Indiana Implements Heavy Equipment Excise Tax

Effective Jan. 1, 2019, Indiana implemented a new excise tax on the rental of heavy equipment from a location in Indiana. The rental excise tax is 2.25 percent of the gross retail rental income. The renter is liable for the tax, and it will be collected by the retail merchant and sourced to the location from which the equipment is rented. The tax may be reported in the same manner used to report the retail merchant’s Indiana sales and use tax (INTax).

Heavy rental equipment is defined as property that meets all of the following criteria:

• owned by a person or business that:
  • is classified under North American Industry Classification System (NAICS) code 532412 in effect on Jan. 1, 2018
  • is a retail merchant in the business of renting heavy equipment, including any attachments

• not intended to be permanently affixed to any real property
• not subject to registration as a motor vehicle for use on a public highway

Equipment this new tax would apply to includes the following types:

• Bulldozer rental or leasing without operator
• Construction machinery and equipment rental or leasing without operator
• Crane rental or leasing without operator
• Earth moving equipment rental or leasing without operator
• Forestry machinery and equipment rental or leasing
• Heavy construction equipment rental without operator
• Logging equipment rental or leasing without operator
• Oil field machinery and equipment rental or leasing
• Oil well drilling machinery and equipment rental or leasing
• Welding equipment rental or leasing
• Well drilling machinery and equipment rental or leasing

The term does not include equipment rented for mining purposes or heavy equipment that is eligible for a property tax abatement deduction during the calendar year it is rented.

Rental includes transferring possession or control of the heavy rental equipment for consideration for a period not to exceed 365 days or for a period that is open-ended under the terms of the rental contract with no specified end date.

Rentals to the U.S. government, the state, or political subdivisions and agencies/instrumentalities of the U.S. government and the state are exempt. Additionally, if the transaction is a subrent of the heavy rental equipment from a rentee to another person, and the rentee was liable for the tax imposed under this chapter, it is exempt.

Finally, heavy rental equipment that is rented or held in inventory for rental or sale which is subject to the heavy rental equipment excise tax is excluded from Indiana’s personal property tax assessment.

The heavy rental equipment excise tax was intended to be a replacement for the personal property tax on heavy equipment owned and rented to others by companies primarily engaged in renting or leasing heavy equipment without operators. However, whereas the leasee (user) is liable for the tax, the retail merchant (lessor) will collect and remit the tax. The tax is to be a separately stated amount added to the consideration for the transaction. If the rental tax applies to the transaction, it is due regardless of the ultimate use of the equipment (i.e., no exemption for work performed for a nonprofit or other tax-exempt entity). The definition of “heavy rental equipment” does not include equipment eligible for a property tax abatement, excluding that equipment from the excise tax as it would have been excluded from property tax.

Although the heavy rental equipment excise tax is already effective, the Indiana Department of Revenue may still issue written guidance or regulations to explain its interpretation of how the tax should be applied. KSM will keep you informed as new guidance or regulations are published by the Indiana Department of Revenue.