Indiana — Sales & Use Tax

Indiana imposes a state gross retail tax on retail transactions made in Indiana. The tax applies to retail sales of tangible personal property and certain specified services unless a specific exemption applies. The statewide rate is 7 percent of gross retail income received in a retail unitary transaction. Indiana does not impose local sales taxes; the 7 percent rate applies uniformly across all counties and municipalities.

The tax is measured by the gross retail income received by the retail merchant. Both in-state merchants and remote sellers meeting economic nexus thresholds must collect and remit the tax on taxable retail transactions sourced to Indiana.

Source: Ind. Code § 6-2.5-2-1 (imposition); Ind. Code § 6-2.5-2-2 (rate); Indiana DOR Business FAQ

A remote seller without physical presence in Indiana must collect and remit sales tax if its gross revenue from sales into Indiana exceeds $100,000 in either the current or preceding calendar year. The threshold applies to gross revenue from any combination of tangible personal property delivered into Indiana, products transferred electronically into Indiana, or services delivered in Indiana. Sales made through a marketplace facilitator are excluded from the seller's threshold calculation.

Effective January 1, 2024, Indiana eliminated the alternative 200-transaction threshold; the $100,000 revenue threshold is now the sole economic nexus trigger.

Source: Ind. Code § 6-2.5-2-1(d); Indiana DOR Remote Seller FAQs

A marketplace facilitator is deemed the retail merchant for sales it facilitates on its marketplace if it collects payment, provides payment processing, or charges purchaser fees. Facilitators meeting Indiana's $100,000 economic nexus threshold must collect and remit sales tax on all facilitated transactions, even when the underlying seller lacks registration or sales tax collection obligations. The facilitator's gross revenue calculation includes both its own sales and facilitated sales. This regime became effective July 1, 2019.

Source: Ind. Code § 6-2.5-4-18; Ind. Code § 6-2.5-2-1(e); Indiana DOR Marketplace Facilitators

Purchasers buying goods for resale may issue Form ST-105 (General Sales Tax Exemption Certificate) to the seller instead of paying Indiana sales tax. Only retail merchants, wholesalers, and manufacturers registered with the Indiana Department of Revenue are authorized to issue exemption certificates. The certificate must identify the purchaser's Indiana Registered Retail Merchant Certificate number or valid out-of-state sales tax registration, describe the items being purchased, specify the exemption reason (such as "resale"), and be signed by the purchaser.

A seller accepting a properly completed exemption certificate has no duty to collect or remit sales tax on that purchase. However, a seller accepting an incomplete certificate remains liable unless the seller obtains a fully completed certificate or proves by other means that the transaction was not subject to tax within 120 days of a department request. Indiana permits blanket resale certificates: a single certificate on file with a vendor may be reused for all qualifying purchases from that vendor without issuing a new certificate for each transaction.

Source: Ind. Code § 6-2.5-8-8; Form ST-105

Indiana imposes a complementary use tax on the storage, use, or consumption of tangible personal property in Indiana when the property was acquired in a retail transaction, regardless of the location of that transaction or the retail merchant. The use tax is measured by the gross retail income received in the retail transaction and is imposed at 7 percent—the same rate as the sales tax. Property is exempt from use tax if the state gross retail tax has been paid on its acquisition in Indiana.

Source: Ind. Code § 6-2.5-3-2 (imposition); Ind. Code § 6-2.5-3-3 (rate); Ind. Code § 6-2.5-3-4 (exemption for sales tax paid)

Indiana exempts from sales and use tax purchases of manufacturing machinery, tools, and equipment acquired for "direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property." This exemption applies only to equipment that satisfies the "double direct" test: the property must be (1) directly used (2) in the direct production process. Both prongs must be met for the exemption to apply.

"Direct use" requirement

To be directly used, machinery, tools, or equipment must have an immediate effect on the tangible personal property being produced. The property has an immediate effect if it is an essential and integral part of an integrated production process. Equipment is essential and integral when it acts upon the product and is functionally necessary to the production line. The fact that particular property is essential to the conduct of the manufacturing business — because its use is required by law or practical necessity — does not, by itself, mean the property has an immediate effect. The property must also be an integral part of an integrated process that produces tangible personal property.

"Direct production" requirement

The integrated production process begins at the point of the first operation or activity constituting part of production and ends when the product has been altered to its completed form, including packaging if required. Equipment used before production begins (such as receiving or raw-material storage) or after production ends (such as finished-goods storage or shipping) does not qualify. Material handling equipment used to transport work-in-process between production steps within the integrated process qualifies for exemption; equipment that moves finished goods into storage or loads delivery vehicles is taxable.

