Updates to Indiana sales tax on SAAS

With Senate Bill 254, software as a service (SAAS) transactions will no longer be subject to Indiana sales tax. The bill exempts cloud-based software accessed remotely through a rental agreement, purchase, license, or lease from sales tax as it is no longer considered a “retail transaction.” This means that if you purchase cloud-based computer software, it is no longer subject to sales tax. Vendors that sell digital software services will no longer have to collect sales tax on the license, purchase price, or monthly fees for the cloud software either. Canned digital software that is delivered to the end user via a physical method: flash drive, computer, CD, etc, will still be subject to sales tax. This includes digital software that is downloaded to your personal computer. Only true cloud-based software qualifies for this new exemption. This new law is effective on all transactions occurring after June 30, 2018 and is set to expire 7/1/2024. The wording here is important. It means any existing software rentals or monthly cloud software access fees are still subject to sales tax. So, for example, if you are in an annual contract to pay for your cloud-based Office 365, it is subject to sales tax, even after June 30th. To qualify for the exemption, you need to enter into a new software contract or transaction. This also means vendors that offer SAAS will have some existing software sales subject to sales tax, and new SAAS contracts starting after June 30th that are not subject to sales tax, unless they want to initiate new contracts and transactions with their existing SAAS clients. Good news, for our clients that utilize QuickBooks Online and pay month to month, we have verified that QuickBooks will automatically stop charging sales tax on the monthly QuickBooks online subscription price after June 30th. If you would like additional information or to discuss the topics mentioned, please contact one of our Tax members.