Summary: The 2026 Indiana legislative session delivered impactful tax and policy updates, focusing on clarifying laws, closing loopholes, and refining compliance requirements across the board. Lawmakers also introduced stricter enforcement measures, expanded taxpayer obligations, and advanced initiatives such as tax amnesty expansion and incentives tied to a potential Chicago Bears stadium development.

Following a three-month period of negotiations, the Indiana General Assembly closed its 2026 session on Feb. 27, 2026. Because the state’s two-year spending plan was finalized last year, lawmakers could not revisit the primary budget or approve additional funding measures. Instead, lawmakers focused on making administrative changes such as clarifying ambiguous laws, updating policies, and closing procedural loopholes.

Tax Conformity and Strategic Decoupling From the OBBB

From a taxpayer’s perspective, one of the most noteworthy measures was Senate Bill (SB) 243. This bill addressed whether the state of Indiana would align with the federal One Big Beautiful Bill (OBBB) signed into law last year. Indiana has historically decoupled from the Internal Revenue Code (IRC) on key provisions, and SB 243 maintained these long-standing departures – and extended them to many of the new provisions in the OBBB.

As expected, Gov. Braun signed Senate Bill 243 into law, thereby updating Indiana’s position on its conformity with the IRC for tax years beginning on or after Jan. 1, 2026.

Key OBBB Conformity Items

• Domestic Research and Experimental (R&D) Expenses – Section 174 and Section 174A: Following the passage of OBBB, taxpayers have the ability to fully deduct domestic R&D costs in the year incurred under IRC Section 174A. In prior years, federal tax law had required these costs to be amortized over a five-year period. Indiana generally decoupled from the TCJA Section 174 capitalization rule and allowed current year expensing, which continues to be the state’s position in 2025 and after.

Where taxpayers need to pay attention, though, is when amending prior-year federal returns. The OBBB permits certain taxpayers to amend returns from 2022 to 2024 to expense these costs retroactively. If you’re amending your federal return for those years to take advantage of larger R&D deductions, you will likely need to amend your Indiana returns to reconcile the state-level deductions you already claimed.

• Qualified Bonus Property and Qualified Production Property (IRC 168(k) and IRC 168(n)): Indiana is among the states that fully decouple from bonus depreciation. SB 243 maintains this decoupling, even as the OBBB brought back 100% depreciation and removed the prior phaseout under federal law. Indiana also decoupled from the OBBB’s accelerated depreciation rules for qualified production property. Taxpayers who take advantage of these accelerated deductions on their federal returns must recalculate the state-level deduction.

• Business Interest – Section 163(j): Indiana has decoupled from the 163(j) interest limitation provisions and continues to allow a full deduction for business interest expense. As a result, highly leveraged businesses will continue to be able to take the full interest deduction in Indiana, even if their federal deduction is capped.

• No Tax on Tips, Overtime, and Vehicle Loan Interest: The OBBB created new federal deductions for tipped workers, workers with overtime earnings, and certain vehicle loan interest. These “no tax on tips, “no tax on overtime,” and passenger vehicle loan interest deductions apply federally for tax years 2025 through 2028. SB 243 affirms that Indiana conforms to this treatment, but only for 2026. Legislators will likely spend this time monitoring the effects of this conformity and determine next year if the conformity should be extended through 2027 and 2028.

Tax Administration and Enforcement Changes

SB 243 altered Indiana’s tax code in several other ways. Some of these changes are positive, and others could be viewed as less friendly to Indiana taxpayers. Taken together, they affect several areas of Indiana tax law. We begin with the income tax changes:

• Composite Penalty Relief: In prior years, the state had been able to impose a penalty on businesses that fail to include all shareholders on their composite return. SB 243 removed this penalty for zero-income shareholders, an administrative win for businesses.

• Extended Period To Amend: Prior to SB 243, taxpayers were only given 180 days to amend their state income tax returns following a final federal adjustment. This period jumps to 365 days if the federal modification occurs after Dec. 31, 2025.

Beyond income tax, SB 243 also includes a number of sales tax changes.

