By Mike Kerman and Charlie Kearns

The Indiana Department of Revenue (Department) found that a medical research company that purchased software licenses was entitled to an exemption from use tax for purchases of taxable computer software as long as it could show the licenses were ultimately used outside of Indiana. The Department added that an exemption is not permitted where a company shows that its licenses were not used in Indiana but fails to show that they were used elsewhere (“nowhere licenses”). Indiana provides a use tax exemption for property that is stored in the state temporarily awaiting subsequent use outside of Indiana. The taxpayer purchased software licenses from multiple vendors and, in each case, used only a portion of the licenses. For example, the taxpayer purchased 1,000 licenses from one vendor, but only used 63 of the licenses. Of those 63 licenses, the taxpayer only used two in Indiana and used the other 61 outside of the state. The Department explained that the taxpayer’s 937 “nowhere licenses” were not exempt from use tax based on the temporary storage exemption, because the taxpayer could not show that they were subsequently used out of state. Rather, only the 61 licenses that the taxpayer could show were used outside of Indiana were exempt. For use tax purposes, the “nowhere licenses” were effectively “used” in Indiana because the taxpayer purchased them and accepted delivery in Indiana, even though it did not actually employ the licenses. Ind. Letter of Findings No. 04-20140506, Ind. Dep’t of State Revenue (Aug. 26, 2015).