The Indiana Department of Revenue (DOR) has issued a ruling regarding the taxability of a company’s sales of generative artificial intelligence (AI) services offered through a subscription payment plan. The company is located outside of Indiana and provides advanced AI services to its customers, primarily a generative AI chatbot. The chatbot can assist with writing, analysis, coding and problem-solving. The software that operates the chatbot is never downloaded onto a customer’s computer. The chatbot is accessed via the company’s website or free app. Customers also have the option to utilize the chatbot’s application programming interface (API) product, which allows them to integrate advanced language understanding and generation capabilities in their own applications. The company does not deliver, electronically or physically, any software or programming code to customers.
Indiana imposes sales tax on sales of tangible personal property (which includes prewritten computer software), specifically enumerated services, and specified digital goods. Indiana sales and use tax is imposed on products transferred electronically only if the products meet the definition of specified digital products. Specified digital products mean electronically transferred digital audio works, digital audiovisual works, or digital books. Indiana tax law provides that a person is engaged in making a taxable retail transaction when the person electronically transfers specified digital products to an end user and grants the end user the right of permanent use of specified digital products that is not conditioned upon continued payment by the purchaser.
Per the DOR’s ruling, the AI chatbot services provided by the company would be considered a nontaxable service. Since the AI is accessed electronically with no permanent ownership aspect, the AI would not be subject to Indiana sales and use tax. The AI chatbot services – whether accessed via the web or API – would not be subject to Indiana sales and use tax since they do not meet the definition of prewritten computer software or specified digital products.
Note that this ruling is based on the specific facts and circumstances presented to the DOR. (Revenue Ruling # 2025-02-RST, July 23, 2025, Indiana Department of Revenue)