United States

Indiana: Two Pending Bills Would Address the Taxation of Remotely-Accessed Software

Feb 19, 2018
From KPMG TaxWatch

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Indiana Senate Bill 257, which passed the Senate on January 22, 2018 and is currently pending in the House, would apply to transactions occurring after June 30, 2019 and, as currently drafted, would expire on July 1, 2025. This bill states that providing an end-user the right to remotely access prewritten computer software over the Internet is not a retail transaction and is not subject to tax unless the prewritten computer software is also available in a substantially similar form to be purchased, rented, or leased in a physical medium or delivered electronically. If the transaction is for prewritten computer software that is both: (1) remotely accessed; and (2) electronically delivered or delivered by means of a tangible medium, then the transaction would not be considered a retail transaction if the transaction included a service. However, the service must be the true object of the transaction, the prewritten computer software must be essential to the use or provision of the service, and the prewritten computer software must be provided exclusively in connection with the service.

Another bill, Indiana House Bill 1316, which passed the House on February 5, 2018, would take a different approach. Under House Bill 1316, effective July 1, 2018, providing access to prewritten computer software over the Internet would be considered a retail transaction subject to sales and use tax at a 3.0 percent rate. The general sales and use tax rate in Indiana is 7.0 percent. An exception would apply if the remotely accessed software was used by an end user that was a business to “carry out core functions of the end user’s business.” If the three percent tax on the remotely accessed software generated in excess of $250 million in any given fiscal year, the general state sales and use tax rate would be reduced from 7.0 percent to 6.75 percent on January 1 of the following year. Both bills would make clear that retail sales involving prewritten computer software delivered electronically are subject to sales and use tax. Please stay tuned to TWIST for future updates on these and other bills.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.