Summary of HB 1340 (Indiana, 2026 Session)
Title: Sales tax exemption for utility service
Purpose and intent
- The bill aims to provide a state sales tax exemption for the sale or furnishing of certain public utility services and commodities by a power subsidiary or a public utility to a consumer (commercial or domestic).
- Specifically targets utility-related transactions to reduce the tax burden on utility consumption.
Effective date
- July 1, 2026
Key provisions and changes
- Expands or codifies a sales tax exemption for public utilities and power subsidiaries:
- Exempts from the state gross retail tax the sale or furnishing of:
1) Electrical energy
2) Natural or artificial gas
3) Water
4) Steam
5) Steam heating service
- Conforming amendments to multiple Indiana Code sections:
- IC 4-37-4-6: Public utility transactions are exempt from state gross retail tax.
- IC 6-2.5-1-1, IC 6-2.5-4-5, IC 6-2.5-4-6, IC 6-2.5-5-5.1, and related sections are amended to align definitions and treatment of unitary transactions, gross retail income, and taxable/tax-exempt components consistent with the exemption for public utility services.
- Repeals: Repeal of IC 6-2.5-4-5 (a section defining a power subsidiary’s status as a retail merchant) and related adjustments to retail merchant treatment for utility services.
- Additional amendments address:
- How gross retail income is calculated and what components are included or excluded (delivery charges, third-party discounts, taxes, etc.).
- Treatment of charges by public utilities and power subsidiaries, including minimum or fixed charges and meter-based considerations.
- The treatment of charges in bundled or unitary transactions involving public utilities.
- The exemption status and exemption certificate procedures for utilities and entities covered by the bill.
- Exemption certificates and enforcement:
- Adds rules for exemption certificate issuance, maintenance, and renewal to reflect utility exemptions.
- Requires meter-number tracking and reporting for exemption eligibility and changes.
- Establishes procedures for department review, renewal, and revocation of exemption certificates.
- Related provisions for special cases and exceptions:
- Section 12 (new Sec. 59) explicitly sets the exemption for electrical energy, gas, water, steam, and steam heating service provided by a power subsidiary or public utility to a consumer.
- Maintains alignment with existing exemptions for government entities and certain public or regulatory contexts.
- Related to data centers and advanced computing:
- Sections 17 and 18 reference exclusive corporation authority and specific transaction award certificates for qualified data centers and related networks. These sections pertain to exemptions for utilities used in specialized facilities and are structured to require an exemption certificate and corporation-issued certificate for those products or services to be exempt. This is ancillary to the main utility exemption but interacts with broader exemptions in the same chapter.
- Technical corrections:
- Various conforming and technical amendments to ensure consistency across chapters and to reflect the removal or redefinition of certain utility transaction classifications.
Who would be affected
- Public utilities and power subsidiaries that furnish or sell essential utility commodities (electrical energy, natural/artificial gas, water, steam, steam heating service) to commercial or domestic consumers.
- Retail merchants and taxpayers involved in the sale or furnishing of utility services must align their tax collection and exemption practices accordingly.
- Utility customers (businesses and individuals) may benefit from the tax exemption on eligible utility services.
- Governmental and quasi-governmental entities with existing exemptions in similar contexts may see consistency improvements due to cross-references.
Procedural and timeline aspects
- Implementation date: July 1, 2026.
- The bill includes provisions for exemption certificate issuance, tracking, and renewal, with particular attention to meters and location-specific exemptions.
- Departments involved: Indiana Department of Revenue (DOR) would implement changes, issue and manage exemption certificates, and oversee compliance.
Estimated fiscal impact
- Revenue impact: The fiscal analyses indicate a potential state revenue reduction due to broadening the sales tax exemption to utilities. Estimates provided suggest:
- FY 2027: Revenue reduction between $704.1 million and $803.6 million.
- FY 2028: Revenue reduction between $791.8 million and $903.7 million.
- The 2025 baseline for total sales tax revenue was about $10.65 billion (context for the scale of impact).
- The Fiscal Analyses note that the Department of Revenue would need to implement changes with existing resources.
Summary
HB 1340 would formalize and broaden a sales tax exemption for utility services—electricity, gas, water, steam, and steam heating—provided by public utilities or their power subsidiaries to consumers. It includes comprehensive amendments to the Indiana Code to define unitary transactions consistently, adjust how gross retail income is taxed, update exemption certificate processes, and address related administrative details. The bill, effective July 1, 2026, anticipates a sizable potential reduction in state revenue, reflecting the broad scope of exempt utility consumption.
