Victory! Software-as-a-Service Bill Set to Become Law

This week, the Senate unanimously approved the House changes to Senate Bill 257 (Sales Tax on Software). This bill began as a top Indiana Chamber goal; it was embraced by the administration and made a priority of the Governor, the Senate got it introduced and rolling, then the House took good legislation and made it even better.

The Senate concurrence vote means the bill is on its way to Gov. Holcomb and there will be SaaS (software as a service) tax clarity in Indiana!

This is exactly what the Indiana Chamber has been working toward since last summer and it is good news for the SaaS industry. Senate Bill 257 is a straightforward piece of legislation that can reap very real economic benefits for the state. We thank legislators for listening to our members and taking this important step forward to demonstrate Indiana’s commitment to embracing the growth of the SaaS industry. The legislation puts Indiana in a very favorable position to attract more and more of this burgeoning business to our state.

Key Workforce Development Legislation Still a Work-in-Progress

In the Indiana General Assembly, both House Bill 1002 and Senate Bill 50 have been significantly amended in ways that we support, but also in ways that give us some concern. We have strong support for the thoughtful and deliberate work on the study by the Legislative Service Agency of all workforce programs. It is extremely thorough and we look forward to the results of each year’s report and presentation. We also support the language regarding the Next Level Jobs Employer Training Grant program. The career and technical education (CTE) student information portal for local employers is a prime example of a creative model without having to spend extra capital. And we also support expanding the Employment Aid Readiness Network (EARN) Indiana program to include part-time students.

We hope to continue the conversation on the makeup of the Governor’s Workforce Cabinet in conference committee and have some questions as to how this will work in conjunction with the State Workforce Innovation Council (SWIC), a similar existing cabinet that is required to have its membership be 50% employers. We appreciate the language in the bill allowing the Indiana Chamber to be consulted with on a gubernatorial appointment for a business leader to the panel; however, we question why we cannot simply utilize the SWIC.

If we are tied to the idea of creating a new cabinet, we feel strongly that we should have more employer voices at the table, plus give the Indiana Chamber a seat as well. The Chamber’s place on the cabinet would provide historical knowledge on workforce issues, representing the voices of thousands of members and investors throughout the state and providing consistency when we have a new Governor who would make the majority of the appointees (be they employers or agency heads).

In close, though these bills are better and moving in the right direction, they still need work. The Chamber will continue to advocate for strong policies throughout conference committee.

Tech Talk: Making Progress at the Statehouse

An Indiana General Assembly analysis at the midway point of the session is always a bit tricky. We can tell you the current status of legislation, but with the caution that more negotiations, compromises and refinements are on the way.

Clarifying the tax status of software as a service (SaaS) is among the high-priority items. Bill Waltz, our tax policy expert, shares this insightful update:

Bill Waltz

As is often the case, the House and the Senate each have their own ideas on how best to address big issues. That is the current circumstance regarding the taxability of software utilized as the means of providing a service. Obtaining greater clarity on this subject is a priority of the Chamber and the Governor.

Senate Bill 257 embodies the efforts of the administration to clarify tax law in this arena. It was largely formulated by the Department of Revenue (DOR) and the Office of Management and Budget to serve as guidance for what is taxable and what is not. The bill is basically a codification of recent DOR rulings interpreting and applying its own information bulletin, which outlines a complicated set of factors and tests. The legislation is focused on what constitutes a retail transaction (sale) of a tangible good.

Essentially, the position of DOR is to tax the sale of prewritten off-the-shelf type software, including such software even if it is downloaded or accessed over the internet. But if it is customized software or software utilized in connection with what is primarily a service to a customer, it is omitted from the new statute and deemed not taxable.

The determinations in gray areas will remain fact sensitive, but the language is intended to make it clearer that software services are not taxable. The statutory provisions should operate to make people in the SaaS industry more comfortable in concluding that they do not need to collect sales tax, unless they are engaged in a transaction that falls squarely into the retail product sale category as set out in the legislation.

On the other hand, HB 1316 takes a different approach. It uses similar language as is in SB 257 but adds several unique twists to the picture. First, it creates a new lesser rate for prewritten off-the-shelf type of software – with the apparent objective of identifying and monitoring the tax revenues associated with these transactions. It excludes transactions where the software is acquired by a business to perform its core business purpose. This business-to-business exemption component is of course a very positive thing and should be embraced. Finally, it looks to the long term potential of sales involving software as the industry continues to expand, plus creates a trigger reducing the standard sales tax rate for when total collections exceed $250 million (a threshold so high that it is hardly foreseeable in the near future.)

Perhaps it makes the most sense to combine the good pieces of these competing bills to produce the best end result. The Chamber sees much merit in doing all that is possible to clarify the state of the law regarding SaaS as is addressed in the Senate bill. This is needed and would be a positive step. But while unique aspects of the House bill present some real concerns, it also includes the most solid of tax principles – don’t tax business inputs. Exempting business-to-business transactions would prove a terrific encouragement to the SaaS industry to conduct their businesses in Indiana.

In the second half of the session, the Chamber will be leading the charge to resolve the SaaS clarification issue to the fullest extent possible.

A variety of other tech policy priorities are still in play. Here is a brief summary.