To calculate Indiana sales tax, multiply the taxable price by 0.07, because Indiana charges a flat 7% state rate with no local general sales tax added on top.1Indiana General Assembly. Indiana Code 6-2.5-2-2 – Tax Rate; Rounding Rules Then apply the state’s specific rounding rule at the third decimal place. A few purchases carry an extra local tax on top of the 7%, mainly restaurant meals and hotel stays, and a handful of add-ons like shipping change what you multiply against in the first place.
The 7% Rate and the Rounding Rule
The rate is the same in every Indiana city and county. A purchase in downtown Indianapolis is taxed at the same base rate as one in a small town along the Ohio River, because Indiana does not permit local general sales tax add-ons.1Indiana General Assembly. Indiana Code 6-2.5-2-2 – Tax Rate; Rounding Rules
After you multiply the taxable subtotal by 0.07, carry the result to three decimal places and look at the third digit. If that digit is 5 or higher, round up to the next cent. If it is 4 or lower, drop it.1Indiana General Assembly. Indiana Code 6-2.5-2-2 – Tax Rate; Rounding Rules
A worked example. You buy a lamp for $47.50:
- Taxable subtotal: $47.50
- Multiply by 0.07: $47.50 × 0.07 = $3.325
- Third decimal is 5, so round up
- Sales tax: $3.33
- Total: $50.83
A second example, this time with a subtotal of $22.00:
- Multiply by 0.07: $22.00 × 0.07 = $1.540
- Third decimal is 0, so do not round up
- Sales tax: $1.54
- Total: $23.54
What Goes Into the Taxable Subtotal
The number you multiply by 0.07 is the “gross retail income” of the sale. That includes the sticker price plus several charges that get folded in before the tax is applied, and a few adjustments that come off first.
Shipping and Handling
Shipping, handling, postage, crating, and any other delivery-related fees charged by the seller are part of the taxable amount on a taxable item.2Indiana General Assembly. Indiana Code Title 6 Article 2.5 Chapter 1 – Definitions If an online retailer charges $8.99 for shipping, that $8.99 is added to the item price before you multiply.
Installation Charges
Installation is treated differently depending on how it appears on the invoice. If the seller lists the installation fee as a separate line item and the installation happens after the product is delivered, that charge is not taxable.3Indiana General Assembly. 45 IAC 20-169 – Gross Retail Income If the installation fee is bundled into the sale price without being separately stated, the entire amount is subject to tax.
Vehicle Trade-Ins
When you trade in a vehicle toward the purchase of another vehicle, the trade-in value reduces the taxable amount. Buy a $30,000 car and trade in your old one valued at $10,000, and you pay sales tax on $20,000.4Indiana Department of Revenue. Sales Tax Information Bulletin 28S This only works for like-kind exchanges, meaning a car traded for a car or a trailer traded for a trailer. Trading a motorcycle for a boat would not qualify, and the traded vehicle must be owned and titled in your name.
Coupons and Discounts
Manufacturer coupons do not reduce the taxable amount. Because the manufacturer reimburses the store for the coupon value, the store still receives the full price. Hand over a $1.00 manufacturer coupon on a $5.00 product and you pay sales tax on the full $5.00.5Indiana Department of Revenue. Price Reductions and Discounts
Store coupons work the other way. When a retailer offers its own discount with no third-party reimbursement, the discounted price is the taxable amount. A $5.00 item with a store coupon bringing it to $3.75 is taxed on $3.75.5Indiana Department of Revenue. Price Reductions and Discounts
Local Add-Ons for Meals and Hotels
Indiana has no local general sales tax, but several counties impose targeted taxes on hospitality purchases. These are calculated separately from the 7% state tax and show up as their own line item on the receipt.
Food and Beverage Tax
About 15 Indiana counties impose a food and beverage tax on prepared meals and drinks. In most of these counties the rate is 1%, but Marion County (Indianapolis) charges 2%.6Indiana Department of Revenue. Food and Beverage Tax It applies to restaurant meals, takeout, bar drinks, and concession stand food, and does not apply to grocery purchases.
For a $40 restaurant meal in a county with a 1% food and beverage tax, calculate each tax against the same subtotal: the state tax is $40 × 0.07 = $2.80, the food and beverage tax is $40 × 0.01 = $0.40, and the total tax is $3.20.7IN.gov. County 1% Food and Beverage Tax Chart (including Indiana 7% Sales Tax) A $50 dinner tab in Hamilton County would carry $3.50 in state sales tax plus $0.50 in food and beverage tax, for a total tax of $4.00.
County Innkeeper’s Tax
Short-term lodging rentals of fewer than 30 days are subject to a county innkeeper’s tax that ranges from 2% to 10% depending on location.8Indiana Department of Revenue. County Innkeeper’s Tax Marion County sits at the top end with a 10% innkeeper’s tax that stacks on the 7% state sales tax. A one-night hotel stay priced at $150 in Indianapolis carries $10.50 in state sales tax and $15.00 in innkeeper’s tax, for a total of $175.50.
Admissions Taxes
A handful of specialized admissions taxes apply in certain areas. Marion County charges a 10% admissions tax on event tickets, and separate per-person taxes apply at horse tracks and riverboat casinos. Riverboat admissions run $3 per person at most locations and $4 at the Orange County riverboat.9Indiana Department of Revenue. Miscellaneous Tax Rates
What You Don’t Calculate Tax On
Not every purchase is taxable, so before you multiply, confirm the item isn’t exempt.
Groceries
Food and food ingredients sold for home preparation are exempt from Indiana sales tax. That covers most grocery staples: produce, meat, dairy, bread, canned goods, and frozen meals. The exemption does not cover candy, soft drinks, dietary supplements, or alcoholic beverages, all of which are taxable. Indiana defines candy as preparations of sugar or sweeteners combined with chocolate, fruits, nuts, or flavorings in the form of bars, drops, or pieces, but items containing flour are excluded from the candy definition and stay tax-exempt.10Indiana Department of Revenue. Sales Tax Information Bulletin 29 Prepared food, like a deli sandwich or a hot rotisserie chicken, is taxable.
Prescription Drugs
Drugs dispensed by a licensed pharmacist on the order of a licensed practitioner are exempt.11Cornell Law Institute. 45 IAC 2.2-5-33 – Prescription Drugs; Sales Over-the-counter medications purchased without a prescription do not qualify and are taxed at the standard 7%.
Digital Products
Indiana taxes digital goods only when they are permanently transferred to the buyer: songs, movies, e-books, and prewritten software you download. Software you access remotely through a browser without downloading it to your device, including most cloud-based subscriptions, is not subject to Indiana sales or use tax.12Indiana Department of Revenue. Sales Tax Information Bulletin 93
When You Owe Tax on an Out-of-State Purchase
If you buy something from an out-of-state seller that does not collect Indiana sales tax, you owe consumer use tax at the same 7% rate, calculated the same way.13Indiana Department of Revenue. Business FAQ This comes up with purchases from small out-of-state retailers, private sales across state lines, and items bought while traveling. If the other state charged you sales tax at a rate below 7%, you owe Indiana the difference.
Individuals report unpaid use tax on their annual Indiana income tax return. Full-year residents use Schedule 4 of Form IT-40, while part-year residents and nonresidents use Schedule E of Form IT-40PNR.13Indiana Department of Revenue. Business FAQ You can also remit use tax as purchases occur using Form ST-115 through the state’s INTIME online portal rather than waiting until tax season.