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Indiana lawmakers push for Internet taxes

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A bipartisan duo of state lawmakers wants Congress to allow the states to collect sales taxes on Internet purchases, a move they say could bring hundreds of millions of dollars to cash-strapped Indiana and level the playing field for Hoosier retailers.

State Rep. Ed DeLaney, D-Indianapolis, was spurred into action after David Simon, CEO of mall developer Simon Property Group Inc., lamented that Internet retailers rarely charge their customers for sales tax, putting mom-and-pop stores and big-box retailers at a competitive disadvantage because they must add Indiana’s 7-percent sales tax to the customer’s bill.

“[The] Internet has a distinct advantage, which in my opinion is unfair,” Simon told the Economic Club on Sept. 16, “and hopefully we're looking for fairness in our tax system. If you sell it in the physical world versus the virtual world, it ought to be the same. … We need to level the playing field tax-wise.”

DeLaney has asked Sen. Luke Kenley, R-Noblesville, to bring the issue before the state Budget Committee, the five-member body that oversees state finances while the legislature is not in session. Kenley said he is not sure that’s the right forum, but DeLaney “is trying to do the right thing. I appreciate an ally on this.”

Kenley is on the national forefront of the issue; he is first vice president of the Streamlined Sales Tax Governing Board Inc., a body created in 1999 by the National Governors Association and the National Conference of State Legislatures to simplify the collection of sales taxes and thus remove the central reason online retailers say they cannot collect sales tax.

Kenley said he has plenty of allies—up to a point. For the past three or four years, he has visited Indiana’s congressional delegation in Washington D.C., urging lawmakers to pass the so-called Main Street Fairness Act. The U.S. Supreme Court ruled in 1992 that retailers need not collect sales tax in states where they do not have a physical presence. But Congress, as the arbiter of interstate commerce, could require such retailers to do so.

Members of Congress “all agree it’s the right thing to do, but they don’t get it done,” Kenley said. “They don’t want to be perceived as in any way asking anybody to pay any more taxes—even though they’re taxes that are already due.”

Indeed, when an Indiana resident buys, say, a juicer online, the retailer typically doesn’t charge sales tax if it doesn’t have a storefront or warehouse in Indiana. The purchaser owes a “use tax”—also 7 percent—because he’ll use the juicer in Indiana.

The local appliance store owner has lost that sale, possibly because he has to add sales tax. But “your bricks-and-mortar people hire employees, who pay taxes,” said Kenley, who ran Kenley Supermarkets in Noblesville from 1974 to 1998. “They give your people productive employment. They pay property taxes, so they support local government. Usually they’re sponsors of all the Little League baseball teams. …  They’ve really sacrificed and are committed to Indiana a lot, so I think we owe them a level playing field.”

Even large retailers are harmed when would-be customers take the time of sales associates to learn about the latest big-screen TV, only to go home and order it online, he said.

What’s more, hardly anyone pays the use tax. Stephanie McFarland, public relations director for the Department of Revenue, said only about $1.4 million in use taxes were self-reported on 2009 returns filed in 2010.

“My guess is 98 percent of us don’t file a use-tax return if we’re buying over the Internet,” Kenley said. DeLaney said it’s likely that few Hoosiers are aware that they owe the tax and those who are may be turned off by the effort it takes to retain receipts, decipher the purchases for which no sales tax was charged and declare the amount on their state income tax forms.

Whatever the reason, Hoosiers who don’t pay sales or use taxes deprive the state of as much as $400 million a year—not an insignificant amount, especially when the state faces a $1.3 billion budget deficit by fiscal 2012, Kenley said.

DeLaney said he knows that it’s an uphill political battle to persuade Congress to change the law. He wants the 2011 Indiana General Assembly to pass a resolution urging Congress to do so and a bill that spells out how the revenue would be used if that happened.

He will propose that the state devote a certain percentage to help small businesses, the very entities he believes are most harmed by the current situation. “Maybe that will get Washington’s attention,” DeLaney said. “In a curious way, this is a zero-cost stimulus program from Washington.”

Kenley said he is concerned that Indiana lawmakers may be just as skittish as their federal counterparts to pass anything that could be construed as a tax increase. But if the money were to become available, he said, his first priority would be public education, the funding of which was reduced $300 million last year. He also knows that “there’s going to be a million ideas about how to spend that money.”

