On July 23, 2025, the Indiana Department of State Revenue issued Revenue Ruling # 2025-02-RST holding that generative artificial intelligence (AI) services accessed through web browsers or application programming interfaces are considered services and not subject to sales/use tax. The ruling involved a company headquartered outside of Indiana that provides advanced AI services to customers through a generative AI chatbot trained to respond to plain language prompts in a human-like manner, assisting with writing, analysis, coding and problem-solving.

In reaching its conclusion, the Department characterized the taxpayer’s offering as service and not a digital product, as defined. Indiana sales and use tax is imposed on products transferred electronically only if the products meet the definition of specified digital products, which are electronically transferred digital audio works, digital audiovisual works, or digital books. The Department also reaffirmed that Software as a Service (SaaS) is not taxable in Indiana, and charges for accessing prewritten computer software electronically via the internet where no permanent ownership interest, control or possession in the software is acquired are not subject to sales tax.  Because the AI service is not a digital product, it is accessed electronically with no permanent ownership aspect, and customers have no permanent ownership of the chatbot, the Department concluded that the AI service is not subject to sales tax.

The ruling aligns with Indiana’s general approach of not taxing services unless specifically enumerated, and reinforces the state’s position that SaaS offerings accessed electronically without permanent ownership are not subject to sales tax.

Revenue Ruling # 2025-02-RST, Indiana Department of State Revenue (July 23, 2025).