Component parts, replacement parts, and testing equipment

Component parts of an exempt manufacturing unit are themselves exempt if they are an integral part of the unit. Replacement parts used to replace worn, broken, inoperative, or missing parts on exempt machinery and equipment are exempt from tax. Machinery, tools, and equipment used to test and inspect the product are taxable unless used as part of the production process itself (for example, statistical sampling equipment that is functionally interrelated with the production line and integrated into the product flow qualifies).

Expressly excluded from exemption

The following items do not qualify, even in a manufacturing facility: machinery, tools, and equipment used in managerial, sales, research and development, or other nonoperational activities; safety or fire prevention equipment that is not essential and integral to the production process; equipment for general space heating, ventilation, and cooling for general temperature control (as opposed to process-specific environmental control); general lighting (including security lighting); movement of goods outside the production process; and equipment used in offices or for employee health and comfort.

Partial exemption for mixed use

When equipment qualifies as essential and integral to the production process but is also used in a nonexempt manner, the exemption applies only to the percentage of use in the exempt manner. For example, a forklift used 40% of the time to move work-in-process between production steps and 60% to move finished goods to storage qualifies for a 40% exemption.

Commercial printing and tire retreading

Indiana law expressly treats commercial printing as the production and manufacture of tangible personal property and tire retreading as the processing of tangible personal property; businesses in those industries may claim the manufacturing exemption under the same "double direct" standard.

Claiming the exemption

A purchaser claims the exemption by issuing Form ST-105 (General Sales Tax Exemption Certificate) to the seller and checking the box for "Sale of manufacturing machinery, tools, and equipment to be used directly in direct production." If tax is paid on an exempt purchase, the purchaser may file a claim for refund on Form GA-110L within three years of the date the tax was paid.

Source: Ind. Code § 6-2.5-5-3; 45 IAC 2.2-5-8; Sales Tax Information Bulletin #55

Indiana law does not provide a grace period or delay after a remote seller exceeds the $100,000 economic nexus threshold. Once a seller's gross revenue from sales into Indiana exceeds $100,000 in either the current or preceding calendar year, the seller must register and begin collecting Indiana sales tax. The obligation to collect arises immediately upon meeting the threshold, with no statutory waiting period.

Statutory language

Indiana Code § 6-2.5-2-1(d) uses mandatory language: a remote seller that exceeds the threshold "shall, as an agent for the state, collect the gross retail tax on a retail transaction made in Indiana" and "comply with all applicable procedures and requirements of this article as if the retail merchant has a physical presence in Indiana." The statute does not authorize a delay or grace period between the date the threshold is crossed and the date collection must begin.

Department of Revenue guidance

The Indiana Department of Revenue has confirmed that sellers meeting the nexus requirement should register and begin collecting "as soon as possible." This guidance applies both to remote sellers and to marketplace facilitators. Because the threshold is measured on a calendar-year basis—either the current year or the preceding year—a seller who exceeded $100,000 in the prior calendar year has a collection obligation on January 1 of the current year, even before making any sales in the new year. A seller who first exceeds the threshold mid-year during the current calendar year has a collection obligation immediately upon crossing $100,000.

Practical compliance approach

The statute imposes the collection obligation once the threshold is met. Although the Department of Revenue uses the phrase "as soon as possible" rather than prescribing a specific number of days, the statutory language leaves no room for delay: the seller is required to collect tax on retail transactions made in Indiana once the threshold has been exceeded. Prudent sellers register before or immediately after crossing the threshold to avoid exposure for uncollected tax on transactions made after nexus was established.

Contrast with states that provide explicit lookback or prospective application

Some states provide an explicit grace period (for example, requiring registration within 30 days of exceeding the threshold) or allow sellers to apply nexus prospectively beginning the first day of the next month or quarter. Indiana law does not include such provisions. The collection obligation arises under the statute as soon as the $100,000 threshold is met in the current or preceding calendar year.

Source: Ind. Code § 6-2.5-2-1(d); Indiana DOR Remote Seller FAQs; Indiana DOR Marketplace Facilitators

Indiana uses destination-based sourcing to determine where a sale is taxable. A transaction is sourced to Indiana — and subject to Indiana sales tax — when the purchaser receives the product in Indiana. The sourcing rules replaced previous freight-on-board (FOB) origin or destination rules in 2003, and contractual terms relating to transfer of title or risk of loss are not relevant to sourcing.

