The Indiana use tax is a 7% tax on goods you use, store, or consume in Indiana when no Indiana sales tax was collected at purchase. It most often comes up with purchases from out-of-state sellers, private-party sales of vehicles, and certain digital downloads. Thanks to marketplace facilitator rules that took effect in 2019, most online shopping already has the tax built in, so the situations where you personally owe use tax are narrower than they used to be.
When You Actually Owe Use Tax
The tax applies to the storage, use, or consumption of tangible personal property in Indiana when Indiana sales tax wasn’t paid on the purchase.1Justia. Indiana Code Title 6 Article 2.5 Chapter 3 – Use Tax If sales tax was already collected, nothing more is owed.
In practice, the situations that still trigger a use tax obligation tend to look like this:
- Buying a vehicle, boat, or trailer from a private seller in another state.
- Ordering from a small out-of-state retailer that doesn’t collect Indiana tax.
- Bringing goods back from a trip to a state with no sales tax.
- A business pulling items out of inventory for personal or promotional use after buying them tax-free for resale.
Platforms like Amazon, eBay, Etsy, and Walmart Marketplace are required to collect Indiana sales tax on sales made through them, and any remote seller with more than $100,000 in gross revenue from sales into Indiana in the current or previous calendar year must register and collect as well.2Indiana Department of Revenue. DOR: Remote Seller3Indiana Department of Revenue. Sales Tax Information Bulletin 89 Between those two rules, the 7% is usually already on your receipt.
Garage Sales and Other Casual Sales
Indiana does not impose its gross retail tax on casual sales, meaning isolated or occasional sales by someone who bought the property for personal use and isn’t in the business of selling.4Indiana General Assembly. Title 45, Article 2.2 Sales and Use Tax A couch from a neighbor’s garage sale doesn’t create a use tax bill. Motor vehicles and rental property are the exception: they’re taxable even in casual sales, which is why a used car bought from a private seller gets taxed when you register it.
Digital Products and Software
Specified digital products are taxable when transferred electronically to an end user with a permanent right of use. That covers digital audio files, digital movie or video downloads, and digital books.5Indiana General Assembly. Indiana Code 6-2.5-4-16.4 – Specified Digital Products Prewritten computer software delivered electronically is taxable too.
The dividing line is permanence. A one-time download you keep is taxable. Cloud-based software you access remotely without downloading, commonly called SaaS, is not subject to Indiana sales or use tax.6Indiana Department of Revenue. Sales Tax Information Bulletin 93 Streaming subscriptions that don’t give you a permanent copy generally sit on the same side of the line.
What’s Exempt
If a purchase would be exempt from Indiana sales tax, it’s also exempt from use tax.1Justia. Indiana Code Title 6 Article 2.5 Chapter 3 – Use Tax The exemptions most people run into:
- Food and food ingredients for human consumption, though prepared meals, candy, and soft drinks are taxable.7Indiana Department of Revenue. Sales Tax Information Bulletin 29
- Prescription drugs dispensed by a licensed practitioner, insulin, oxygen, and certain medical devices.8Justia. Indiana Code Title 6 Article 2.5 Chapter 5 – Exempt Transactions
- Property acquired for resale, rental, or leasing in the ordinary course of business.
- Machinery, tools, and materials used directly in manufacturing or agricultural production.
- Intrafamilial title transfers of motor vehicles.
If you buy something tax-free for resale and later take it out of inventory for personal use or a giveaway, use tax becomes due on what you originally paid for it.9Indiana Department of Revenue. Instructions for Completing Form ST-103
Calculating What You Owe
The rate is a flat 7%, matching the state sales tax rate.10STATS Indiana. About Indiana Retail Sales and Use Taxes Apply it to the total purchase price. Delivery charges incurred on behalf of the seller, including shipping, handling, crating, and packing, are part of the taxable amount whether or not they appear separately on the invoice.11Indiana Department of Revenue. Sales Tax Information Bulletin 92 Delivery billed and provided by a third party rather than the seller is the exception, and those charges are exempt.
Credit for Tax Paid to Another State
If you already paid sales or use tax to another state on the same item, Indiana gives you a dollar-for-dollar credit against your Indiana liability.12Indiana General Assembly. Indiana Code 6-2.5-3-5 – Credit for Payment of Other Taxes Pay 7% or more somewhere else and you owe Indiana nothing. Pay less and you owe only the difference. A $1,000 purchase taxed at 5% elsewhere means $50 already paid; Indiana’s 7% comes to $70, so $20 goes to Indiana.
How To Report and Pay
Individuals report use tax on their annual Indiana income tax return. Full-year residents use Form IT-40, and part-year or nonresidents use Form IT-40PNR.13Indiana Department of Revenue. Current Year Individual Tax Forms The instruction booklet includes a Sales and Use Tax Worksheet for the calculation. The deadline is April 15, matching the individual income tax filing deadline.14Indiana Department of Revenue. Extension of Time to File
Businesses report use tax on Form ST-103, Indiana’s Sales and Use Tax voucher, on a monthly, quarterly, or annual filing schedule depending on volume.9Indiana Department of Revenue. Instructions for Completing Form ST-103 This is where equipment bought from out-of-state vendors without tax collected, and items pulled from inventory for personal or promotional use, get reported.
Payments go through INTIME, the Department of Revenue’s online portal, or by check or money order mailed with the return.15Indiana Department of Revenue. Indiana Department of Revenue – INTIME
Penalties for Not Paying
Indiana imposes a penalty of 10% of the unpaid tax for failure to file or failure to pay.16Indiana General Assembly. Indiana Code 6-8.1-10-2.1 – Liability for Penalty Interest accrues on the outstanding balance on top of that.17Indiana Department of Revenue. DOR: Fines, Fees and Penalties A $500 use tax bill picks up a $50 penalty before interest starts running.
Catching Up on Back Years
If you have years of unreported use tax, Indiana’s Voluntary Disclosure Agreement program lets taxpayers come forward anonymously and negotiate an agreement with a reduced look-back period of three full calendar years plus the current period for sales and use tax, along with a reduction of all penalties.18Indiana Department of Revenue. Voluntary Disclosure Program – DOR You can’t qualify if you’re already under audit or investigation. The program is used most often by businesses operating in Indiana without collecting tax, but individuals with substantial unreported liabilities can also use it.
Records To Keep
Hold on to receipts, invoices, and shipping documents for out-of-state purchases throughout the year. The documents should show the purchase date, a description of the items, the total price including delivery charges, and any sales tax the seller already collected. You’ll need these for the worksheet at tax time and as your defense if the Department of Revenue ever questions your return. Three years from the filing date is a reasonable retention window for routine inquiries.