Sales Tax State Activity Update - February 2009

Indiana Touches on the Intangibility of Vending Machine Fees

In an Administrative Ruling the Indiana Department of Revenue has concluded that a company's implementation fees, web hosting fees, management fees, and process fees are not subject to sales and use tax because they do not involve the exchange of tangible personal property.

Background

A Taxpayer that sells industrial, construction, and safety supplies intends to place vending machines, under contract, at various business locations to dispense supplies that Taxpayer sells and those businesses use. The Taxpayer requests the taxability of four types of fees that may be charged to the businesses. Each fee is separately stated on the Taxpayer's invoices to its customers.

Fees

• Implementation Fee - a one time fee assessed to the customer for delivery to and connection of a Taxpayer-owned machine at the customer's site.
• Web Hosting Fee - an annual fee assessed to the customer in exchange for service via internet that allows the customer to review usage reports and for Taxpayer to determine the customer's stocking needs.
• Management Fee - an annual fee assessed to the customer for Taxpayer's employees to travel to customer's site and stock the vending machine.
• Process Fee - an annual fee assessed to the customer due to increased overhead associated with the payment option chosen by the customer.

Ruling

Sections IC 6-2.5-2-1, IC 6-2.5-3-2, and IC 6-2.5-4-1 require payment of sales or use tax on retail transactions involving tangible personal property. Services are not subject to sales or use tax in Indiana unless the services are part of a unitary transaction involving tangible personal property. Since there is not a transfer of tangible personal property all four fees are nontaxable.

This ruling may be viewed at the Indiana Department of Revenue.

( Indiana Department of Revenue, Revenue Ruling #2008-16ST, November 18, 2008)

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