Hierarchical sourcing test for retail sales

Indiana Code § 6-2.5-13-1(d) establishes a hierarchical test to source retail sales of tangible personal property, digital goods, and services. The statute applies the first rule that can be satisfied from the following sequence:

1. Receipt at seller's business location: When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.

1. Receipt at destination known to seller: When the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser (or the purchaser's donee, designated as such by the purchaser) occurs, including the location indicated by instructions for delivery to the purchaser (or donee), known to the seller.

1. Purchaser address from seller's business records: When subdivisions (1) and (2) do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business when use of this address does not constitute bad faith.

1. Purchaser address obtained during sale: When subdivisions (1), (2), and (3) do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument, if no other address is available, when use of this address does not constitute bad faith.

1. Seller's business location (default): When subdivisions (1) through (4) do not apply, including the circumstance in which the seller is without sufficient information to apply the previous rules, then the location will be determined by the address from which tangible personal property was shipped, from which the digital good or the computer software delivered electronically was first available for transmission by the seller, or from which the service was provided (disregarding for these purposes any location that merely provided the digital transfer of the product sold).

Definition of "receive" and "receipt"

The terms "receive" and "receipt" mean taking possession of tangible personal property, making first use of services, or taking possession or making first use of digital goods, whichever comes first. The terms do not include possession by a shipping company on behalf of the purchaser.

Remote sales into Indiana

For remote sellers shipping or delivering products into Indiana, the sale is sourced to Indiana under the second prong of the hierarchy (receipt at destination known to seller) when the seller knows the product will be received at an Indiana location. This means remote sellers must charge Indiana's 7 percent sales tax rate on all taxable sales delivered to Indiana addresses, regardless of the seller's own location. Because Indiana does not impose local sales taxes, the rate determination is straightforward: all sales sourced to Indiana are subject to the same statewide 7 percent rate.

Effective date and superseded rules

The statutory sourcing rules in IC 6-2.5-13-1 were enacted in 2003 and superseded any rules concerning "freight on board" origin or destination previously enforced by the Indiana Department of Revenue. Contractual terms relating to transfer of title or risk of loss are not relevant when sourcing a transaction.

Special sourcing rules for specific products

Indiana Code § 6-2.5-13-1 excludes certain transactions from the general sourcing rules, including watercraft, modular homes, manufactured homes, mobile homes, motor vehicles (not qualifying as transportation equipment), and telecommunications services. Those items are sourced according to other provisions of Indiana sales tax law.

Source: Ind. Code § 6-2.5-13-1; Sales Tax Information Bulletin #96

Indiana assigns sales tax filing frequency based on a seller's average monthly tax liability. The Indiana Department of Revenue determines whether a registered retail merchant files monthly, quarterly, or annually, and notifies the seller of the assigned frequency. Sellers must file a return for each period even when no tax is due, unless the Indiana tax account has been properly closed.

Frequency assignment and liability thresholds

The Department assigns filing frequency based on average monthly tax liability calculated over the tax year. New registrants receive an initial filing frequency assignment based on estimated monthly taxable sales provided on the registration application (Form BT-1). The Department may adjust a seller's assigned filing frequency when liability changes significantly.

Indiana uses three filing frequencies: monthly, quarterly, and annual. Industry guidance indicates that monthly filing is typically required when average monthly liability exceeds $1,000, quarterly filing applies when average monthly liability falls between approximately $200 and $1,000, and annual filing is permitted when average monthly liability is below approximately $200. However, the Department's official publications do not codify these specific dollar thresholds in a single authoritative statement; instead, the Department assigns frequency on a case-by-case basis and communicates the assignment to each taxpayer.

Due dates

Filing due dates vary by assigned frequency. The Department communicates each seller's specific due date along with the frequency assignment.

Monthly filers are divided into two categories with different due dates:

• Higher-liability monthly filers: Returns and payment are due on the 20th day of the month following the reporting period. For example, the January return is due February 20. Industry guidance indicates this earlier due date typically applies to sellers with average monthly liability exceeding $1,000, though the Department assigns filers to this category individually.

• Lower-liability monthly filers: Returns and payment are due on the 30th day of the month following the reporting period. For example, the January return is due February 28 (or 29 in leap years), and the February return is due March 30.

Quarterly filers: Returns and payment are due on the 20th day of the month following the end of the quarter. For example, the first-quarter return (January–March) is due April 20.

