Indiana – Company Liable for Tax Was Not SST Registered

SALT Report 2230 – The Indiana Department of Revenue issued a ruling regarding an out-of-state company with an Indiana office who provides computer hardware, software, and technical assistance to its customers. In 2010, the Department conducted a sales and use tax audit which resulted in an assessment on the Taxpayer’s sales of software and maintenance agreements.

The Taxpayer filed an appeal claiming that it relied on a third-party certified service provider to administer its sales and use tax collection and remittance responsibilities, and should therefore be exempt under IC §6-2.5-11-10(a) and as provided in the Streamlined Sales and Use Tax Agreement.

Under the terms of the Streamlined Sales and Use Tax Agreement sellers may register and become a Model 1 seller and select a CSP to perform all of its sales and use tax functions. By doing so, the CSP is generally held liable for the sales and use tax due to each SST member state on all taxable transactions that it processes for the Taxpayer.

However, in this case, the Taxpayer was not registered with the SSTA and could not provide any documentation to support its argument for exemption under the SSTA provision, or a valid contract with a CSP indicating it was a non-registered Model 1 seller.

In its decision, the Department stated that sales tax is imposed on all retail transactions involving the transfer of tangible personal property as well as sales of software maintenance agreements and optional agreements which are presumed to be taxable. The Department noted that the Taxpayer can rebut this presumption by verifying that no updates are actually received pursuant to a maintenance agreement.

Based on the facts presented, the Department determined that the Taxpayer was liable for sales tax on its sales of software and software maintenance agreements because the Taxpayer failed to show that the software was not tangible personal property and failed to rebut the presumption that its software maintenance agreements are taxable. Additionally, the Taxpayer’s argument regarding its reliance on a third party certified service provider under SSTA was denied.

For Further Information

Indiana Department of Revenue – Letter of Findings 04-20120003