Most services in Indiana are not subject to sales tax. The state’s 7% gross retail tax targets sales of tangible personal property and a short list of specifically named service categories, so accounting, legal work, consulting, medical care, haircuts, and most other professional and personal services are not taxed. The question of whether services are taxable in Indiana comes down to which side of that line a transaction falls on, and several common arrangements (software subscriptions, service-plus-product bundles, construction contracts) sit close enough to the line to cause trouble.
The foundational statute, IC 6-2.5-2-1, applies the tax to “retail transactions made in Indiana,” and a retail transaction is defined around tangible goods changing hands.1Indiana General Assembly. Indiana Code Title 6 Taxation 6-2.5-2-1 Pure labor and knowledge services fall outside that definition. The exceptions below are where sales tax comes back into the picture.
Services Indiana Does Tax
The Indiana Code treats several service categories as taxable retail transactions.
Short-Term Lodging
Renting a hotel room, short-term rental, banquet hall, booth, or display space for fewer than 30 days is taxable. The tax applies to the full amount charged, including bundled fees like cleaning or internet access, even when those fees are listed as separate line items.2Indiana General Assembly. Title 45, Article 2.2 Sales and Use Tax Stays of 30 days or longer are not taxed.
Rental of Tangible Personal Property
Leasing or renting tangible personal property is taxed like an outright sale. Equipment rental, tool rental, and vehicle rental companies all collect 7% on their gross receipts.3Cornell Law Institute. 45 IAC 2.2-4-27 – Tangible Personal Property Renting and Leasing
Intrastate Telecommunications
Voice, data, and video transmission services delivered within Indiana are taxable when the provider receives gross retail income from customer billings.4Indiana General Assembly. Indiana Code 6-2.5-4-6 – Taxation of Telecommunication Services Internet access is not taxable in any state; the federal Internet Tax Freedom Act permanently bars state and local taxes on it.5Office of the Law Revision Counsel. 47 USC 151 – Purposes of Chapter
Admissions to Events
Charges for admission to amusement parks, athletic events, fairs, and similar entertainment venues carry Indiana sales tax.6Indiana Department of Revenue. Application of Sales Tax to Admission Charges
Software and Digital Products
This is where the service-versus-product line matters most for modern businesses. Downloaded prewritten software is taxable because Indiana treats the electronic transfer as a sale of tangible personal property. Software accessed remotely over the internet, with no download and no transfer of ownership, is not taxable. The Indiana Department of Revenue has confirmed this explicitly for Software as a Service and cloud-based AI tools.7Indiana General Assembly. Revenue Ruling 2025-02-RST If customers log in through a browser or API without downloading anything, you are providing a nontaxable service.8Indiana Department of Revenue. Sales Tax Information Bulletin 93
The product can be functionally identical either way. A downloadable copy is taxable. A subscription to the same software delivered through the cloud is not.
Specified digital products transferred electronically are also taxable when the buyer receives permanent use rights not conditioned on ongoing payments. That covers digital audio (songs, audiobooks, ringtones), digital video (movies, streaming purchases), and digital books. Digital codes redeemable for these products are taxed the same way.9Indiana General Assembly. Indiana Code 6-2.5-4-16.4 – Specified Digital Products
When a Nontaxable Service Comes With Tangible Goods
Many real-world jobs mix a service with some physical item. Indiana has specific rules for these mixed transactions, and how you invoice them matters.
A bundled transaction is two or more distinct products sold for a single, non-itemized price.10Indiana General Assembly. Indiana Code 6-2.5-1-11.5 – Bundled Transaction If the bundle includes taxable tangible property, the entire amount can become taxable. Itemizing the service portion and the property portion separately on the invoice is the practical fix.
Indiana also recognizes a “true object” exception. When the service is clearly what the customer is buying and any tangible property is merely essential to delivering that service, the transaction stays nontaxable. A consultant who hands the client a printed report at the end of an engagement isn’t selling a report; the consulting is the true object, and the paper is incidental.10Indiana General Assembly. Indiana Code 6-2.5-1-11.5 – Bundled Transaction The opposite is also true. A custom fabrication shop that designs and builds a piece of equipment is selling tangible property, even though substantial labor went into it, and the full price is taxable.
When the line is genuinely unclear, itemize.
Construction Services
Construction sits in its own category. Indiana does not tax sales of real property, and the labor of turning construction materials into real property (installing drywall, pouring a foundation) is not itself a taxable service. But the materials are taxable, and the contract structure decides who pays.
Under a time-and-materials contract, the contractor acts as a retail merchant selling materials to the customer. The contractor buys the materials tax-free using a resale exemption and then collects sales tax from the customer on the materials portion of the invoice. Installation charges that are separately stated are not included in the taxable amount.11Indiana Department of Revenue. Sales Tax Information Bulletin 60
Under a lump-sum or fixed-price contract, the contractor is not a retail merchant. The contractor pays sales tax at the point of purchasing the materials and does not collect sales tax from the customer; the tax cost gets absorbed into the contract price.11Indiana Department of Revenue. Sales Tax Information Bulletin 60 Contractors working under lump-sum contracts cannot buy materials tax-free using the resale exemption, which affects bidding and cash flow.
Exempt Buyers
Some purchasers can buy tax-free even when the service or product is normally taxable. Qualified nonprofit organizations, government entities, and schools can purchase tangible personal property and services without tax when the items are used primarily to carry out the organization’s exempt purpose.12Cornell Law School. 45 IAC 2.2-5-55 – Not-for-Profit Organizations Acquisitions
Federal tax-exempt status alone is not enough. A nonprofit must hold IRS recognition and separately register with the Indiana Department of Revenue, and the specific purchase must serve its exempt purpose. A church buying office supplies for its ministry qualifies. That same church buying catering for a staff holiday party might not.12Cornell Law School. 45 IAC 2.2-5-55 – Not-for-Profit Organizations Acquisitions
What to Do If You Sell Something Taxable
Any business selling taxable services or products in Indiana needs a Registered Retail Merchant Certificate (RRMC) before operating legally. Registration goes through InBiz, Indiana’s online business portal, and costs $25 per business location.13Indiana Department of Revenue. Sales Tax
Once registered, you collect 7% on every taxable transaction and remit it to the DOR on a schedule the department assigns. The RRMC renews automatically every two years at no cost as long as the business has no outstanding liabilities or unfiled returns. Fall behind and the certificate gets revoked; reinstatement requires clearing all liabilities (or setting up a payment plan), filing missing returns, and paying a $25 reinstatement fee, with about a seven-day turnaround.13Indiana Department of Revenue. Sales Tax
Out-of-State Sellers
If your business sits outside Indiana but sells taxable services or products into the state, you must register and collect once your gross sales into Indiana exceed $100,000 in the current or preceding calendar year. That threshold includes tangible personal property, digital products, and services delivered into the state. Collection begins on the very next transaction after crossing it.14Indiana Department of Revenue. Remote Seller
Penalties
Indiana imposes a 10% penalty on late sales tax payments.15Indiana Department of Revenue. Fines, Fees and Penalties Persistent noncompliance leads to RRMC revocation, which strips the legal right to make retail sales in Indiana until the certificate is reinstated. Every sale during that gap is technically unlawful.