Annual filers: The annual return and payment are typically due in late January for the prior calendar year. The exact due date is specified by the Department when assigning annual filing status.

When a due date printed on a return falls on a weekend or state holiday, the deadline shifts to the next business day.

Quarter-monthly prepayments for high-liability sellers

Sellers with high annual sales tax liability must make quarter-monthly prepayments in addition to filing monthly returns. Industry guidance indicates this requirement typically applies to sellers with annual liability exceeding $120,000 (approximately $10,000 or more per month). Affected sellers make three prepayments during each month—typically due on or around the 7th, 15th, and 23rd of the month—with each prepayment representing approximately 25 percent of the expected monthly liability. The seller still files a complete monthly return by the regular monthly due date (20th or 30th of the following month), and the prepayment amounts are credited against the total liability shown on that return. The Department assigns quarter-monthly prepayment obligations individually and notifies affected taxpayers of the requirement and specific due dates.

Electronic filing and payment

All businesses must file sales tax returns electronically through INTIME, Indiana's e-services portal, unless the Department has approved a Business Exemption Application (Form BT-EX) permitting paper filing. Payment may be made electronically via ACH debit or credit. Sellers subject to quarter-monthly prepayments must remit those prepayments electronically.

Streamlined Sales Tax filers

Remote sellers registered under the Streamlined Sales Tax (SST) Agreement and using a Model 1 certified service provider or Model 2 certified automated software must file monthly using the Simplified Electronic Return (SER), with returns due on the 20th of the month following the reporting period, regardless of their liability level. If the due date falls on a non-business day, the SER is due on the first business day following the due date. Model 4 SST sellers follow the filing frequency assigned by the Department based on their most recent communication from the Department.

Zero-liability periods

A return must be filed by the taxpayer even when no tax is due, unless the Indiana tax account has been properly closed. Late-filed returns are subject to a penalty of up to 20 percent of the tax due, with a minimum penalty of $5.

Source: Indiana DOR Business FAQ; Form ST-103 Instructions; Indiana DOR Streamlined Sales Tax Business Rules

Indiana exempts sales of food and food ingredients for human consumption from the state gross retail tax. This exemption covers most items purchased at grocery stores for home preparation and consumption. However, the exemption does not apply to candy, soft drinks, prepared food, dietary supplements, alcoholic beverages, or tobacco products. Each of these categories is specifically excluded from the definition of exempt "food and food ingredients" and remains subject to Indiana's 7 percent sales tax.

General exemption for food and food ingredients

Indiana Code § 6-2.5-5-20(a) provides that "sales of food and food ingredients for human consumption are exempt from the state gross retail tax." The term "food and food ingredients" is defined in Indiana Code § 6-2.5-1-20 to mean "substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value." The statutory definition expressly states that the term "does not include alcoholic beverages, candy, dietary supplements, tobacco products, or soft drinks."

The exemption applies to most unprepared grocery items such as fresh produce, raw meat and poultry, dairy products, eggs, fish, bread, canned goods, frozen foods, flour, and sugar purchased for home preparation. These examples are applications of the general statutory definition.

Candy — taxable

Indiana Code § 6-2.5-1-12 defines candy as "a preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the form of bars, drops, or pieces." The statute provides that the term "does not include any preparation: (1) containing flour; or (2) requiring refrigeration."

The flour exclusion creates a classification issue for many confectionery items. Items commonly understood as candy are exempt from Indiana sales tax if they contain flour as an ingredient. For example, a candy bar with a cookie or wafer component containing flour is exempt under this exclusion; a plain chocolate bar without flour is taxable as candy. Sales Tax Information Bulletin #29 notes that "many items commonly considered to be candy, including many candy bars, are not classified as 'candy' for Indiana sales tax purposes" because they contain flour or require refrigeration.

Retailers must review product ingredient labels to determine whether a particular item contains flour. The determination is made based on whether flour is listed on the product label.

Soft drinks — taxable

Indiana Code § 6-2.5-1-26 defines soft drinks as "nonalcoholic beverages that contain natural or artificial sweeteners." The statute provides that the term "does not include beverages that contain milk or milk products, soy, rice, or similar milk substitutes, or greater than fifty percent (50%) of vegetable or fruit juice by volume."

