SALT Report 2318 – A Taxpayer requested a letter ruling from the Indiana Department of Revenue regarding whether its sales of digital certificates and authentication services are subject to sales and use tax when sold to customers located in Indiana.
The Taxpayer provides authentication services for businesses and individuals who wish to create a secure e-commerce environment for their own customers. These services are sold on a subscription basis and include the provision of a digital certificate. The digital certificate is used to create the secure transmission between an end user browser and the Taxpayer’s customers’ servers.
The digital certificate is provided through an online process, in which the customer is allowed access to the Taxpayer’s online portal to complete the required registration form. Upon completion, the customer is provided with a digital certificate that must be installed by the customer on their web server. Once installed, an end user can connect to the customer’s server through a web browser, which will authenticate the digital certificate as well as the web site. If the connection is secure, the end user will receive an identifying mark.
In its response the Department noted that in accordance with the Streamlined Sales and Use Tax Agreement, specified digital products and pre-written computer software that are transferred electronically are taxable in Indiana. Specified digital products include digital audio works, audiovisual works and digital books. Computer software is defined as a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.
Based on the above, the Department determined that sales of digital certificates do not represent the sale of computer software nor do they represent a set of coded instructions designed to cause a computer or data processing equipment to perform a task. Additionally, because the certificates do not qualify as computer software, they cannot be considered pre-written computer software either. Therefore, because these products and services do not meet the definition of specified digital products, computer software, or pre-written computer software they are not subject to Indiana sales and use tax.
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