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Indiana: Out-of-State Business Must Charge Sales Tax


A recently released Indiana Department of Revenue Letter of Findings reveals that an out-of-state business should have charged sales tax on a transaction that took place in Indiana.

The Taxpayer, an out-of-state pump repair service, fixed a pump for a customer in Indiana. The Taxpayer charged the customer $1,960, which included both services and materials. The Taxpayer argued that he "self-assessed use tax on" $110 worth of materials included on the invoice, and that he was not required to collect or pay sales/use tax on the rest because it was a "lump sum contract."

Lump Sum Contract

According to Indiana Informational Bulletin #60, "if a construction contractor purchases construction materials pursuant to a lump sum contract, the construction contractor pays either

  1. sales tax at the time the construction materials are purchased; or 
  2. use tax at the time the construction materials are incorporated into real property if the contractor purchased or acquired the construction materials exempt from sales tax and the owner of the real property could not have purchased the materials exempt from sales tax … ." 

Furthermore, "When operating pursuant to a lump sum contract, a manufacturer contractor shall pay sales tax on the cost of the raw materials at the time of purchase or use tax on the cost of the raw materials when the materials are converted into a new component for construction into real property."

The Department of Revenue Letter of Findings states that "[t]he issue is whether Taxpayer should have collected sales tax from its customer." Since the Taxpayer charged the customer "one price for the cost for the labor and the cost of the materials," the transaction is a unitary transaction.

Unitary Transaction

Regulation 45 IAC 2.2-1-1(a) states that:

"For the purposes of the state gross retail tax and use tax, such taxes shall apply and be computed in respect to each retail unitary transaction. A unitary transaction shall include all items of property and/or services for which a total combined charge or selling price is computed for payment irrespective of the fact that services which would not otherwise be taxable are included in the charge or selling price." 

Therefore, the "Taxpayer was required to collect tax on the price charged its customer."

 


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.