Indiana Sales Tax Exemption Rules: Resale, Farming, and Nonprofits

Indiana charges a 7% sales tax on most retail purchases, but qualifying resale, agricultural, manufacturing, nonprofit, and government buyers can claim an Indiana sales tax exemption and pay nothing. The exemption is not automatic. In almost every case, the buyer has to hand the seller a completed exemption certificate at the time of purchase, and the seller has to keep it on file. Get the paperwork wrong and the seller owes the full 7%, even if the buyer would have qualified.¹²

Buying for Resale

If you buy tangible personal property to resell, rent, or lease it in the ordinary course of your business without changing its form, the purchase is exempt.³ Retailers stocking shelves, wholesalers filling warehouses, and rental companies buying equipment all fit.

You claim it by giving your supplier Form ST-105 with the resale box checked and either your Indiana Registered Retail Merchant’s Certificate TID and location number or a sales tax ID from another state.⁴ Because resale purchases repeat, most businesses give each supplier a blanket certificate, which stays in effect until canceled in writing.

One hard limit: the exemption applies only to items you actually resell. Buy something tax-free and then use it in your own operations, and you owe the tax. The ST-105 warns that misuse can trigger tax liability, interest, and civil or criminal penalties for both the signer and the business.⁴

Agricultural Purchases

Indiana has two agricultural exemptions, one for production inputs and one for equipment. Both use the same standard: the item has to be for direct use in the direct production of food, food ingredients, or commodities for sale.

Inputs

Animals, feed, seed, plants, fertilizer, pesticides, and fungicides are exempt when used directly in direct production for sale.⁵ Seed corn for a commercial field qualifies. Flowers for the farmhouse porch do not.

Machinery and Equipment

Agricultural machinery, tools, and equipment used directly in the production, extraction, harvesting, or processing of agricultural commodities are exempt, along with material handling equipment that moves materials into those activities from an onsite location.⁶ A combine or an irrigation pump qualifies. A pickup truck used for errands does not, even if the farm owns it.

Manufacturing and Production

Indiana’s manufacturing exemptions are among the broadest in the state’s tax code, and they cover more than equipment on the shop floor.

Machinery, Tools, and Equipment

Manufacturing machinery, tools, and equipment are exempt when acquired for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of tangible personal property. Onsite material handling equipment used to feed those activities also qualifies. Indiana treats commercial printing as manufacturing and tire retreading as processing, so businesses in those fields can claim the exemption as well.⁷

The recurring test is direct use in direct production. A CNC machine passes. The break room microwave does not. Office furniture, parking lot equipment, and general-purpose vehicles almost never qualify, even at a manufacturer. The Department of Revenue (DOR) looks at whether the item plays an active role in transforming raw materials into a finished product.

Materials Consumed in Production

Separately, tangible personal property acquired for direct consumption as a material in the direct production of other tangible personal property is exempt. Indiana defines tangible personal property to include electricity, gas, water, and steam, so a manufacturer can claim an exemption on the share of its utility bill that runs production equipment. The provision reaches beyond traditional manufacturing to mining, refining, oil and mineral extraction, agriculture, floriculture, arboriculture, and horticulture.⁸

The line between exempt production materials and taxable supplies matters. Items consumed in a single production cycle that benefit only one use are generally treated as taxable supplies. Coolants, lubricants, and single-use items warrant careful analysis. Document your reasoning when the call is close.

Nonprofit Organizations

Nonprofits qualify under Indiana Code 6-2.5-5-25, but the process runs on federal and state recognition together.⁹ First, the organization has to be recognized as tax-exempt under Section 501(c)(3) of the Internal Revenue Code.¹⁰ With that in hand, it files Form NP-20A through INTIME, the DOR’s online portal. There is no application fee.¹¹

Approval is not permanent. Every five years the organization has to file Form NP-20R by May 15 to keep its registration active. Which cycle you fall into depends on the last two digits of your Federal Employer Identification Number.¹² Miss the deadline and the exemption lapses. Nonprofits with gross receipts of $50,000 or more also have to keep filing federal Form 990 or 990-EZ to hold the 501(c)(3) status the state exemption rides on.

