Indiana Rules AI Chatbot Access Not Subject to Sales and Use Tax

The Indiana Department of Revenue issued administrative guidance determining that artificial intelligence (AI) chatbot services are not subject to Indiana sales and use tax. This ruling provides clarity for companies offering AI and software-as-a-service tools by reaffirming that remote access services remain outside Indiana’s sales and use tax base.

The Indiana Department of Revenue (the Department) recently issued Revenue Ruling #2025-02-RST concluding that charges for customer access to a generative AI chatbot are not subject to Indiana sales and use tax. The Department determined that the offering was a service and was not a transfer of software or specified digital products. The ruling reaffirms Indiana’s general approach that software as a service (SaaS) and other remotely accessed software fall outside the sales tax base unless a statute specifically provides otherwise.

The seller was headquartered outside of Indiana and offered customers access to a generative AI chatbot that performed “human-like” functions, such as drafting, analysis, coding, and problem-solving. Customers accessed the chatbot through a website or app, and no software was ever downloaded or transferred.

Indiana imposes sales tax on retail transfers of tangible personal property (including prewritten software), specified digital products when a permanent right of use is granted, and other specifically enumerated services. Because the chatbot was delivered entirely through remote access and customers did not acquire either a permanent right to any digital product or ownership of software, the Department concluded that the arrangement was a nontaxable service.

Looking Forward

Indiana’s administrative ruling highlights that when AI and other digital tools are delivered entirely through hosted, remote access through a website or free app, and no software or permanent digital product is transferred, the transaction generally will be treated as a nontaxable service for Indiana sales and use tax purposes. This approach is consistent with Indiana’s long-standing treatment of SaaS and provides helpful guidance for structuring AI offerings. At the same time, the analysis is fact-specific, and downloads, bundled digital content, or permanent use rights could potentially change the result.

Indiana is one of the first states to issue administrative guidance regarding the sales and use tax treatment of AI services. Other states may take different approaches depending on how their statutes and regulations define taxable digital goods or services, making it important for companies offering AI and other digital products or services to continue to monitor developments across jurisdictions.