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The Journal Gazette

Thursday, May 25, 2017 1:00 am

Online upkeep

Sales tax for internet purchases levels playing field

Lost in the glare of a gasoline tax hike approved by the Indiana General Assembly was another sales tax issue. It's not an increase, but it is likely to cost many Hoosiers more money this year. Effective July 1, House Enrolled Act 1129 requires online merchants to collect the 7 percent tax for Indiana sales even if they do not have business operations in the state.

Indiana residents were always obligated to declare internet purchases on their state tax returns, but few complied. The new law moves the responsibility to the seller to collect and remit the taxes to the state. It finally makes good on a fundamental fairness issue by eliminating the 7-percent price advantage online merchants have enjoyed over brick-and-mortar retailers.

Currently, the only online retailers required to collect state sales tax are those with a physical presence in Indiana. That includes Amazon, the granddaddy of all internet merchants, because it has warehouse operations here. Under the new law, any business with annual Indiana sales of at least $100,000 or 200 separate transactions will be required to collect the tax. The Department of Revenue is authorized to take legal action against merchants who fail to comply.

The revenue involved is significant. A 2012 study by the Indiana Fiscal Policy Institute and Ball State University estimated the state's revenue loss from online sales at $77 million a year, while a University of Tennessee study the same year placed the figure at $195 million annually. The use tax voluntarily paid by Indiana residents for online purchases in 2013 was just $2 million – a fraction of the estimated obligation. Online commerce has only grown since the 2012 estimates.

Sen. Luke Kenley, chairman of the Senate Appropriations Committee, has worked for years to address the inequity in sales-tax collections as head of a multistate group pushing for a federal solution to the problem. This year the Noblesville Republican filed a Senate bill carrying the internet sales language, including this remarkable call-out: “The Supreme Court of the United States should reconsider its doctrine that prevents, under certain circumstances, states from requiring remote sellers to collect gross retail tax. ... Expeditious review is necessary and appropriate because ... such refusal causes imminent harm to Indiana.”

The language was included in the broader House bill Gov. Eric Holcomb signed into law. It might not sway the Supreme Court, but some observers believe a Colorado case challenging the 25-year-old precedent on which states have been barred from collecting from online merchants could move forward now that Justice Neil Gorsuch has joined the court. In an opinion on the Colorado case, Gorsuch wrote that the grounds for the 1992 ruling were designed to “wash away with the tides of time.”

Kenley said he's pleased the bill finally passed.

“I was a retailer for many years,” he said. “It is completely an issue of fairness – particularly for the small, independent business owners, and we need those guys to keep the big guys honest.”

On this issue, technology got ahead of tax policy and judicial precedent compounded the problem, but give Indiana lawmakers credit – and Kenley, in particular – for catching up and restoring some fairness.