in-20250820-IR-045250388NRA: DEPARTMENT OF STATE REVENUE
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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 It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register.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. A taxpayer (“the Company”) is seeking a determination if sales/use tax is imposed on its sales of generative artificial intelligence (AI) services. The Company is headquartered outside of Indiana. The Company provides advanced artificial intelligence (AI) services to customers. Their primary service provided is a generative AI chatbot. Their chatbot is trained to respond to plain language prompts in a human-like manner. The chatbot can assist with writing, analysis, coding and problem-solving. The Company has partnered with other companies for cloud infrastructure requirements needed to build, train, and deploy its chatbot models. The Company provides four subscription plans. The software that operates the chatbot is never downloaded onto a customer’s computer. Customer access chatbot through the Company’s website or free app. Customers must provide their own internet access to use the chatbot’s functions. Additionally, customers have the option of utilizing chatbot’s application programing interface (API) product which enables them to integrate advanced...
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DEPARTMENT OF STATE REVENUE Revenue Ruling # 2025-02-RST July 23, 2025 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 It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register.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. ISSUES Sales and Use Tax – Imposition of Sales/Use tax Authority: IC 6-2.5-2-1; IC 6-2.5-4-1; IC 6-2.5-4-16.4; IC 6-2.5-4-16.7; IC 6-2.5-1-24; IC 6-2.5-1.26.5; Sales Tax Information Bulletin #8; Sales Tax Information Bulletin #34; and Sales Tax Information Bulletin #93 A taxpayer (“the Company”) is seeking a determination if sales/use tax is imposed on its sales of generative artificial intelligence (AI) services. STATEMENT OF FACTS The Company is headquartered outside of Indiana. The Company provides advanced artificial intelligence (AI) services to customers. Their primary service provided is a generative AI chatbot. Their chatbot is trained to respond to plain language prompts in a human-like manner. The chatbot can assist with writing, analysis, coding and problem-solving. The Company has partnered with other companies for cloud infrastructure requirements needed to build, train, and deploy its chatbot models. The Company provides four subscription plans. The software that operates the chatbot is never downloaded onto a customer’s computer. Customer access chatbot through the Company’s website or free app. Customers must provide their own internet access to use the chatbot’s functions. Additionally, customers have the option of utilizing chatbot’s application programing interface (API) product which enables them to integrate advanced language understanding and generation capabilities in their own applications. Customers must register on the Company’s platform and obtain an API key to access the Company’s chatbot API. The Company does not deliver, electronically or physically, any software or programming code to customers. The Company offers two chatbot API plans. Regardless of plan, the increased functionalities terminate if the customer stops paying for them. DISCUSSION When interpreting the Indiana General Assembly’s use of terms, the state applies the statute as written, giving all its words their plain and ordinary meaning unless the statute indicates otherwise. See, Covance Cent. Lab’y Servs. LP v. Indiana Dept of State Revenue, 204 N.E.3d at 348, 355 (Ind. Tax 2023) Likewise, tax imposition statutes are “strictly construed against the taxing authority, with any ambiguity resolved against the state and in favor of the taxpayer.” See, Indiana Dept of State Revenue v. AOL, LLC, 963 N.E.2d 498 (Ind. 2012) Generally, separately stated labor/services are not subject to sales tax. Sales tax is imposed on the retail transaction of tangible personal property and specifically enumerated services, such as utilities, and canned software. Indiana imposes sales tax on retail transactions. IC 6-2.5-2-1. A retail transaction is defined as the transfer of tangible personal property in the ordinary course of business for consideration. IC 6-2.5-4-1.Tangible personal property includes prewritten computer software. Retail transactions are sales of tangible personal property, specially enumerated sales of services, and specified digital goods as retail transactions pursuant to IC 6-2.5-4-1 and IC 6-2.5-4-16.4. IC 6-2.5-1-27 states:
2. Is in any other manner perceptible to the senses.
The term prewritten computer software, including prewritten upgrades, is computer software which is not designed and developed by the author or other creator to the specifications of a specific purchaser. IC 6-2.5-1-24; Also see, Sales Tax Information Bulletin #8. Software as a Service (SaaS) is defined as a service provider hosting software application over the internet. Sales Tax Information Bulletin #8. SaaS is not taxable in Indiana. Also, charges for accessing prewritten computer software electronically via the internet where no permanent ownership interest, control or possession in the software is acquired are not subject to sales tax. IC 6-2.5-4-16.7. Sales/use tax is imposed on products transferred electronically only if the products meet the definition of specified digital products. Specific digital products mean electronically transferred digital audio works, digital audiovisual works, or digital books. Digital audio works mean work that result from the fixation of a series of musical, spoken, or other sounds, including ringtones. Digital audiovisual works mean a series of related images that, when shown in succession, impart an impression of motion, together with accompany sounds, if any. Digital books mean works that are generally recognized in the ordinary and usual sense as books. See, IC 6-2.5-1-26.5, IC 6-2.5-4-16.4(b) Sales Tax Information Bulletins #8, #34, and #93. IC 6-2.5-4-16.4(b) provides that a person is engaged in making a retail transaction when the person (1) electronically transfers specified digital products to an end user; and (2) grants the end user the right of permanent use of specified digital products that is not conditioned upon continued payment by the purchaser. The chatbot AI services provided by the Company would be considered a service. Since the AI is accessed electronically with no permanent ownership aspect, the AI would not be subject to sales tax. The Company’s customers access the chatbot through web access or through open-sourced API. Customers have no permanent ownership of the chatbot. The chatbot AI services would not be subject to sales tax as it does not meet the definition of prewritten software or specifically enumerated digital products. RULING The Company’s chatbot AI is offered to customers through web access, or application programing interface (API) is considered a service and not subject to sales/use tax. CAVEAT 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. Replaces Ruling Document: New
Documents
- Full text (state register) · August 20, 2025
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