Elected Officials and State Budget and State Government and Taxes and Government & Economic Development and Government

Indiana lawmaker: Online tax could replace estate tax

January 3, 2012

A top Indiana lawmaker is floating the idea of using an online sales tax to help replace revenue that wouldn't be collected if a proposal to eliminate the state's inheritance tax becomes law.

State Sen. Luke Kenley, a Noblesville Republican who chairs Senate Appropriations Committee, wants Congress to require all online retailers to collect state sales taxes. He said it would be an ideal replacement for the inheritance, or estate tax.

"It's almost a one-for-one replacement and it's a perfect replacement for the estate tax," Kenley told the Times of Munster.

Indiana would stop collecting about $165 million a year starting in 2020 if lawmakers eliminate the state's inheritance tax, according to estimates.

Currently only online retailers with a physical location in a state are required to collect sales tax. Individuals are supposed to pay a 7-percent use tax for online purchases where sales tax wasn't collected, but the Indiana Department of Revenue said that few people do.

In November, Kenley told a Congressional committee that pending legislation sponsored by U.S. Sen. Dick Durbin, D-Ill., would ensure equality between online and brick-and-mortar retailers by requiring both to collect sales tax from their customers.

A November study by the Indiana Fiscal Policy Institute and Ball State University estimated that Indiana misses out on about $77 million a year by not collecting sales tax for all online purchases. Other studies put the state's annual loss at nearly $200 million.

Kenley said even though Indiana is on track to have a $1.77 billion budget surplus by June, the state needs to protect itself by replacing the revenue if a proposal to repeal the inheritance tax is enacted.

"The additional revenues that we see right now aren't really guarding us from a second-dip recession," Kenley said.

A coalition of Indiana retailers recently launched a lobbying push aimed at convincing state lawmakers to force online businesses to collect the state's 7-percent sales tax from customers.

The group, which calls itself Indiana Merchants for Tax Fairness, argues that the state's policy puts traditional stores at a disadvantage to online retailers and costs the state millions of dollars in tax revenue each year.

Indiana's current policy dates to a 2007 deal to get Amazon.com to open its first warehouse in Indiana that came with the promise that state lawmakers wouldn't push for an online sales tax. Amazon now has three distribution centers open in central Indiana and announced plans last summer for a fourth.

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