Online Educational Services Not Subject to Indiana Sales Tax

The Indiana Department of Revenue found that an out-of-state taxpayer’s online educational services are not subject to Indiana sales tax because the software component of the services is remotely accessed. The taxpayer provides property management education services through subscriptions to an online portal hosted on servers that are located outside of Indiana. Access to the courses of instruction are strictly through the Internet, software is not downloaded by customers.

In Indiana, products that meet the definition of specified digital products, pre-written computer software, or telecommunications services are generally subject to sales tax. However, prewritten software sold, rented, leased, or licensed for consideration that is remotely accessed over the Internet is not considered an electronic transfer of computer software and is not considered a retail transaction. Under Indiana law effective July 1, 2018, remotely accessed software that is not downloaded is not subject to tax, as it is not considered a retail transaction. This is also known as Software as a Service or SaaS which still has not been clearly defined by many states so there will continue to be ambiguity in the law.

Additionally, the taxpayer’s online database was not considered a telecommunication service because it meets the exception of providing information services and was therefore exempt from tax. (Revenue Ruling No. 2017-07ST, Indiana Department of Revenue, October 29, 2018, released December 2018)

Posted on February 11, 2019