Understanding Sales Tax Exemptions in Indiana
Indiana’s sales tax rules can be challenging for businesses, especially when dealing with tax-exempt entities or resale transactions. Indiana-based companies must stay compliant with state regulations while also managing exemption certificates properly.
Indiana sales tax exemption certificates allow eligible buyers to purchase specific goods or services without paying sales tax. However, if a seller fails to collect, validate, or retain these certificates correctly, they could still be liable during an audit, even if the sale was legitimately exempt.
This is where Commenda adds value. It streamlines exemption certificate management in Indiana by automating collection, enabling bulk validation, and securely storing records in the cloud. This helps reduce the risk of compliance issues, improves operational workflows, and prepares businesses for audits in Indiana and beyond.
In this blog, we’ll explore who qualifies for an Indiana sales tax exemptions certificate, how to manage these documents properly, common compliance mistakes to avoid, and smart practices that safeguard your business.
What Are Exemption and Resale Certificates?
Indiana sales tax exemption certificates and resale certificates are critical tools that allow certain buyers to legally purchase goods or services without paying sales tax, under specific qualifying conditions.
Understanding the distinction is critical for compliance, especially when it comes to Indiana sales and use tax exemption certification requirements. Below are some key differences and use cases:
| Aspect | Resale Certificate | Exemption Certificate |
| Purpose | Used when a buyer purchases items with the intent to resell them. | Used by organizations or individuals who are exempt from paying sales tax by law. |
| Sales Tax Treatment | Sales tax is not paid at purchase; it is charged when the item is sold to the end consumer. | Sales tax is not charged at all because the buyer is exempt by statute. |
| Typical Users | Wholesalers, retailers, resellers. | Nonprofits (e.g., 501(c)(3) organizations), government agencies, manufacturers, farmers. |
| Example | A wholesaler purchases merchandise to sell in a retail store. | A nonprofit hospital buys medical supplies for charitable use. |
| Documentation Used | Resale certificate (e.g., Indiana Form ST-105, marked for resale). | Exemption certificate (e.g., Indiana Form ST-105, marked for specific exemption type). |
| Seller’s Responsibility | Must collect and retain the certificate to prove tax was not due at time of sale. | Must collect and retain the certificate to justify exemption in case of an audit. |
| Audit Risk | Seller can be held liable if the resale certificate is misused or not on file. | Seller can be held liable if exemption is not properly documented, even if buyer was eligible. |
| Reviewed by | Indiana Department of Revenue (DOR) during sales tax audits. | Indiana Department of Revenue (DOR) during audits for exempt transactions. |
Exemption Types Recognized in Indiana
Indiana recognizes a variety of exemption types, each tied to the buyer’s identity or the intended use of the purchased goods. Below is a breakdown of the primary exemption categories allowed under Indiana law:
1. Resale Exemption
- Used when purchasing items to resell.
- Must provide Indiana Form ST-105.
- The seller must verify that the goods are consistent with buyer’s business operations.
2. Nonprofit Organizations
- Must be a federally recognized 501(c)(3) organization.
- Must register with the Indiana Department of Revenue to receive a tax-exempt identification number.
- Use Form ST-105 and indicate nonprofit exemption.
3. Government Entities
- Includes federal, state, county, and local government agencies.
- Exempt from Indiana sales tax when making official purchases.
- Must provide an official government-issued exemption certificate or purchase order.
4. Agricultural Exemption
- Available to farmers purchasing equipment, feed, seed, or fertilizer for use in agricultural production.
- Must use Form ST-105 and check the appropriate agricultural exemption box.
- The seller must ensure purchases are for direct use in farming. More Details are at the Indiana DOR Agriculture Page.
5. Manufacturing Exemption
- Applies to purchases that are integral and essential to the manufacturing process.
- Buyer must complete Form ST-105, specifying the manufacturing activity and exempt items.
- Exemption applies only to equipment or supplies used directly in production.
6. Utilities Used in Production
- Utilities such as electricity, natural gas, or water used directly in manufacturing or agriculture may be exempt.
