An Indiana sales tax exemption removes the state's 7% sales tax. Some exemptions are specific to the buyer, such as non-profits and government agencies, while others are specific to the product itself, such as groceries or manufacturing equipment.

Below, we'll go over which entities and products qualify for sales tax exemptions in Indiana, and what happens when either a seller or buyer gets an exemption wrong.

Key takeaways

• An Indiana sales tax exemption depends on the buyer's status, the product being sold, or both. It doesn't apply automatically without proper documentation.

• Sellers need a complete, valid exemption certificate on file before treating any sale as tax-free. Blanket certificates stop covering purchases once a buyer's pattern shifts away from the original exemption reason.

• Misapplying an exemption creates liability for sellers who accept invalid certificates and for buyers who later use exempt purchases for a non-qualifying purpose.

What is an Indiana sales tax exemption?

An Indiana sales tax exemption removes the 7% state sales tax on tangible personal property. The exemption can apply either because of who's buying or because of what's being sold.

Who qualifies for an Indiana sales tax exemption?

Indiana grants exemptions to several categories of buyers. Each comes with its own registration or documentation requirement.

Here are some entities that qualify for sales tax exemptions:

• Non-profit organisations: Religious, educational, and charitable groups can make purchases that are exempt from sales tax when the goods support their exempt purpose. Organisations first need to register with the Department of Revenue using Form NP-20A to get a Non-profit Sales Tax Exemption number.

• Government entities: Federal, state, and local agencies are exempt from sales tax when the purchase is for government use and paid directly from government funds.

• Wholesalers and retailers: Businesses buying goods for resale don't pay sales tax on that inventory since the tax applies once the item sells to the end customer.

• Manufacturers: Businesses purchasing machinery, equipment, and consumables used directly in producing tangible personal property can claim an exemption on those inputs.

• Farmers: Agricultural producers purchasing equipment, feed, seed, and other inputs used directly in production qualify under Indiana's agricultural exemption.

Which products qualify for an Indiana sales tax exemption?

Indiana grants certain exemptions based purely on what's being sold. Here's a closer look at some of the qualifying categories:

• Grocery food: Groceries – food items specifically intended for home consumption – are exempt from Indiana sales tax. Prepared food, restaurant meals, and candy don't qualify and get taxed at the standard 7% rate.

• Prescription drugs and medical equipment: Prescription drugs and certain durable medical equipment, such as wheelchairs and hearing aids, are exempt when purchased for a patient's use.

• Manufacturing equipment and consumables: Tools and equipment used directly in production, processing, or refining can qualify. Equipment used for administration, storage, or shipping generally doesn't.

• Manufacturing utilities: Electricity, gas, and water consumed in a manufacturing process can be exempt from sales tax, but only for the share used in production. A facility drawing power for both a factory floor and offices typically needs a predominant-use study to establish what percentage qualifies.

• Agricultural inputs: Seed, feed, fertiliser, and machinery used directly in farming follow the same logic as manufacturing exemptions. The exemption tracks the use, not just the category of product.

• Newspapers: The sale of newspapers and their advertising inserts remains exempt from sales tax.

How does a business use an Indiana sales tax exemption certificate?

Indiana's primary exemption document is Form ST-105, the General Sales Tax Exemption Certificate. The buyer fills it out and gives it to the seller at the point of purchase. It never gets filed with the Department of Revenue. On the form, the buyer names their business, states the reason for the exemption (e.g., resale, manufacturing use, agricultural use), and provides a Taxpayer Identification Number (TIN). Because Indiana belongs to the Streamlined Sales Tax governing board, sellers can also accept the Streamlined Sales Tax Exemption Certificate from buyers making purchases across multiple member states.

A buyer making repeat purchases from the same seller doesn't need to fill out a new certificate every time. A blanket certificate on file covers future transactions, as long as the buyer's exemption status and the nature of the purchases stay the same. If either changes (e.g., a buyer starts purchasing items outside the scope of their original exemption), the blanket certificate stops covering those purchases, and the seller has to collect tax on them going forward.

Before treating a sale as exempt, a seller needs to confirm the certificate includes a:

• Complete business name: Must be the buyer's legal name, not a trade name or abbreviation that doesn't line up with their registration

• Valid identification number: Either a TIN or the relevant registration number for the claimed exemption type

• Specific exemption reason: For example, resale, manufacturing, or agricultural use

• Signature from the buyer or an authorised representative: Dated at or near the time of purchase

What recordkeeping rules apply to an Indiana sales tax exemption?

Indiana requires sellers to keep exemption certificates on file for at least three years. If the Department of Revenue audits a return within that window and finds an exempt sale with no valid certificate backing it up, the seller (not the buyer) usually owes the uncollected tax, plus penalties and interest.

Accepting a certificate in good faith gives sellers some protection, but the certificate has to be complete, plausible on its face, and accepted at the time of the transaction. A seller who accepts a certificate missing information, or one claiming an exemption reason that doesn't match the buyer's business, doesn't get that protection.

Good recordkeeping includes the following:

• Matching certificates to transactions: Tying each exempt sale to its supporting certificate through invoice numbers and transaction dates, so an auditor can trace the connection

• Tracking certificate validity and changes: Watching for buyers whose purchasing patterns shift outside the scope of their original exemption, since a blanket certificate stops covering purchases once that happens

• Storing certificates for the full retention period: Keeping every ST-105 or Streamlined Sales Tax certificate for at least three years from the date of the transaction it supports, even if the buyer stops being a customer

What risks come with misapplying an Indiana sales tax exemption?

Getting an exemption wrong can create liability on both sides of the transaction. The exposure can look different depending on who made the mistake.

If a seller exempts a sale without a valid certificate, the Department of Revenue can assess the seller for the uncollected tax, plus penalties and interest, retroactive up to three years from the original transaction. There's no cap tied to how many sales are involved: a pattern of accepting incomplete or missing certificates across hundreds of transactions adds up to a real liability once an audit gets underway. Indiana's three-year lookback doesn't apply if the state determines the underreporting involved fraud.

Buyers carry their own exposure, too. If a business buys something exempt from tax and then puts it toward a nonqualifying use, the buyer owes use tax on that item at the same 7% rate. That's true even though the original purchase was legitimately exempt at the time; it's the later use that changes the tax treatment. Indiana expects businesses to self-report and remit use tax in these situations, and a mismatch between a stated exemption reason and how an asset actually gets used is a typical audit finding.

A safe way to manage this exposure is treating exemption documentation as part of the sale itself.

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FAQs about Indiana sales tax exemptions