The Indiana Department of Revenue partially denied a taxpayer’s claim for refund of sales tax paid on various purchases of computer software maintained on servers outside the state. The taxpayer, an operator of a nation-wide chain of retail stores, purchased prewritten computer software to be used by the retail stores located in and outside of Indiana. Under Indiana law, sales and use tax is imposed on prewritten computer software as it is considered tangible personal property. During the tax period at issue, the Department’s guidance provided that remotely accessed prewritten software was subject to tax and “[t]he accessing of prewritten computer software by Indiana residents constitute[d] a transfer of the software because the customers gain constructive possession and the right to use, control, or direct the use of the software.” In general, the taxpayer argued that some of its purchases were non-taxable infrastructure as a service or that because the software was remotely accessed by users both within and outside Indiana, only the software used within Indiana should be subject to use tax. Without really addressing the taxpayer’s argument regarding the use of the software outside Indiana, the Department held when the taxpayer entered into agreements where it obtained a possessory interest in the remotely accessed computer software, the charge was taxable. Under these agreements, the taxpayer was billed for the computer software, and in some cases was considered the sole and exclusive owner of any deliverable developed through the software. In one instance, however, the Department allowed a credit against the tax paid in Indiana for sales tax paid in other states on one of the computer products. For some of the transactions, the Department determined that the taxpayer was being charged a nominal or fixed fee for each “query” made via the software. In these cases, the Department ruled that the taxpayer did not gain an ownership interest in the software, and it was not subject to sales and use tax. In the Department’s view, “the sale or lease of computer time through the use of a terminal or as a result of a batch service arrangement is a nontaxable service and is not subject to tax if separately billed or charged.” It should be noted that effective July 1, 2018, Indiana no longer taxes remotely accessed software. For more information on Letter of Findings 04-20181872, please contact Dave Perry at 513-763-2402.