Bill # and Title: SB 257 – Sales Tax on Software (SaaS)
Author: Sen. Travis Holdman (R-Markle)
Summary: Provides that for purposes of the sales tax, a person is a retail merchant making a retail transaction when the person grants a user the right to use prewritten computer software delivered electronically. Specifies, however, that a transaction in which a user is granted the right to remotely access prewritten computer software: (1) is not considered to be a transaction in which prewritten computer software is delivered electronically; and (2) does not constitute a retail transaction (and is therefore not subject to sales tax); unless the prewritten computer software is also available in a substantially similar form to be purchased, rented or leased in a physical medium or delivered electronically. Provides that if the transaction is for prewritten computer software that is both: (1) remotely accessed; and (2) electronically delivered or delivered by means of a tangible medium; the transaction is not considered a retail transaction if the transaction includes a service, the service is the true object of the transaction, the prewritten computer software is essential to the use or provision of the service and the prewritten computer software is provided exclusively in connection with the service.
Chamber Position: Support
Status: Passed out of the Tax and Fiscal Policy Committee 10-0; now goes to the full Senate.
Update/Chamber Action: The legislation, a priority of the Chamber’s, received bipartisan, unanimous approval in committee on Tuesday. The Chamber has been working with the Holcomb administration and Department of Revenue (DOR) for months on this issue. The need to clarify the status of the taxation of software used for the purpose of providing services for a customer was identified by our Technology and Innovation Council. A formal position advocating legislation to address the situation was adopted by our board this fall and has brought together the effort to promote a remedy.
While the current language is viewed as a significant step forward, we remain engaged in the ongoing effort to make the proposal as positive as possible. The Chamber representatives submitted written support from our Tech Council members and along with allies testified in favor of the bill. Our thrust was that the initiative will be beneficial in both practical terms (clarifying many of the uncertainties) and symbolically (a message to the industry) as a demonstration that Indiana does not tax these services.
Look at this map to learn how other states are handling SaaS.