- Requires Form ST-200.
State-Specific Requirements for Exemption Certificates in Indiana
If you are wondering, “How do I get a Indiana sales tax exemption certificate?”, then do not worry. Here is more about the specific requirements for exemption certificates in Indiana:
Mandatory Information
Each certificate should include:
- Seller’s name and address
- Buyer’s name and address
- Buyer’s Indiana Taxpayer Identification Number (if applicable)
- Detailed reason for exemption
- Clear description of the items being purchased
- Buyer’s signature and date of execution
Approved Forms
- Indiana mandates the use of Form ST-105 for most exemption types. This form is a universal exemption certificate covering resale, nonprofit, agricultural, manufacturing, and utility exemptions.
- For utility exemptions, buyers must use Form ST-200.
- Indiana does not accept the Streamlined Sales and Use Tax Agreement (SST) certificate used by some other states.
Validity Period
- Exemption certificates in Indiana are considered valid until revoked, but:
- Best practice: Review and update certificates every 3–4 years to confirm the buyer’s status hasn’t changed.
- Some exemptions (like nonprofits) may require updated federal documentation (e.g., IRS 501(c)(3) letter).
Paper vs. Electronic Certificates
- Indiana accepts electronic certificates, including digitally signed and stored documents.
- Sellers must ensure:
- Certificates are readily accessible in case of an audit.
- All required data fields are present, regardless of format.
Note: For those unfamiliar, what is an Indiana sales tax exemption certificate? It’s a state-recognized document that allows qualified buyers to make tax-free purchases on eligible goods or services.
Common Pitfalls and Compliance Risks
While exemption certificates offer legitimate tax savings, they also carry compliance risks. Improper management can expose businesses to audits, back taxes, and penalties. Here are some of the common mistakes:
- Expired or outdated certificates: Businesses rely on old forms with outdated buyer information or expired nonprofit status. Do sales tax exemption certificates expire in Indiana? In Indiana, sales tax exemption certificates generally do not expire, provided the information on them remains current and accurate.
- Incomplete certificates: Missing tax ID, unsigned forms, or vague exemption reasons can invalidate a certificate.
- Incorrect application of exemption: Accepting a resale certificate for goods clearly meant for internal use. Issuing an exemption for items not covered by a buyer’s claimed exemption type.
Consequences of Noncompliance
- Tax liability: The seller is held responsible for uncollected sales tax.
- Penalties and interest: Applied for negligence or failure to collect tax.
- Increased audit exposure: Poor exemption documentation may lead to broader, more frequent audits.
Real-World Scenario: Imagine an Indiana construction supplier sells bulk hardware to a local contractor who presents a resale certificate. The contractor later uses the supplies for their building project, not for resale. During an audit, the Indiana DOR flags the sale as taxable. It holds the supplier liable for unpaid tax and penalties because the seller did not verify the intended use of the goods.
Best Practices for Managing Exemption Certificates in Indiana
Managing Indiana sales tax exemption certificates correctly is critical for businesses. Errors in collecting or storing certificates can lead to costly penalties, even when the buyer qualifies for an exemption. Follow these proven practices to stay compliant and audit-ready:
Collect at the Time of Transaction
Always request the exemption certificate before or at the time of sale. Accepting certificates after the transaction puts you at risk during an audit.
Validate Against Indiana DOR Standards
Use Indiana’s Form ST-105 and ensure all fields are properly completed, including buyer and seller names, tax ID, exemption reason, signature, and date. Cross-check against Indiana’s tax guidelines to verify legitimacy.
Update Certificates Regularly
Although Indiana does not require renewal at fixed intervals, businesses should review and update certificates every three to four years or whenever a buyer’s exemption status changes.
Use Secure Digital Storage
Store exemption certificates in a centralized digital repository. Digital storage:
- Ensures quick retrieval during audits
- Reduces paper clutter
- Allows for better version control and expiration tracking
Set Renewal Reminders
Automated renewal reminders ensure you proactively follow up with buyers whose certificates are nearing expiration or require revalidation.