• Closing the Montana LLC Loophole: For years, taxpayers have tried to avoid Indiana’s 7% sales tax when purchasing high-ticket property by using a tax avoidance maneuver called the “Montana LLC Loophole.” Under this strategy, out-of-state residents form a Montana LLC and title high-value assets such as luxury vehicles, motorhomes, aircraft, and collector cars in the name of that entity. The perceived benefit is avoiding sales or use tax and reducing registration and permitting costs in the taxpayer’s home state.

The state of Indiana has been fighting these tax avoidance schemes for years, but SB 243 makes their job a lot easier. Now, the tax will be assessed based on residency and use of the vehicle rather than where it was registered. Taxpayers who attempt to avoid taxes using this scheme will face penalties. And because the law change applies retroactively, taxpayers who used this scheme as far back as 2023 could face tax, penalties, and interest.

• The Penny Phase-Out: With the penny no longer in production, Indiana had to codify how future cash transactions would be processed. The final provision states that any state or local tax, fine, or fee paid in cash would be rounded to the nearest nickel. For taxes collected by a business acting as an agent (such as a business collecting sales tax on retail transactions), the business should calculate the tax on unrounded totals and only round down the final amount to be remitted.

Finally, SB 243 also includes several administrative and enforcement changes.

• Personal Liability for Unpaid Taxes: Taxes held in trust are taxes that a business collects and holds for a period before remitting them to the state (e.g., employee withholdings, sales taxes, food and beverage taxes, gasoline use taxes, innkeepers taxes, etc.). Indiana has historically had limited statutes outlining personal liability for unpaid taxes. SB 243 extends potential personal liability by expanding the taxes to which responsibility applies beyond the traditional “trust taxes” of sales/use and withholding and by expanding the definition of who qualifies as a responsible person beyond officers or owners. In addition to owners and officers, those operating in positions where filing or paying Indiana taxes or consulting on the filing or paying of Indiana taxes is part of their role should be aware of these changes. In effect, the law now extends personal liability to nearly any individual that has a “duty to remit,” which could include accounting clerks, payroll specialists, controllers, and contractors. Consider changing both job descriptions and in practice who in your organization files and remits those taxes to protect those individuals from personal liability.

• Notices Now Sent Electronically: Indiana approved a new method for contacting taxpayers. While mailed documents continue to be an acceptable method, the law now permits the Department of Revenue to send certain notices and other documents electronically, including exclusively through the department’s online tax system called INTIME. Registered Taxpayers may also elect to receive all documents and notices electronically through INTIME.

If you’ve ever created an account in the INTIME system, you may start to receive notices electronically, even if you’re not an active user. If your business doesn’t monitor the portal, or if login information is lost during periods of high turnover, you may miss key deadlines, such as payment of penalties or the ability to appeal. Taxpayers should look at their e-delivery election within INTIME, monitor their inbox regularly, and, if they are a business owner, make sure multiple employees can access the INTIME system at any given time. Additionally, regularly monitoring and updating contact information provided to the Department of Revenue, including mailing addresses and email addresses can assist in ensuring all correspondence is timely received.

• Expanded Reach of Tax Warrants: Tax warrants are civil judgments that are issued to taxpayers that have unpaid state tax debts. As a result of SB 243, tax warrants now work differently than they have in the past.

When a warrant is filed, a lien is also placed on the taxpayer’s property. Previously, warrants could only be served in the county where the taxpayer owned property. But under SB 243, a single filing effectively attaches to any property the taxpayer owns in the state. This makes it much easier for the state to place a lien on a taxpayer’s property for unpaid taxes.

Property liens are difficult to remove, so it’s best for taxpayers to avoid the tax warrant stage to begin with. Tax warrants are issued quickly, as early as 20 days after a demand notice was mailed. So, if you receive a demand notice, respond promptly, even if you believe it was issued in error. Taxpayers with questions should contact their KSM advisor. Staying out of the tax warrant process is the simplest way to protect your property.

