Most services in Indiana are not subject to sales tax. The state’s 7% gross retail tax applies to tangible personal property and a short list of specifically named service categories, so professional, personal, and most business services go untaxed. The question of whether services are taxable in Indiana turns on which category your service falls into and whether any tangible goods or digital products ride along with it.
The Default Rule
Indiana Code 6-2.5-2-1 imposes the sales tax on retail transactions, and a retail transaction is defined around tangible goods changing hands.1Indiana General Assembly. Indiana Code Title 6 Taxation 6-2.5-2-1 Pure labor and knowledge services sit outside that definition. Legal advice, accounting, consulting, medical care, haircuts, tutoring, repair labor billed separately from parts, and similar work carry no Indiana sales tax.
What follows is the list of exceptions. If your service isn’t on it and doesn’t come packaged with taxable goods, you’re almost certainly dealing with a nontaxable transaction.
Services Indiana Does Tax
Short-Term Lodging
Renting a hotel room, short-term rental, banquet hall, booth, or display space for fewer than 30 days is taxable. The tax applies to the full amount charged, including cleaning fees, internet charges, and other bundled service fees, even when they’re itemized separately on the bill.2Indiana General Assembly. Title 45, Article 2.2 Sales and Use Tax Stays of 30 days or more are not taxed.
Rental of Tangible Personal Property
Leasing or renting out tangible personal property is taxed like a sale. Equipment rental, tool rental, and vehicle rental businesses collect 7% on their gross receipts.3Cornell Law Institute. 45 IAC 2.2-4-27 – Tangible Personal Property Renting and Leasing
Intrastate Telecommunications
Intrastate telecommunication services are taxable on the provider’s gross retail income from customer billings.4Indiana General Assembly. Indiana Code 6-2.5-4-6 – Taxation of Telecommunication Services That covers voice, data, and video transmission inside the state. Internet access itself is not taxed; the federal Internet Tax Freedom Act permanently bars state and local taxes on internet access.5Office of the Law Revision Counsel. 47 USC 151 – Purposes of Chapter
Admissions
Charges for admission to amusement parks, athletic events, fairs, and similar entertainment venues are taxable.6Indiana Department of Revenue. Application of Sales Tax to Admission Charges
Software and Digital Products
Digital goods are where the service-versus-product line matters most, and where the answer most often surprises people.
Specified digital products delivered electronically to an end user are taxable when the buyer gets permanent use rights that aren’t conditioned on ongoing payments. That covers digital audio (songs, audiobooks, ringtones), digital video, and digital books. Digital codes redeemable for those products are treated the same way.7Indiana General Assembly. Indiana Code 6-2.5-4-16.4 – Specified Digital Products
Downloaded prewritten software is also taxable, treated as an electronic transfer of tangible personal property. But software accessed remotely over the internet, with no download and no transfer of ownership, is not taxable. The Indiana Department of Revenue has confirmed this for Software as a Service and cloud-based AI tools.8Indiana General Assembly. Revenue Ruling 2025-02-RST If your customers log in through a browser or an API without downloading anything, you’re providing a nontaxable service.9Indiana Department of Revenue. Sales Tax Information Bulletin 93
The same software can be taxable or nontaxable depending on how it’s delivered. A downloadable copy is taxable. A subscription to the identical product running in the cloud is not.
When a Service Comes with Goods
Many services involve handing something tangible to the customer. Indiana has two rules that govern how those mixed transactions are taxed.
A bundled transaction is one where two or more distinct products are sold for a single, non-itemized price.10Indiana General Assembly. Indiana Code 6-2.5-1-11.5 – Bundled Transaction If the bundle includes taxable tangible property, the whole amount can become taxable. Itemizing the service and the property as separate line items on the invoice is the straightforward way to avoid that result.
Indiana also applies a “true object” test. When the service is clearly what the customer is buying and any tangible property is merely a means of delivering it, the transaction stays nontaxable. A consultant who gives the client a printed report at the end of an engagement isn’t selling a report; the consulting is the true object and the paper is incidental.10Indiana General Assembly. Indiana Code 6-2.5-1-11.5 – Bundled Transaction
The test cuts the other way too. A custom fabrication shop that designs and builds a piece of equipment is selling tangible property, no matter how much design labor went into it. The product is the true object and the whole price is taxable. When the line is genuinely unclear, itemize.
Construction Work
Construction is its own category. Indiana doesn’t tax real property, and installing materials into real property isn’t a taxable service. The materials themselves are taxable, but who pays the tax depends on the contract.
Under a time-and-materials contract, the contractor is treated as a retail merchant selling materials to the customer. The contractor buys materials tax-free for resale, then charges sales tax to the customer on the materials portion of the invoice. Installation labor stated separately isn’t included in the taxable amount.11Indiana Department of Revenue. Sales Tax Information Bulletin 60
Under a lump-sum contract, the contractor is not a retail merchant for that job. The contractor pays sales tax when buying the materials and doesn’t collect sales tax from the customer; the tax is absorbed into the quoted price.11Indiana Department of Revenue. Sales Tax Information Bulletin 60 Contractors working under lump-sum terms can’t buy materials under a resale exemption, which affects bidding and cash flow.
If You Have to Collect
A business selling taxable services or products in Indiana needs a Registered Retail Merchant Certificate before it starts operating. Registration goes through InBiz, the state’s online business portal, with a $25 fee per location. Once registered, you collect 7% on each taxable transaction and remit it on the schedule the Department of Revenue assigns. The certificate renews automatically every two years at no cost as long as your filings and liabilities are current.12Indiana Department of Revenue. Sales Tax Late payments carry a 10% penalty.13Indiana Department of Revenue. Fines, Fees and Penalties
Out-of-state sellers hit the same obligations once their gross sales into Indiana exceed $100,000 in the current or preceding calendar year. Collection begins on the next transaction after crossing that threshold, and it counts tangible goods, digital products, and services delivered into the state.14Indiana Department of Revenue. Remote Seller Indiana participates in the Streamlined Sales and Use Tax Agreement, so remote sellers can register across member states through a single application rather than filing separately in each one.