Bill # and Title: SB 257 – Sales Tax on Software
Author: Sen. Travis Holdman (R-Fort Wayne)
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: Heard in the House Ways and Means Committee; no vote taken yet.

Update/Chamber Action: This week, the House Ways and Means Committee again took up the issue of when software is taxable as a tangible product being sold in a retail transaction and when it is not because it is used to provide a service, a non-taxable event. This is the same subject addressed in HB 1316, the House approach to determining the taxability or exempt status of software as a service (SaaS). This time, the committee was considering the Senate version, SB 257, a bill designed primarily to provide clarity to this issue by defining those limited cases where prewritten software is deemed a tangible product and subject to sales tax when sold. Except in the circumstances specified in SB 257, SaaS transactions, those involving the use of software to essentially provide a service, will be excluded from taxation.

The Indiana Chamber has been working on this issue and SB 257 for over a year and helped coordinate the testimony of key SaaS industry representatives – including members of our innovation and technology policy committee. Several Ways and Means members expressed afterward their appreciation for the important discussion and the explanation of the need and significance of the legislation. It is anticipated that the bill will be substantially amended next week to incorporate some of the provisions that were in HB 1316.

The Chamber continues to work with the interested parties on the form and substance of both HB 1316 and SB 257. While there is considerable agreement on the objective of these bills, there remains differences as to the preferred language and structure of the bills. The process is fluid and open to revisions, and the end product will probably not be reached until the bills are taken up by conference committees. The Chamber’s objectives in promoting the ongoing efforts are to help bridge the differences and find a result that provides as much clarity to the issue as possible. It is important to send a definitively positive message to those in the SaaS industry and beyond – to put Indiana in a better place on this front and in a more competitive position to promote growth.

Resource: Bill Waltz at (317) 264-6887 or e-mail: [email protected]