• Extended Tax Amnesty Period: SB 243 extended the eligibility period for Indiana’s upcoming tax amnesty program by one additional year to include tax years ending before Jan. 1, 2024. The amnesty program will run for eight weeks from July 15 through Sept. 15, 2026. During this period, taxpayers can proactively resolve unpaid tax liabilities, and the Department of Revenue will waive penalties, interest, and collection fees for participants.

Relocation of the Chicago Bears

The Indiana legislature enacted new tax provisions clearing the way for the Bears to move to Indiana. Senate Bill 27 allows certain localities in Northwest Indiana to implement additional taxes or increase the rates associated with existing taxes to help finance a new stadium if and when a formal deal with the Bears is signed. Here are a few things to know:

• Certain cities and counties in Indiana are approved to establish additional taxes like food and beverage, innkeepers, and admissions taxes.

• Certain new taxes imposed or certain rate increases to existing taxes will expire once the stadium’s debt has been paid off.

• The city of Hammond is permitted to establish a development district where the stadium would be built, allowing them to collect incremental tax revenue under the TIF (tax increment financing) structure.

Want To Learn More?

Read more below about key changes made by the Indiana General Assembly in the 2026 legislative session. If you have questions or need more information, reach out to your KSM advisor or contact us using the form below.

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Income Tax

Federal Modifications and Indiana Amended Returns: Effective Jan. 1, 2026, if a modification occurs on a federal income tax return of a C corporation, financial institution, individual, estate, or trust and affects either federal or Indiana income tax liability, a notice (in the form and manner prescribed by the department) and an amended Indiana return must be submitted to the Indiana Department of Revenue (DOR) within one year, if the modification occurs after Dec. 31, 2025. This is extended from the current 180-day deadline.

Federal Partnership Audit Adjustments: Effective Jan. 1, 2026, the deadline for tier 1 partnership entities that receive a final federal adjustment to make the required adjustments and file an Indiana amended return is extended from 180 days to one year, if the final federal determination is received after Dec. 31, 2025. The deadline for the Indiana DOR to issue a report of proposed partnership adjustments arising from final federal adjustments to direct and indirect parts is extended to 1 year.

Composite Return Penalty: Effective March 3, 2026, Indiana limits the $500 composite return penalty for pass-through entities to situations where the entity fails to include nonresident partners or shareholders that have a distributive share of Indiana-source income greater than $0.

Expansion of Local Income Tax: During the 2025 legislative session, Indiana changed its local income tax structure to allow municipalities (cities and towns) to impose their own local income tax of up to 1.2% and to cap the combined county and municipal rate at 2.9%. These changes were originally scheduled to take effect in 2028. In the interim, counties were allowed to impose an additional replacement local income tax rate of up to 0.3% to offset a county property tax decrease, and that authority was set to expire on Jan. 1, 2028. Effective retroactive to July 1, 2025, Indiana delays the new municipal rate framework until 2029. In conjunction with this delay, the interim 0.3% replacement rate now remains available through Jan. 1, 2029.

Nonresidents With a Principal Place of Employment in Indiana: Effective Jan. 1, 2029, Indiana clarifies that nonresidents with a principal place of employment in an Indiana county remain subject only to the county local income tax. The municipal component of the local income tax does not apply to nonresidents under the principal place of employment rule.

