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 It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register.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 6-2.5-1-2; IC 6-2.5-2-1; IC 6-2.5-3-1; IC 6-2.5-3-2; IC 6-2.5-4-1; IC 6-2.5-5-8; IC 6-2.5-5-17; IC 6-2.5-13-1; IC 6-2.5-13-3; 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 #89 (June 2019).

A taxpayer ("Company") is seeking an opinion as to whether it would have an obligation to collect and remit sales tax on transactions sourced to Indiana. Specifically, Company asks the following:

Company is based and domiciled in Europe. Company provides the following relevant, factual context regarding its business operations, reproduced exactly as submitted in its request for a ruling with certain details redacted:

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).

As an initial matter, and of relevance to the first and second issue, it is important to discuss Indiana's prior stance on the registration requirements for out-of-state retail merchants operating in Indiana. Prior to 2018, Indiana 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, 504 U.S. 298, 112 S.Ct. 1904 (1992), such that physical presence is no longer required for sellers to be obligated to collect and remit sales taxes.

Regarding the issue of whether Company is required to register with the department in order to collect sales tax because of the production and sale of catalogs at the Printer, Company asserts that it does not meet the definition of "a retail merchant engaged in business in Indiana" under IC 6-2.5-3-1(c). This subsection provides that a retail merchant engaged in business in Indiana:

Company also cites to IC 6-2.5-3-1(e), which provides the following:

Company concludes that under IC 6-2.5-3-1(e), it would not be considered a "retail merchant engaged in business in Indiana" solely by the presence of tangible personal property owned by the Company at the location of Printer in Indiana. Based upon IC 6-2.5-3-1(e), Company also concludes that it does not appear that Company would be required to register for Indiana sales and use tax, assuming no activity by Company other than the presence of tangible personal property at the Printer.

Chapter 3 of Title 6, Article 2.5 of the Indiana Code pertains to "use tax." IC 6-2.5-3-1 expressly states that the definitions found within that statute are for the purpose of IC 6-2.5-3 only, and do not apply to the remainder of Title 6, Article 2.5 of the Indiana Code. While it is correct to say that Company would not be considered a "retail merchant engaged in business in Indiana" for purposes of IC 6-2.5-3-1, this conclusion is limited to Company's requirement to register with the department and collect use tax. Because Indiana now imposes an economic nexus test on retail merchants instead of merely determining whether a merchant has a physical presence in Indiana for purposes of sales tax or whether a retail merchant is a "retail merchant engaged in business in Indiana" for purposes of the use tax, it still must be determined whether Company would meet either of the thresholds in IC 6-2.5-2-1(c) so that Company would be required to collect Indiana sales tax.

With regard to the first and third issues, it has already been discussed that the department is currently enforcing the provisions of IC 6-2.5-2-1(c) now that the United States Supreme Court has rendered its decision in the Wayfair matter. Prior to this decision, the provisions of IC 6-2.5-3-1 allowed Indiana to enforce a use tax collection responsibility on remote sellers if they met certain physical presence standards in the time between the Bella Hess/Quill decisions and the Wayfair decision. Now that the economic nexus provisions of IC 6-2.5-2-1(c) may be deemed to have been affirmed by the United States Supreme Court in Wayfair, the department is permitted to require a sales tax collection responsibility from remote sellers, even if they do not have a physical presence, as long as the remote sellers meet either or both of the economic thresholds in IC 6-2.5-2-1(c).

Company states that it sells in excess of $100,000 in catalogs to Retail. Company has engaged the Printer to manufacture the catalogs, but Company sells the catalogs to Retail prior to the catalogs being mailed. The catalogs are in Indiana with Printer at the time of the sale, but the catalogs are not received by Retail, as Retail never takes possession of the catalogs. Instead, they are shipped by Retail from Printer to customers throughout the United States and to Retail's distribution hub in Canada. Under these facts, Company asserts that title to the catalogs passes to Retail while at the printer in Indiana.

As mentioned previously, IC 6-2.5-4-1(b) provides that a retail transaction occurs when a person is engaged in selling at retail when the person (1) acquires tangible personal property for the purpose of resale, and (2) transfers that property to another person for consideration in the ordinary course of the person's regularly conducted trade or business. IC 6-2.5-4-1(c) provides that, for purposes of determining what constitutes selling at retail, it does not matter whether the property is transferred conditionally or otherwise.

The Indiana Code does not define what constitutes a "transfer" in Title 6, Article 2.5, but the fact that title transfers between Company and Retail while the catalogs are in Indiana would indicate that this is an Indiana transaction. Further, as far as where the transaction should be sourced for purposes of imposing Indiana's sales tax, IC 6-2.5-13-3 provides the sourcing rules for "advertising and promotional direct mail." This term is defined in IC 6-2.5-1-10.7 as follows:

"Direct mail" is defined in IC 6-2.5-1-16.5 as follows:

Catalogs and brochures produced by Printer for Company would be considered advertising and promotional direct mail because: the catalogs and brochures are printed material delivered to a mass audience without being billed to those recipients; Company supplying tangible personal property to the Printer is still a qualifying factor within the definition of "direct mail;" and the catalogs and brochures are intended to attract the public to products that Retail sells. Turning back to the sourcing rules for "advertising and promotional direct mail," IC 6-2.5-13-3 provides in pertinent part the following:

