Indiana sales tax guide
All you need to know about sales tax in the Hoosier State
Learn about sales tax automation
Introducing our Sales Tax Automation 101 series. The first installment covers the basics of sales tax automation: what it is and how it can help your business.
Sales tax 101
Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Indiana first adopted a general state sales tax in 1963, and since that time, the rate has risen to 7 percent. In many states, localities are able to impose local sales taxes on top of the state sales tax. However, as of June 2019, there are no local sales taxes in Indiana.
As a business owner selling taxable goods or services, you act as an agent of the state of Indiana by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Indiana is administered by the Indiana Department of Revenue (Indiana DOR).
Any sales tax collected from customers belongs to the state of Indiana, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.
When you need to collect Indiana sales tax
In Indiana, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect sales tax in Indiana, start by answering these three questions:
- Do you have nexus in Indiana?
- Are you selling taxable goods or services to Indiana residents?
- Are your buyers required to pay sales tax?
If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
Failure to collect Indiana sales tax
If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.
It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.
Sales tax nexus
The need to collect sales tax in Indiana is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.
Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.
In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.
While physical presence still triggers a sales tax collection obligation in Indiana, it’s now possible for out-of-state sellers to have sales tax nexus with Indiana.
Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:
Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise. At this time, Indiana has not enacted a click-through nexus law.
Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after October 1, 2018, a remote seller must register with the state then collect and remit Indiana sales tax if the remote seller meets either of the following criteria (the economic thresholds):
- Gross revenue from Indiana sales of $100,000 or more; or
- 200 or more separate transactions in the current or previous year
Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Indiana in a warehouse owned or operated by Amazon.
Marketplace sales: Making sales through a marketplace. Effective July 1, 2019, marketplace facilitators that make or facilitate sales in Indiana and meet the economic nexus threshold of $100,000 in sales or 200 or more transactions in the state are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Indiana. This requirement also applies to lodging marketplaces.
Trade shows: Displaying merchandise at local trade fairs and exhibitions.
If you have sales tax nexus in Indiana, you’re required to register with the Indiana DOR and to charge, collect, and remit the appropriate tax to the state.
Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of June 2019, Indiana does not have an explicitly defined trailing nexus policy.
Fulfillment by Amazon (FBA)
If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Indiana.
If you sell taxable goods to Indiana residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.
Sourcing sales tax in Indiana: which rate to collect
In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).
Indiana is a destination-based state. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.
After determining you have sales tax nexus in Indiana, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Indiana business license and sales tax registration.
How to register for an Indiana seller's permit
You can register for an Indiana seller’s permit, which is called a registered retail merchant’s certificate (RRMC), online through Indiana’s INBiz program. To apply, you’ll need to provide INBiz with certain information about your business, including but not limited to:
- Business name, address, and contact information
- Federal EIN number
- Date business activities began or will begin
- Projected monthly sales
- Projected monthly taxable sales
- Products to be sold
Cost of registering for an Indiana seller's permit
The cost to register for an RRMC in Indiana is $25, and must be renewed every two years.
Acquiring a registered business
You must register with the Indiana Department of Revenue if you acquire an existing business in Indiana. The state requires all registered businesses to have the current business owner’s name and contact information on file.
Streamlined Sales Tax (SST)
The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).
Indiana became a full member of the SST on October 1, 2005.
Collecting sales tax
Once you've successfully registered to collect Indiana sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Indiana Department of Revenue, and keep excellent records. Here’s what you need to know to keep everything organized and in check.
How you collect Indiana sales tax is influenced by how you sell your goods:
Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Indiana sales tax collection can be managed.
Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.
Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.
Indiana sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.
Some goods are exempt from sales tax under Indiana law. Examples include most non-prepared food items, prescription drugs, and medical supplies.
We recommend businesses review the Sales Tax Information Bulletins put forth by the Indiana Department of Revenue to stay up to date on which goods are taxable and which are exempt, and under what conditions.
Some customers are exempt from paying sales tax under Indiana law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.
Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.
Misplacing a sales tax exemption/resale certificate
Indiana sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Indiana Department of Revenue may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.
Sales tax holidays
Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.
As of June 2019, however, there are no sales tax holidays in Indiana.
Filing and remittance
You're registered with the Indiana Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Indiana, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.
How to file
Once you’ve collected sales tax, you’re required to remit it to the Indiana Department of Revenue by a certain date. The Indiana Department of Revenue will then distribute it appropriately.
Filing an Indiana sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the Indiana DOR. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.
The Indiana DOR requires the filing of form ST-103 to happen through the INtax online portal. Form ST-103 instructions are available for download.
The Indiana Department of Revenue will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.
Indiana sales tax returns and payments must be remitted at the same time; both have the same due date.
You may file directly with the Indiana DOR by visiting their site and entering your transaction data manually. This is a free service, but preparing Indiana sales tax returns can be time-consuming — especially for larger sellers.
Using a third party to file returns
To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Indiana sales tax code.
Filing when there are no sales
Once you have an Indiana seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”
Failure to submit a zero return can result in penalties and interest charges.
Closing a business
The Indiana DOR requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.
Timely filing discount
Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.
As of June 2019, the Indiana DOR offers a discount of 0.73 percent of the tax paid if total sales tax collected is less than $60,000; 0.53 percent if total is between $60,000 and $600,000; or 0.26 percent if total is more than $600,000.
Filing due dates
It's important to know the due dates associated with the filing frequency assigned to your business by the Indiana Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.
The Indiana DOR requires all sales tax filing to be completed by the following dates:
- The 20th day of the month following the tax period for earlier filers (businesses averaging more than $1,000 per month in sales tax liability during the previous calendar year)
- The 30th day of the month following the tax period for standard monthly filers (businesses averaging less than $1,000 per month in sales tax liability during the previous calendar year)
Below, we've grouped Indiana sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.
Indiana 2019 early filers monthly filing due dates
|February 20, 2019
|March 20, 2019
|April 22, 2019
|May 20, 2019
|June 20, 2019
|July 22, 2019
|August 20, 2019
|September 20, 2019
|October 21, 2019
|November 20, 2019
|December 20, 2019
|January 21, 2020
Indiana 2019 monthly filers due dates
|March 4, 2019
|April 1, 2019
|April 30, 2019
|May 30, 2019
|July 1, 2019
|July 30, 2019
|August 30, 2019
|September 30, 2019
|October 30, 2019
|December 2, 2019
|December 30, 2019
|January 30, 2020
Indiana 2019 annual filing due date
|January 1–December 31
|January 31, 2020
Filing an Indiana sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.
In the event an Indiana sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Indiana DOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.
Penalties and interest
Hopefully you don't need to worry about this section because you're filing and remitting Indiana sales tax on time and without incident. However, in the real world, mistakes happen.
If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.
If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Indiana DOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Indiana sales and use tax liability.
Shipping and handling
If you’re collecting sales tax from Indiana residents, you’ll need to consider how to handle taxes on shipping and handling charges.
Taxable and exempt shipping charges
Shipping, delivery, freight, and postage charges are generally included in the sales price in Indiana. Thus charges to ship exempt sales are generally exempt and charges to ship taxable sales are generally taxable. Separately stated USPS postage charges, as well as those billed and furnished by a third party are non-taxable.
There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Indiana and sales tax should be taken directly to a tax professional familiar with Indiana tax laws.
For additional information, see the Indiana Commissioner’s Directive #23.