NOTICE: Under IC 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the department's official position concerning a specific issue.

Sales and Use Tax - Requirement to Register as a Retail Merchant

Authority: IC 6-2.5-2-1; IC 6-2.5-3-2; IC 6-2.5-4-1; IC 6-2.5-5-20; IC 6-2.5-6-1; National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904 (1992); South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 201 L. Ed. 2d 403 (2018); Sales Tax Information Bulletin #29 (April 2016).

A taxpayer ("Company") is seeking an opinion as to the following issues:

Company is an Arizona corporation that manufactures and sells baked goods such as brownies and cookies. Company provides the following information in support of its request:

Based on the foregoing facts, Company requests a determination as to whether it has a requirement to register in Indiana as a retail merchant and to collect Indiana sales tax. Indiana imposes an excise tax called "the state gross retail tax" (or "sales tax") on retail transactions made in Indiana. IC 6-2.5-2-1(a). Indiana also imposes a complementary excise tax called "the use tax" on "the storage, use, or consumption of tangible personal property in Indiana if the property was acquired in a retail transaction, regardless of the location of that transaction or of the retail merchant making that transaction." IC 6-2.5-3-2(a).

Regarding the first issue, Indiana previously followed standards as set out by National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753 (1967), and then Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904 (1992), concerning a retail merchant's physical presence or contacts with the state in order to impose a requirement on the retail merchant to collect and remit Indiana sales tax. However, the Indiana General Assembly passed an amendment to IC 6-2.5-2-1 in 2017 which requires a seller without a physical presence in Indiana (a "remote seller") to obtain a registered retail merchant's certificate and to collect and remit applicable sales tax, if the seller meets certain economic thresholds. IC 6-2.5-2-1(c) now provides the following:

Although the law was effective July 1, 2017, the Department began enforcing this statute effective October 1, 2018. Prior to October 1, the Department was enjoined from enforcing IC 6-2.5-2-1(c), in part because the United States Supreme Court was considering the constitutionality of a nearly identical law in the matter of South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 201 L. Ed. 2d 403 (2018). The opinion was finally issued in June of 2018. The state statute in that case also required sellers without a physical presence in South Dakota (i.e., "remote sellers") to collect sales tax because they met certain thresholds of having an "economic nexus" in the state, despite having no physical presence in the state. The United States Supreme Court upheld the statute's constitutionality, and furthermore overturned the court's prior decision in Quill Corp. v. North Dakota, such that physical presence is no longer required for sellers to be obligated to collect and remit sales taxes.

Because Indiana now imposes an economic nexus test on retail merchants instead of merely determining whether the merchant has a physical presence in Indiana, the sale of prepackaged food products to Indiana residents may create nexus from an economic presence standpoint even when the products are manufactured, sold and shipped by a remote seller from Arizona to Indiana customers via common carrier, as long as either of the thresholds in IC 6-2.5-2-1(c) are met. Therefore, transitioning to the second issue pertaining to the taxability of Company's food products, generally all purchases of tangible personal property are subject to sales and/or use tax unless an enumerated exemption from sales and/or use tax is available. One such exemption is found in IC 6-2.5-5-20(a), which provides that the "[s]ales of food and food ingredients for human consumption are exempt from the state gross retail tax." The statute goes on to provide the following:

Company's products would be considered bakery items, and since they are sold without utensils and are not sold in a heated state, sales of these bakery items would fall under the food and food ingredient exemption and would not be subject to sales and use tax in Indiana.

However, regarding the third and fourth issues, it is important to note that the thresholds in IC 6-2.5-2-1(c) apply regardless of whether any of the 200 transactions would have been subject to Indiana sales or use tax or whether any of the $100,000 of revenue was generated by taxable sales. Therefore, even if none of the bakery items are subject to Indiana sales or use tax, if Company makes 200 transactions into Indiana or exceeds one hundred thousand dollars ($100,000) in gross revenue in Indiana in the current or preceding calendar year, Company would be required to register as a retail merchant in Indiana. On the other hand, as long as Company only makes exempt sales, Company would only be required to file a "zero" return (meaning a return where no sales tax receipts are reported) each month once Company registers with Indiana. Furthermore, Company may possibly qualify for filing an annual "zero" return since its sales tax liability would be under one thousand dollars ($1,000). IC 6-2.5-6-1 provides the Department's standards for granting an annual sales and use tax filing in pertinent part as follows:

Based on the information provided, Company is subject to the economic nexus tests of IC 6-2.5-2-1(c) and must use its exempt sales in determining whether it meets either threshold under that statute. If it has met either threshold in the current or preceding calendar year, Company must register with Indiana, either directly or through Streamlined Sales Tax, and file a return each month (or one return in a year if granted permission), even if such return reflects that zero tax is due.

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.