Perform Internal Audits Periodically
Schedule internal compliance reviews at least annually to:
- Verify certificate completeness
- Identify expired or missing forms
- Ensure alignment with Indiana DOR requirements
How Commenda Simplifies Exemption Certificate Management
Commenda is a global sales tax platform that transforms how Indiana businesses handle exemption certificates by replacing manual errors with intelligent automation and streamlined workflows.
Key Capabilities
- Automated Collection: Request certificates from buyers at checkout or during onboarding.
- Bulk Validation: Instantly checks certificates against Indiana’s tax rules to identify errors or missing data.
- Real-Time Alerts: Notifies you of upcoming expirations, incomplete certificates, or compliance issues.
- Cloud-Based Storage: Centralized, secure storage accessible anytime, from any device.
- Commenda connects with your ERP, accounting, or CRM systems, including platforms like QuickBooks, NetSuite, and SAP, to sync customer records and automate workflows.
- Ourbuilt-in tools highlight missing or invalid certificates, helping businesses stay ahead of audit risks and improve the state of Indiana sales tax exemption certificate management.
Benefits for Indiana Businesses
- Reduced Audit Risk: Every certificate is validated and stored properly, minimizing exposure during Department of Revenue audits.
- Streamlined Workflows: Less time is spent chasing forms and managing spreadsheets.
- Time Savings: Automations free up teams to focus on revenue-generating tasks.
Getting Started with Commenda in Indiana
It is important to automate your state exemption certificate management the right way. We can help you with that. Getting set up with Commenda is quick and easy. Here is a simple walkthrough:
- Create Your Account: Sign up for a Commenda account and select Indiana as your primary operating state.
- Import Buyer Data: Upload customer details or sync directly from your CRM or ERP system.
- Automate Certificate Collection: Commenda automatically contacts buyers and requests the correct certificate type based on Indiana’s exemption categories.
- Review and Validate: The platform runs validations against Indiana Department of Revenue rules and flags any real-time issues.
- Store and Monitor: Certificates are stored securely in the cloud with automatic expiration tracking and audit readiness reporting.
Book a free demo to talk to an Indiana tax expert today to see how Commenda can transform your exemption compliance.
FAQs: Exemption Certificates in Indiana
Q. What are the specific documentation requirements for exemption certificates in Indiana?
Indiana requires Form ST-105, which must include buyer and seller information, tax ID, exemption reason, a clear description of goods, and a signed statement.
Q. How do I know if a buyer qualifies for an exemption under Indiana tax law?
Verify the buyer’s organization type and intended use of the items. Cross-check against Indiana Department of Revenue guidelines for recognized exemptions such as resale, nonprofit, agricultural, and manufacturing.
Q. Does Indiana require periodic renewal or revalidation of exemption certificates?
There is no fixed renewal period for the Indian sales tax exemption certificate, but the Indiana Department of Revenue recommends reviewing certificates every three to four years or when the buyer’s exemption status changes.
Q. Can I accept out-of-state resale or exemption certificates in Indiana?
Indiana does not accept out-of-state resale certificates unless the buyer is registered for sales tax in Indiana. A valid ST-105 form must still be used.
Q. What happens if I cannot obtain a certificate before a sale?
If a valid sales tax exemption certificate Indiana is not obtained at or before the sale, you must charge sales tax. If you fail to do so and face an audit, you will be held liable for the tax due.
Q. How does Indiana handle drop shipment transactions involving resale certificates?
Indiana requires the out-of-state seller to be registered for Indiana sales tax and to accept Form ST-105. Drop shippers must collect tax if the buyer cannot provide valid exemption documentation.
Q. What are the penalties for exemption certificate errors in Indiana?
Improper exemption handling can result in:
- Tax assessments for uncollected sales tax
- Penalties up to 10 percent
- Interest charges on back taxes
- Increased audit scrutiny
Q. Can I automate certificate collection and validation to meet Indiana audit standards?
Yes. Platforms like Commenda offer automation tools that align with Indiana Department of Revenue requirements, ensuring accurate collection, real-time validation, and secure, audit-ready storage.