Tax Year 2025 Conformity Updates: IRC Conformity: For tax year 2025, Indiana’s static IRC conformity date remains Jan. 1, 2023. Conformity to Federal Deductions: Starting with the 2025 tax year, Indiana follows three new income tax deductions enacted under the OBBB. These include deductions for qualified adoption expenses (IRC 23), accelerated depreciation for certain biomass property and renewable generation equipment ((IRC 168(e)(3)(B)(vi)), and high-deductible health plans that cover telehealth and other remote care services without requiring a deductible (IRC 223(c)(2)(E)). Research and Experimental Expenses (IRC 174 and 174A): Beginning Jan. 1, 2025, Indiana adds new rules for taxpayers that make the federal election provided by the OBBB to recover domestic research expenses that were capitalized for the 2022–2024 tax years. If a taxpayer elects to prospectively deduct the remaining unamortized balance over one or two years on their federal return(s), Indiana requires an adjustment that adds back any federal amortization deduction for domestic research expenses. For federally qualifying “small business taxpayers” that instead elect to deduct 2022–2024 research costs in the year incurred by filing amended federal returns, Indiana will follow the federal treatment. In that case, the taxpayer must amend all affected Indiana returns for any year in which the taxpayer reported Indiana’s Section174 modifications or filed an amended federal return with the IRS. For domestic research and experimental expenditures incurred during tax year 2025 and thereafter, Indiana continues to allow for a current deduction in the year paid or incurred. Qualified Bonus Property and Qualified Production Property (IRC 168(k) and IRC 168(n)): Indiana continues to decouple from federal bonus depreciation, and beginning Jan. 1, 2025, Indiana also decouples from the OBBB’s accelerated depreciation rules for qualified production property. Taxpayers that claim these federal depreciation benefits will need to recompute depreciation for Indiana purposes and report an adjusted gross income modification for the difference between the federal depreciation claimed and the depreciation allowed under Indiana rules. Business Interest Expense Limitation (163(j)): Indiana continues to decouple from the federal business interest expense limitation. Taxpayers may subtract the amount of business interest disallowed at the federal level in the year the interest was first paid or accrued. Taxpayers must also continue to add back any interest previously deducted for Indiana purposes when that interest later becomes deductible for federal purposes. Section 179 Expenses: Indiana continues to decouple from the federal Section 179 expensing limit. Even though the OBBB increased the federal limit, Indiana’s cap remains $25,000 per taxable period.

Tax Year 2026 Conformity Updates: IRC Conformity: For tax year 2026, Indiana has a new static IRC conformity date of Jan. 1, 2026. However, Indiana continues to decouple from certain federal provisions, including: IRC Section 163(j) – Business interest limitation IRC Section 168(k) – Bonus depreciation IRC Section 179 – Expensing IRC Section 168(n) – New OBBB depreciation provisions Qualified Overtime Wages (IRC Section 225): For taxable years beginning after Dec. 31, 2025, and ending before Jan. 1, 2027, Indiana allows individual taxpayers to claim an adjusted gross income deduction for qualified overtime wages, equal to the amount allowed for federal purposes under the OBBB. Qualified Tips (IRC Section 224): For taxable years beginning after Dec. 31, 2025, and ending before Jan. 1, 2027, Indiana allows individual taxpayers to claim an adjusted gross income deduction for qualified tips, equal to the amount allowed for federal purposes under the OBBB. Qualified Passenger Vehicle Loan Interest (IRC Section 163(h)(4)): For taxable years beginning after Dec. 31, 2025, and ending before Jan. 1, 2027, Indiana allows individual taxpayers to claim an adjusted gross income deduction for qualified passenger vehicle loan interest, equal to the amount allowed for federal purposes under the OBBB.

Sales Tax

Rules Surrounding the Phaseout of the Penny: Effective Jan. 1, 2027, Indiana will require cash transactions to be rounded under the state’s penny phase out rules. For purposes of retail sales tax, food and beverage tax, and other state or local tax that is imposed on a transaction and that is required to be withheld by a person or entity acting as an agent or trustee for the state or a local unit, the tax will still be calculated under existing rules on the unrounded transaction amounts, and the rounding adjustment will apply only to the final cash amount due, including tax. The final cash amount may be rounded down to the next $0.05, rounded up to the next $0.05, or rounded to the nearest $0.05 under Indiana’s statutory nickel-rounding convention.

Rebuttable Presumption for Certain Out-of-State Vehicle and Trailer Purchases: Effective retroactively to July 1, 2023, Indiana creates a rebuttable presumption that the sales tax exemption for cargo trailers, recreational vehicles, motor vehicles, aircraft, and watercraft registered for use outside Indiana does not apply when: The item is purchased by a business with an Indiana resident member, partner, or officer owner and is titled in the business’s state of organization, if that state does not impose a sales and use tax; and An Indiana resident owner transfers the property to such a business and the item is titled in the business’s state of organization in a state without a sales and use tax. The presumption may be rebutted by evidence such as the following, among other facts and circumstances: The property is insured for primary use at an address outside Indiana; The property will be permanently stored or garaged at a physical address outside Indiana; or The Indiana resident owns a secondary residence in the state in which the property is titled or registered.

