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Indiana Sales Tax Law Changes

Thanks to recent changes in Indiana’s sales tax laws, ice and bottled water are no longer taxable.  Candy, alcoholic beverages, soft drinks, food sold through a vending machine, food sold in a heated state, and food sold with eating utensils remain taxable.  So, while bakery items such as bagels and danish are generally not taxable, if you want them heated or sold with eating utensils, you are going to have to pay tax.

Sales tax is the 6% tax paid on retail transactions made in Indiana.  Besides exempting ice and bottled water, other changes were made to bring Indiana’s sales tax laws in accordance with the Streamline Sales and Use Tax Agreement, a national agreement intended to simplify and unify sales and use taxes across the country.  Some of the relevant changes include the following:

1. Delivery and Installation Charges.  Delivery and installation charges are now included in the definition of “gross retail income” and are therefore subject to tax.  If an appliance store delivers a refrigerator to your home, the delivery charge is subject to tax.  Likewise, if an automotive service shop installs a new stereo system in a vehicle that did not have a stereo, the installation charge is subject to tax.  However, delivery and installation charges are not subject to tax when the charges are related to nontaxable items or exempt transactions.
2. Repair and Replacement Charges.  Unlike delivery and installation charges, repair and replacement charges are not taxable.  Repair charges are charges to restore an item so that it can be used for its original purpose while replacement charges are charges for replacing an item that is part of another item of tangible personal property.  For example, if an automotive service shop repairs your vehicle after an accident by replacing your fender, the fender is taxable, but the labor to repair the fender is not.
3. Leases and Rentals.  The leasing or renting of tangible personal property is considered a retail transaction subject to sales tax; however, the subleasing or subrenting of such property is not.  A lease or rental means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration.  Leasing or renting of real estate continues to not be subject to sales tax.
4. Durable Medical Equipment.  Sales and rentals of durable medical equipment are now exempt from tax if the sales or rentals are prescribed by a person licensed to issue a prescription.  Durable medical equipment is equipment, including repair and replacement parts for the equipment, that 1) can withstand repeated use, 2) is primarily and customarily used to serve a medical purpose, 3) generally is not useful to a person in the absence of illness or injury, and 4) is not worn in or on the body.  The term does not include mobility enhancing equipment.