Understanding Indiana Sales Tax Nexus
Growth in business is essential for success. Whether it comes from upselling existing customers, identifying new opportunities or enhancing offerings, the ability to generate new income is essential to the vitality of a company. While management focuses on the best strategy to facilitate growth it’s rare if there is any consideration given to the geography of new customers. State lines are practically invisible in business development strategy, but they often have a significant impact on tax compliance requirements. Many are unaware of the state tax issues that need to be considered when acquiring clients in new states. For out of state companies with customers in Indiana there may be a need to collect state sales or use tax. In order to determine if the liability exists, it’s essential to determine whether nexus with Indiana has been established. To help clients, prospects and others understand the rules and how to maintain compliance; Barnes Dennig has provided a brief summary of Indiana tax nexus below.
What is Nexus?
Nexus is a legal term used to describe when an out-of-state taxpayer has a “significant presence” in another state and must collect and remit sales tax on qualifying transactions. For different states, this could mean temporary or physical nexus (people or property), click-through nexus (for online retailers who sell through certain websites), substantial nexus, or economic nexus. Although each state has their own definition used to determine nexus, the result is the same. If a company is found to have nexus, they must register for a state tax license and collect appropriate state – and possibly local – sales or use tax.
Indiana Nexus Guidelines
For out of state retailers, Indiana defines doing business within the state as either owning or leasing a physical location (e.g., an administrative office, factory warehouse, or research facility), employing sales representatives or other remote employees, storing inventory, displaying merchandise (e.g., at local trade fairs or exhibitions), or delivering goods within state lines (unless by common carrier or parcel post).
Specifically, a “retail merchant engaged in business in Indiana” is defined as anyone who makes retail transactions resulting in someone acquiring personal property or services for use, storage, or consumption in Indiana and who either:
- Maintains, occupies, or uses (permanently or temporarily) an office, place of distribution, sales location, sample location, warehouse, storage place, or other place of business in Indiana, either directly or indirectly through a representative, agent, or subsidiary.
- Maintains a representative, agent, salesman, canvasser, or solicitor who, while operating in Indiana on behalf of the retail merchant or a subsidiary, sells, delivers, installs, repairs, assembles, sets up, accepts returns of, bills, invoices, or takes orders for sales of tangible personal property or services to be used, stored, or consumed in Indiana.
- Is otherwise required to register as a retail merchant under Indiana law.
Meeting any one of these criteria requires becoming registered as an Indiana Retail Merchant and constitutes a tax obligation to the state.
What is Taxable?
Generally, “tangible products” are taxable in Indiana with a few exceptions, including grocery items, items sold to farmers, and items sold to construction contractors.
Services in Indiana are usually not taxable unless the service provided includes fabrication, alteration, or preparation of a product (like a tailor might offer). Other service professionals, like lawyers and consultants, typically do not have to worry about sales tax.
Also, at this time, Indiana does not charge sales tax on internet-based transactions, so those who only sell products via Amazon.com and other internet-based retailers to Indiana residents are typically sales tax liability-free. This topic is frequently debated, though, so it’s important to remain abreast of changes that could affect your business.
Are you concerned your company may have established nexus in Indiana? Determining whether nexus has been established is essential to maintaining compliance. If you have questions about Indiana nexus or need assistance with sales and use tax planning, Barnes Dennig can help. For additional information call us at 317.572.1130 or click here to contact us. We look forward to speaking with you soon!