Taxable Items in Indiana
Items that are taxable in Indiana include all tangible products. While groceries are exempt from sales tax, prepared foods are taxable. In addition, some grocery items are taxable. These items fall into three categories:
- Candy
- Soft drinks
- Dietary supplements
General Rule for Services
You are not obligated to pay sales tax in Indiana if you offer a service.
But the water gets a little murky if your service results in “tangible personal property.” The state defines this as the “true object” of the transaction.
Example: Non-Taxable Services
To clarify things, services such as chiropractic adjustments do not result in a tangible product; therefore, they are not taxable.
Note: This does not include rental income; it is taxable unless rent is being paid for facilities that are creating a feature film.
Example: Taxable Services
On the contrary, services that offer the creation of goods that result in a product are taxable. Therefore, there is a tax obligation.
Ask yourself:
Are you selling a good at the end of your service?
If you have a product to sell after your service has been rendered, then you have a tax obligation.
You can find a table describing the taxability of common types of services later on this page.
Shipping Charges in Indiana
Shipping charges in Indiana are not taxable as of July 1, 2013.
The Department of Revenue now declares that there is no tax obligation on shipping charges as long as they are stated separately on the invoice.
Exception: Private Delivery Services
If you choose to deliver goods yourself or through a private delivery service, then your shipping is taxable.
The exemption only applies to shipping done through the US mail or common carriers like UPS or FedEx.
Drop Shipping in Indiana
Drop shipping refers to the common business practice in which a vendor, often in a different state, makes a sale of a product which is shipped to the end-user by a third-party supplier hired by the initial vendor.
In Indiana, drop shipments may or may not be subject to taxation depending on the circumstances.
Frequently Asked Questions
Are groceries taxable in Indiana?
Most groceries are exempt from sales tax in Indiana. However, certain grocery items like candy, soft drinks, and dietary supplements are taxable.
Is my service taxable in Indiana?
Generally, services are not subject to sales tax in Indiana unless they result in a tangible product. If the primary purpose of your service is to create or provide a physical item, the transaction becomes taxable.
Are shipping charges taxable in Indiana?
Shipping charges are not taxable in Indiana if they are separately stated on the invoice and handled by USPS or common carriers like UPS or FedEx. If a private delivery service is used, the shipping charges become taxable.
Is rental income subject to Indiana sales tax?
Yes, rental income is taxable in Indiana unless the rental is for facilities used in creating a feature film, which qualifies for an exemption.
How does drop shipping work for tax purposes in Indiana?
In Indiana, the taxability of drop shipments depends on the transaction specifics. Vendors and third-party suppliers should determine the correct tax treatment based on their roles and where the product is delivered.