Company makes no mention of Retail using a direct pay permit (and it should be noted that only a registered retail merchant may be issued a direct pay permit by the department) or any of the other methods listed in subsection (a) in its transactions with Retail. As such, pursuant to subsection (d) immediately above, IC 6-2.5-13-1(d)(5) would apply, which provides in pertinent part the following:

Under the facts presented by Company, the Printer is still in possession of the catalogs when title to the catalogs has passed to Retail, who will arrange for the Printer or a common carrier to ship the catalogs from the location of the Printer to locations inside and outside Indiana. Therefore, under IC 6-2.5-13-1(d)(5), because the catalogs are shipped from the Printer, the sale of the catalogs from Company to Retail are sourced to Indiana.

Although Company has not mentioned Retail using a direct pay permit or any of the other methods listed in IC 6-2.5-13-3(a) (a direct mail form; an exemption certificate claiming "direct mail"; or information that shows the jurisdictions to which the advertising and promotional direct mail is delivered to recipients) in its transactions with Retail, if Retail were to use any of those methods, the sourcing of tax would be different. Pursuant to IC 6-2.5-13-3(b), if Retail provides a direct mail form or an exemption certificate claiming "direct mail," Retail would source the sale to the jurisdictions to which the advertising and promotional direct mail is to be delivered to the recipients. Retail would then be required to remit to the department any applicable Indiana sales tax on the advertising and promotional direct mail delivered to Indiana recipients. This procedure would also be applicable if a direct pay permit were provided. On the other hand, if Retail provides information to show the jurisdictions to which the advertising and promotional direct mail is delivered to recipients, then pursuant to IC 6-2.5-13-3(c), Company would source the sale to the jurisdictions to which the advertising and promotional direct mail is to be delivered and collect sales tax according to the delivery information provided by Retail.

Even though the amount of tax owed Indiana would be reduced if these procedures were to be followed, the transaction between Company and Retail would still be considered an Indiana transaction. As IC 6-2.5-13-1(b)(2) provides, the statute "applies only to the determination of a seller's obligation to pay or collect and remit a sales or use tax with respect to the seller's retail sale of a product." That a sale is sourced to Indiana pursuant to IC 6-2.5-13-1 or 3 does not necessarily mean that the actual transaction occurred in Indiana. If a merchant in another state with the same sourcing rules as Indiana sells tangible personal property to an Indiana resident and the tangible personal property will be delivered to Indiana, the tax would not be sourced to that state (as IC 6-2.5-13-1(d)(2) would similarly provide). This does not mean that the transaction actually occurred in Indiana, only that the tax is not owed to that other state. Particularly with IC 6-2.5-13-3, the purpose of the statute is to allow sales of advertising and promotional direct mail to be apportioned between various states where the mail is delivered. It would not be possible for a single transaction to occur in each state where advertising and promotional direct mail was delivered. Instead, it would be correct to say that the transaction occurred in Indiana pursuant to IC 6-2.5-4-1, but the taxes owed would be sourced to various states pursuant to IC 6-2.5-13-3.

Therefore, regardless of whether the documentation is provided by Retail pursuant to IC 6-2.5-13-3(a), the transaction remains an Indiana transaction, and because the amount of the gross revenue Company receives in transactions with Retail exceeds $100,000, Company would be required to register with the department and collect sales tax, either on the entire amount if Retail provides no documentation, or on the amount that represents catalogs delivered to Indiana recipients if documentation is provided.

Finally, regarding the fourth issue, Company states that it could contract with the Printer for both the production and mailing of the catalogs. Company would then invoice Retail for the catalogs and costs of mailing after the catalogs have been mailed. IC 6-2.5-5-17(a)(2) provides an exemption from Indiana sales tax for transactions involving commercial printing that results in printed materials that are shipped, mailed, or delivered outside Indiana. As long as Company provides an exemption certificate, direct pay permit, or some other information showing where the catalogs are to be delivered, Printer would exempt the sales tax on the catalogs shipped to addresses outside Indiana. The remaining catalogs sold to Company would then be exempt from sales tax as a "sale for resale" under IC 6-2.5-5-8. As to the transaction between Company and Retail, depending on the information Retail provides, either Company or Retail would then be responsible for remitting any sales or use tax on the catalogs shipped to its customers in Indiana.

In consideration of the facts as presented to the department, Company is required to register with the Indiana Department of Revenue as an Indiana Retail Merchant for gross retail tax and use tax pursuant to IC 6-2.5-1-2(c), as it has over $100,000 in sales. Depending on the information provided by Retail, either Company would be responsible for collecting sales tax on the transaction (Indiana sales tax on the entire transaction, or the portion delivered to Indiana recipients), or Retail would be responsible for remitting use tax only on the portion that represents gross retail income from catalogs that will be shipped to Indiana customers. If, however, Company pays Printer to print and ship the catalogs, the transaction between Company and Printer will be completely exempt pursuant to IC 6-2.5-5-17(a)(2) and IC 6-2.5-5-8, and, depending on the information Retail provides, either Company or Retail would be responsible for remitting tax on the catalogs shipped to Retail's customers in Indiana.

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.