Qualified Data Center User Electricity Contribution Requirement: Effective July 1, 2026, to be able to use a specific transaction award certificate permitting exempt purchases of qualifying data center equipment, a qualified data center user that receives will be required to pay an amount equal to not more than one percent (1%) of the state gross retail and use taxes not paid on the facility’s total electricity billed (as a result of using the transaction award certificate) each calendar quarter to the awarding municipality.

Manufactured Home Sales Tax Exemption Expanded: Indiana has expanded the definition of “manufactured home” for purposes of the partial-sales tax exemption. Under this change, a structure that otherwise meets the manufactured home requirements is treated as a qualifying manufactured home for sales tax purposes if it is more than 35 body feet in length.

Local Taxes Authorized for Northwest Indiana Stadium Authority Projects: City of Hammond Admissions Tax: Effective Feb. 26, 2026, the fiscal body of the city of Hammond may impose an excise tax of up to twelve percent (12%) on admissions to events held at a facility with a seating capacity exceeding 40,000, excluding personal seat licenses. Lake County Innkeeper’s Tax: Effective Feb. 26, 2026, Indiana sets a deadline for Lake County to adopt an ordinance increasing the innkeeper’s tax rate. Lake County may increase the existing rate by up to an additional 5% if the ordinance is adopted by June 30, 2027. Lake County and Porter County Food and Beverage Tax: Effective Feb. 26, 2026, Lake County and Porter County may adopt a countywide food and beverage tax, provided the ordinance is adopted by July 1, 2026. If adopted, these taxes and rate increases will remain in effect while any amounts owed under applicable leases or agreements with the newly formed Northwest Indiana Stadium Authority remain outstanding.

Bedford Food and Beverage Tax: Effective July 1, 2026, the city of Bedford may impose a food and beverage tax of not more than one percent (1%) on transactions in which food or beverages are furnished, prepared, or served, unless otherwise exempt.

Exemption for Certain Youth Organizations: Effective July 1, 2026, all sales of tangible personal property are exempt from sales tax if made by a youth organization with an educational purpose that promotes patriotism and civic involvement, or that is exempt from federal income taxation as a U.S. non-profit organization and promotes youth shooting sports.

Administrative Changes

Multiple Delivery Methods, Including Electronic Delivery: Effective March 5, 2026, the Indiana DOR has additional ways it may now deliver certain documents to taxpayers. In addition to traditional postal methods, taxpayers may receive correspondence from the department electronically, including exclusively via INTIME accounts. Furthermore, registered taxpayers may affirmatively request delivery of all documents to be sent exclusively through INTIME in lieu of receiving notices in the mail. Additional guidance is expected from the DOR regarding the form of such affirmative request. Note: Exclusive notification through INTIME is an efficient and effective way to receive information from the department only to the extent that registered taxpayers maintain access to their INTIME accounts. KSM recommends clients conduct regular checks on their INTIME account access and passwords if opting into exclusive notification through INTIME. Additionally, regularly monitoring and updating contact information provided to the department, including mailing addresses and email addresses can assist in ensuring all correspondence is timely received.

Expanded Tax Warrant Process: Effective July 1, 2026, Indiana clarifies that a tax warrant judgement lien applies statewide, rather than being tied to a single county. Although the lien applies statewide, tax warrants are recorded and released through county judgment records. The new provision provides that when tax warrants are recorded in multiple counties, taxpayers must file affidavits in each county where a warrant was filed. The law also expands the circumstances in which the department may file a tax warrant with the Marion County circuit court clerk. In addition to the existing rule allowing the department to file in Marion County when  the taxpayer does not own property in Indiana or the department cannot determine whether or where the taxpayer owns property in Indiana, the department may now also file in Marion County if the taxpayer does not reside in Indiana, is not domiciled in Indiana, or the department cannot determine the taxpayer’s residence or domicile.

