Indiana sales tax: common and unusual exemptions

Famous as the home of the famous Indianapolis Motor Speedway, Indiana is also known for its expansive fields of corn, soybean, and wheat, as well as pig, poultry, and dairy farms.

The Hoosier State is also home to several major companies, including health insurance provider Anthem, pharmaceutical manufacturer Eli Lilly, and steel producers Steel Dynamics and ArcelorMittal.

Indiana is also one of the top 10 most business-friendly states in the U.S., according to the Tax Foundation. Although it levies all major taxes, it does so at relatively low rates. In addition, the state passed legislation in 2014 allowing corporate and individual income tax rates to steadily decline over the next several years. In addition to these friendly tax policies, businesses can boost profits by taking advantage of common and unusual tax exemptions.

Indiana imposes a state-wide 7 percent sales tax on the sale of most tangible items. However, the state offers exemptions on a range of goods and services, as well as for certain organizations and types of sales. Common exempt goods include unprepared grocery food and health care items. Certain groups, such as government agencies and school districts, also benefit from sales-tax exemptions when purchasing or selling certain items.

The Indiana legislature had a very busy 2015, passing several new tax laws and adjusting the language on several more, including those for sales tax. For example, certain sales tax laws regarding medical equipment were expanded to include medical devices. In addition, sales-tax exemption laws for agricultural machinery were expanded to include certain types of equipment.

There are several interesting sales tax exemptions and product definitions in Indiana. For example, candy is subject to sales tax and is defined as “preparations of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients in the form of bars, drops, or pieces.”

Under this definition, beer nuts party mix, almond bark, and caramel apples are considered taxable. However, items considered candy, but that contain flour (such as Kit-Kat, Nestle Crunch, and Twix bars) are exempt from sales tax, as are items “commonly thought of as candy, but which are not bars, drops, or pieces” including the powdered sugar treat Pixie Stix. Furthermore, while potato chips are exempt from sales tax, chocolate-covered potato chips are not.

Check out the following list to see if your business can take advantage of a few more odd definitions and strange, yet legitimate, exemptions:

1. Professional motor racing vehicle: Two-seater Indy cars and related vehicle parts are exempt from sales tax, as long as the car or equipment is leased, owned, or operated by a professional racing team.
2. Golf Courses: Transactions involving tangible personal property are exempt from sales tax if the property is acquired by a city or town for the use or operation of a municipal golf course.
3. Rolling stock: The sale of rolling stock, or rail transportation equipment, is exempt from sales tax, including locomotives and freight cars of any type, such as box and flatbed cars.

Do you have other questions regarding Indiana sales tax exemptions? Check out our Guide to Indiana Sales Tax.