How do I collect sales tax legally?

How to Collect Sales Tax Legally in Indiana

Collecting sales tax correctly is essential for business compliance in Indiana. Follow these operational steps to ensure your business collects sales tax legally and efficiently.

Register for a Sales Tax Permit

• Register with the Indiana Department of Revenue (DOR): Before collecting sales tax, obtain a sales tax permit by registering your business online through the Indiana DOR’s INBiz portal.
• Provide required information: Be prepared to submit your business details, including federal EIN, business structure, and contact information.

Understand Taxable Goods and Services

• Identify taxable items: Indiana generally taxes tangible personal property and certain services. Review Indiana’s sales tax guidelines to determine what your business must tax.
• Stay updated: Sales tax rules can change, so regularly check Indiana DOR updates to remain compliant.

Calculate and Collect the Correct Sales Tax

• Use the correct rate: Indiana has a statewide sales tax rate of 7%. Some local jurisdictions may have additional taxes; verify if your business location requires collecting local rates.
• Automate tax calculation: Implement sales tax automation software or point-of-sale systems that calculate and apply the correct tax rate at the time of sale.

Maintain Accurate Records

• Track all sales transactions: Keep detailed records of taxable and non-taxable sales, exemptions, and collected tax amounts.
• Retain documentation: Maintain invoices, receipts, and exemption certificates in case of audits or reporting requirements.

File Sales Tax Returns and Remit Payments

• File returns on time: Indiana requires periodic sales tax filings—monthly, quarterly, or annually—based on your sales volume. Use the Indiana DOR online system to file returns.
• Remit collected taxes: Submit the sales tax you collected by the filing deadline to avoid penalties and interest.

Additional Operational Considerations

• Employee training: Train staff on sales tax collection procedures and exemption handling to reduce errors.
• Stay compliant with audits: Prepare for potential Indiana DOR audits by maintaining organized records and understanding sales tax obligations.
• Integrate bookkeeping: Align your sales tax collection with bookkeeping systems for accurate financial reporting and tax compliance.

As of 2026, following these steps will help your Indiana business collect sales tax legally and maintain smooth operational compliance.