SALT Report 1226 – The Indiana Department of Revenue has updated their guidance regarding the taxability of sales, leases or use of computer hardware, computer software and digital goods. The update reflects the following revisions and changes to the law.
The sale or lease of computer hardware represents the transfer of tangible personal property and is a retail transaction subject to tax. The tax is based on the total purchase price charged including, charges for instructional materials, installation charges, and internalized instruction codes that control the basic computer operations.
The definition of computer hardware includes the machinery and equipment that constitute the physical computer, and include but are not limited to the following items: central processing units, keyboards, mice, video monitors, card or tape punchers, electronic message scramblers, data storage devices, processors, output units, flexowriters, card readers, paper tape input machines, verifiers, card converters, sorters, printers, panels, terminals, and modems.
As a general rule, transactions involving computer software are not subject to Indiana sales or use tax provided the software is in the form of a custom program specifically designed for the purchaser. However, prewritten programs not specifically designed for one purchaser, or are developed by the seller for sale or lease on the general market and are sold or leased in the form of tangible personal property are subject to tax regardless of the fact that the program may require modification for a purchaser’s particular computer.
Products Transferred Electronically
Pursuant to Indiana law retail sales tax is imposed on the sale or lease of certain digital products. IC 6-2.5-4-16.4(b) states that a person is a retail merchant making a retail transaction if they:
- Electronically transfer specified digital products to an end user; and
- Grants to the end user the right of permanent use of the specified digital products that is not conditioned upon continued payment by the purchaser