Under this definition, regular soda, sweetened tea, and beverages containing sweeteners but less than 50 percent juice are taxable as soft drinks. Conversely, 100 percent fruit or vegetable juice, milk, chocolate milk, soy milk, and beverages containing more than 50 percent juice by volume are exempt as food and food ingredients. Sales Tax Information Bulletin #29 confirms that soft drinks are "nonalcoholic beverages that contain natural or artificial sweeteners" and do not include beverages "that contain milk or milk products, soy, rice, or similar milk substitutes or greater than 50 percent vegetable or fruit juice by volume."

The 50 percent threshold is dispositive: a beverage containing 51 percent juice by volume is exempt; a beverage containing 49 percent juice is a taxable soft drink.

Prepared food — taxable

Indiana Code § 6-2.5-5-20(c) excludes prepared food from the exemption for food and food ingredients. The statute defines prepared food to include:

1. Food sold in a heated state or heated by the seller.

1. Two or more food ingredients mixed or combined by the seller for sale as a single item, excluding (a) food that is only cut, repackaged, or pasteurized by the seller, and (b) eggs, fish, meat, poultry, and foods containing these raw animal foods requiring cooking by the consumer as recommended by the FDA in chapter 3, part 3-401.11 of its Food Code to prevent foodborne illnesses.

1. Food sold with eating utensils provided by the seller, including "plates, knives, forks, spoons, glasses, cups, napkins, or straws." The statute provides that "a plate does not include a container or packaging used to transport the food."

The third category — food sold with eating utensils — is the most commonly encountered classification issue for combination businesses such as grocery stores with delis or convenience stores.

Seller classification: restaurants vs. combination businesses

Sales Tax Information Bulletin #29 distinguishes between restaurants and combination businesses based on the percentage of prepared food sales. The bulletin defines a restaurant as "a business that sells prepared food such as meals, sandwiches, or other food for consumption on or off the premises and which provides utensils." A business is considered a restaurant "if 75% or more of the business's sales are of prepared food."

A combination business is a business with less than 75 percent of sales as prepared food. For combination businesses, sales of otherwise-exempt food become taxable only if the business physically gives utensils to the customer, such as by placing utensils in a bag or other container with the item that is then handed to the customer. If utensils are merely made available for customers to take (for example, in a self-service dispenser), and the seller does not physically give them to the customer, the food remains exempt.

For restaurants (75 percent or more prepared food sales), all food items sold with utensils provided by the seller are taxable as prepared food, even items that would otherwise be exempt if sold without utensils.

Bulk servings sold by restaurants

Sales Tax Information Bulletin #29 provides that sales of "bulk serving" items — defined as items that contain four or more servings packaged as one item sold for a single price — are exempt when sold by a restaurant, unless (1) the restaurant physically gives utensils to the customer, such as placing utensils in a bag with the packaged item, or (2) the food item is considered prepared food for another reason (it is sold in a heated state or is a combination of two or more food ingredients mixed or combined by the seller and sold as a single food item).

Specific items expressly covered by the exemption

Indiana Code § 6-2.5-5-20(b) provides that the term "food and food ingredients for human consumption" includes the following items if sold without eating utensils provided by the seller:

1. Food sold by a seller whose proper primary NAICS classification is manufacturing in sector 311, except subsector 3118 (bakeries).

1. Food sold in an unheated state by weight or volume as a single item.

1. Bakery items, including bread, rolls, buns, biscuits, bagels, croissants, pastries, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas.

These items remain exempt as long as they are sold without eating utensils provided by the seller. If utensils are provided, the sale is taxable as prepared food under subsection (c)(6).

Dietary supplements — taxable

Sales of dietary supplements are subject to Indiana sales tax. Sales Tax Information Bulletin #29 explains that dietary supplements are products intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form (or, if not intended for ingestion in those forms, not represented as conventional food and not represented for use as a sole item of a meal or diet), and are required to be labeled as a dietary supplement, identifiable by the "Supplemental Facts" box as required under 21 CFR 101.36. Dietary supplements are excluded from the statutory definition of "food and food ingredients" and therefore do not qualify for the grocery exemption.

Effective date

The current grocery exemption framework, including the definitions of candy, soft drinks, and prepared food, was enacted by P.L. 257-2003, effective July 1, 2003. Indiana Code § 6-2.5-5-20 was subsequently amended by P.L. 195-2005, P.L. 113-2010, and P.L. 92-2018, which clarified the exclusion for raw animal foods in the mixed-ingredient rule.

Source: Ind. Code § 6-2.5-5-20; Ind. Code § 6-2.5-1-20; Ind. Code § 6-2.5-1-12; Ind. Code § 6-2.5-1-26; Sales Tax Information Bulletin #29