges for access to the program is subject to sales tax.”  While the revenue ruling is not binding and does not broadly address all SaaS offerings, it does provide insight into how the state’s position is evolving. So, if you have a physical presence in Indiana and have recently transitioned from offering software as a download to offering it as a web-based program or you are a SaaS-based company, you will want to consider whether you should be collecting sales tax from your Indiana customers. 

If you would like to discuss this issue please contact the Corporate and Transactional Practice Group at Bingham Greenebaum Doll.

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