Indiana manufacturer’s software service agreement not subject to sales tax


The Indiana Department of Revenue issued a protest ruling that an auto parts manufacturer was entitled to a refund on certain software service purchases for the 2017, 2018, and 2019 years. The taxpayer licensed software through a remote platform into which taxpayer loaded its own data for education services, cloud services, and manufacturing support services. For 2019, the ruling quickly concluded that the service at issue was a “software as a service” and exempt from sales tax because effective in 2019, Indiana expressly exempted “software as a service.” For 2017 and 2018, the Department examined whether the taxpayer acquired a possessory interest in the software.” The ruling cited Indiana Bulletin #8, which lists the factors for determining whether a possessory interest is acquired. Here, the taxpayer’s software agreement “ticks all the boxes” to indicate that the software services provider retained sole and exclusive ownership, and the taxpayer did not have “constructive possession” of the software. Therefore, Indiana sales tax was not due on the software service agreement for any of the years at issue.