Indiana’s Temporary Storage Exemption Does Not Apply to Taxpayer’s Purchase of Computer Software

A taxpayer was denied a refund of Indiana sales tax paid on purchases of computer software delivered to Indiana since Indiana does not offer a temporary storage exemption for sales tax. Indiana provides a temporary storage exemption on use tax for tangible personal property delivered into and temporarily stored in Indiana but destined for use outside the state. The taxpayer argued that the purchases were exempt since vendors hosted the software on computer servers located outside Indiana. However, the software was delivered or shipped to Indiana and the taxpayer paid sales tax on the purchases. The temporary storage exemption does not apply since the taxpayer sought a refund of sales tax, not use tax. The taxpayer additionally requested a partial refund of sales tax paid on software maintenance agreements where the agreement calls for the support of software used by both in-state and out-of-state employees. The Department of Revenue determined that in the case of these unitary transactions, there is no avenue by which the tax liability is apportionable based on the relative number of in-state and out-of-state employees. As such, this refund request was also denied. (Memorandum of Decision No. 04-20170601R, Indiana Department of Revenue, December 21, 2019, released April 2020)

Posted on May 12, 2020