Simplified Expungement Process: Effective July 1, 2026, Indiana also codifies a formal process for requesting expungement of a tax warrant. First, there is a procedural requirement. The taxpayer must submit a department-prescribed form and supporting documentation. This is not automatic relief. The department has three independent grounds to grant expungement: The warrant was filed in error; Expungement is in the state’s best interest; or Expungement will facilitate collection of outstanding liabilities Expungement is considered “in the best interest of the state” if and when: All liabilities (tax, interest, penalties) tied to the warrant are fully paid; All required returns have been filed; The taxpayer is currently compliant on all other filings and payments; and There is no pending litigation on the warrant Even if compliant, department retains broad discretion to deny relief and may evaluate additional factors, such as: Size and age of the liability; Existence of other liabilities or warrants; Whether the taxpayer had notice; Efforts to resolve before the warrant; Whether delays were the taxpayer’s fault; Procedural defects or invalidity of the warrant; or Overall filing compliance Once a decision is made, the department must formally issue a written approval or denial, so the process results in a documented determination. Finally, the commissioner can deny expungement if the warrant arose from fraudulent, intentional, or reckless conduct, regardless of other factors.

Expanded Tax Amnesty Program: Indiana’s upcoming tax amnesty program was originally enacted during the 2025 legislative session and applied to unpaid tax liabilities of any tax type for tax years ending before Jan. 1, 2023. In the 2026 legislative session, Indiana expanded the program to include unpaid tax liabilities of any tax type for tax years ending before Jan. 1, 2024. Participation is expected to eliminate interest and penalties related to the disclosed tax liability.

Taxes Held in Trust and Responsible Persons: Effective July 1, 2026, Indiana added two new sections to clarify the personal liability rules for “taxes held in trust” and the definition of “responsible person.” “Taxes held in trust” means a listed tax that is collected or received from customers; withheld for amounts paid or credited to any individual or other entity; or held in trust or as an agent of the sate under the applicable listed tax, which upon receipt or accrual becomes property of the state. “Listed taxes” includes, among others, sales and use tax, state and local income tax withholding, financial institutions tax withholding, gasoline and special fuel taxes, auto rental excise tax, aviation fuel excise tax, heavy equipment rental excise tax, vehicle sharing excise tax, electronic cigarette tax, innkeeper’s taxes, and local food and beverage taxes. A “responsible person” is defined as: An individual, including a sole proprietor or an employee, contractor, officer, or member of an applicable business entity; and Who has a duty to remit listed taxes held in trust for the state. The determination of “responsible person” shall be made separately for each listed tax.  Additionally, a taxpayer and each responsible person are jointly and severally liable for the payment of those trust taxes, including any related penalties and interest. Additional guidance from the Indiana DOR is expected. Note: These changes extend potential personal liability associated with Indiana taxes by expanding the taxes to which responsibility applies beyond the traditional “trust taxes” of sales/use and withholding and by expanding the definition of who qualifies as a responsible person beyond officers or owners.  In addition to owners and officers, those operating in positions where filing or paying Indiana taxes or consulting on the filing or paying of Indiana taxes is part of their role should be aware of these changes.

Property Tax

Reinstatement of 30% Minimum Valuation for Utility Personal Property (House Bill 1406): During the 2026 Indiana Legislative Session, House Bill (HB) 1406 reinstated the 30% minimum valuation floor for certain utility personal property. The 30% floor requires qualifying depreciable business personal property to be assessed at no less than 30% of original cost, regardless of depreciation. While law enacted during the 2025 Indiana legislative session removed this requirement for most taxpayers for property placed in service after Jan. 1, 2025, HB 1406 reinstated the 30% floor for utility companies (e.g., light, heat, and power providers). As a result, the change applies retroactively to property placed in service after Jan. 1, 2025, and utility companies must continue applying the minimum valuation, while most non-utility businesses remain exempt for newer assets.

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KSM’s State & Local Tax Group closely follows the Indiana General Assembly and keeps detailed records of even minor law changes. Thus, if you have questions about how these or other pieces of legislation might affect your business, please contact your KSM advisor or fill out the form below.

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