At the register, nonprofits do not use Form ST-105. They present the nonprofit exemption certificate the DOR issued them; the ST-105 itself states that nonprofit purchases should not use that form.⁴

Government Entities

Sales made directly to the United States government, the State of Indiana, or Indiana’s political subdivisions, including counties, cities, towns, and school corporations, are exempt when the purchase is for official government use.¹³ Government buyers use Form ST-105. A government procurement card by itself does not prove a transaction is exempt, so sellers should still collect a completed certificate and confirm the purchase is not personal to the employee.

How to Claim the Exemption

Almost every Indiana sales tax exemption runs through Form ST-105, the General Sales Tax Exemption Certificate. The DOR requires the buyer to complete all five sections: purchaser identity and tax ID, seller identity, whether the certificate is single-use or blanket, the specific exemption being claimed, and a signature under penalty of perjury. If any section is blank, the certificate is invalid and the seller becomes liable for the 7% tax.⁴

A blanket certificate covers all future purchases from that seller until the buyer cancels it in writing, which saves the paperwork on every reorder. Out-of-state buyers without an Indiana Registered Retail Merchant’s Certificate can provide a tax ID from another state on the ST-105.¹⁴

Recordkeeping

Indiana taxpayers have to keep books and records sufficient to let the DOR determine tax liability, including invoices, register tapes, receipts, and canceled checks, for at least three years after the final payment on the liability was due.¹⁵ For exemption certificates, the risk falls on the seller. If an audit turns up an exempt sale with no certificate on file, the seller owes the tax plus interest even when the buyer legitimately qualified. Keep every ST-105 and nonprofit certificate organized by customer. Digital copies are fine if they are complete and legible.

Penalties for Misuse

A buyer who claims an exemption on a purchase that does not qualify owes the full 7% plus interest from the original transaction date. If the DOR finds fraudulent intent to evade the tax, the penalty is 100% of the unpaid amount, effectively doubling what is owed. Knowingly failing to file a return or pay tax due can also be charged as a Class A misdemeanor.¹⁶ Sellers who fraudulently fail to collect the tax, or who solicit customers to falsely claim exemptions, lose the liability protection that a completed certificate normally provides.

Getting a Refund If You Already Paid

If you paid sales tax on a purchase that should have been exempt, file a claim for refund with the DOR. The claim needs supporting documentation, a full explanation, and an authorized signature. If someone other than the taxpayer will handle communication with the DOR, include a Power of Attorney.¹⁷

A properly submitted claim can be paid within 90 days without interest. If something is missing, the DOR sends a letter with a deadline to fix it; miss that deadline and the file closes, forcing you to start over.¹⁷

The hard deadline is a three-year statute of limitations from the original due date of the return. Filing the claim does not pause the clock. Pull the exemption certificate, the invoice showing tax was charged, and any other records showing the purchase qualified, and file as soon as you spot the overpayment.¹⁷

1
Indiana Department of Revenue. County Tax Rates: Businesses
2
Justia. Indiana Code Title 6, Article 2.5, Chapter 5 – Exempt Transactions of Retail Merchant
3
Indiana General Assembly. Indiana Code Title 6 Taxation 6-2.5-5-8
4
Indiana Department of Revenue. General Sales Tax Exemption Certificate Form ST-105
5
Indiana General Assembly. Indiana Code 6-2.5-5-1 – Animals, Feed, Seed, and Chemicals
6
Indiana General Assembly. Indiana Code 6-2.5-5-2 – Agricultural Machinery, Tools, and Equipment
7
Indiana General Assembly. Indiana Code 6-2.5-5-3 – Manufacturing Machinery, Tools, and Equipment
8
Indiana General Assembly. Indiana Code 6-2.5-5-5.1 – Exemption, Acquisition for Direct Consumption in Direct Production
9
Indiana General Assembly. Indiana Code 6-2.5-5-25 – Exemption, Nonprofit Organizations
10
Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
11
Indiana Department of Revenue. Nonprofit Tax Forms
12
Indiana Department of Revenue. Changes for Nonprofits
13
Indiana General Assembly. Indiana Code 6-2.5-5-16 – State or Local Government Acquisitions
14
Indiana Department of Revenue. Streamlined Sales Tax
15
Indiana General Assembly. Indiana Code 6-8.1-5-4 – Books and Records, Federal Returns, Inspection
16
Indiana General Assembly. Indiana Code 6-8.1-10-4 – Failure to File Return, Fraudulent Intent
17
Indiana Department of Revenue. Claim for Refund Process