Opponents of stronger Internet taxation say doing so would be a major hindrance to electronic commerce just as it’s becoming an established industry. They say collecting taxes puts an additional burden on Internet retailers, many of which are small businesses. And, opponents say, tax-collection mandates could drive popular e-commerce sites to set up operations outside the United States.

Amazon.com, the nation’s biggest online retailer, has a distribution center at Whitestown, but does not collect sales tax when Hoosiers buy its own merchandise. Kenley said Amazon representatives regularly attend meetings of the Streamlined Sales Tax group and their official position is that it’s fair to remit sales tax, but only if all online retailers do so.

Amazon contends that it need not collect sales tax in states, including Indiana, where it has distribution centers because its online business is a discrete legal entity. When New York enacted a state law requiring Amazon to remit sales tax, Amazon sued and announced it would pull its facilities out of all states that enacted similar laws, except California, Texas and Florida.

North Carolina, unable to force Amazon to collect sales tax, tried to collect the revenue for itself by retrieving from Amazon its buyers’ names, amounts of their purchases and broad categories of spending, since some purchases are tax-exempt. Amazon filed suit, saying North Carolina’s actions threatened customers’ privacy. The matter is pending.
 

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  • Level the playing field my arse
    Taxing internet sales will not level the playing field. People shop online because a) they can get a better price (without our without sales tax) and b) they can find what they're looking for much easier. The "level the playing field" argument is a joke. It won't do it and taxing internet sales will hurt internet retailers who have just as much right to sell to you and me as the brick and mortar stores do.
  • Misleading Greed
    The only reason you don't pay tax is if you are not purchasing the product from the state in which the item is received. It's the same online as it is in person. If I go to Vegas and purchase a watch, having it shipped and billed to my non-Nevada state, no tax. So if the mall go-ers are from out of state, they can request the items shipped to their state of residence and the store won't have to charge tax. That's why many online stores only have to charge tax to residents of specific states. They have physical locations in those states. You could do the same thing by picking up the phone and ordering everything from out of state stores and having them deliver to your house. What greedy nonsense.
  • 50 States 50 Sales Tax Rates
    I market many different products and services online nationwide if not global. I fight these tax laws because they are not reflective of the needs of both offline and online businesses working across state borders. One tax rate across the USA is what is needed. The law makers just want to put their name on something new so it looks like they are smart. 50 states, one rate, 5% looks nice. Fix your state budgets another way and make business EASY -- KISS keep it simple wasn't taught in law school I see.
  • Justice for all
    As a retail merchant, I think it would only be fair if I did not have to collect sales tax and forward the tax to the Indiana department of Revenue. I am positive that every sale would be reported by the customers and tax promptly paid by the customers,to the State of Indiana. Only then would I be on a level playing field with out of state merchants. ...I would also point out that the individuals who buy out of state because the item is not in stock... will wait 12 weeks for delivery of their goods. Your out of state vendor does not carry every item, in every color... Your local merchant employs local individuals who pay local taxes. Buying out of state? That creates a deficit in the local economy, Creates unemployment, Causes public services to be curtailed or eliminated. There is no free lunch.... let me take that back. Failure to pay taxes will in fact give you 3 free meals a day with lodging.
  • BTW, lawmakers should know current legislation basics
    BTW, DeLaney and Kenley should familiarize themselves with the law. The Use tax has been around for decades for this very situation - out of state sales of goods used in Indiana. They're just wasting our time and legislative costs trying to grab headlines for themselves.

    Enforce the Use tax law. That's all they need to do. But no, they want to push the task of collection onto business instead of having the consumer remit the tax on their state income tax return (yes this is a line on your state income tax return now, today, for you to pay tax on internet purchases).
  • We already have an internet tax
    Indiana already has an internet tax (it's known as Use Tax) to collect tax when sales tax is not collected. Indiana just doesn't enforce the law. Enforce it and forget a new tax. We have too many taxes now, no need for another duplicate tax.
  • Just a thought...
    Would it not be beneficial to perform a systematic review of all expenditures from State governments and, as most private industry must do, trim the fat and cut unproductive and failing programs? All to often, the solution lawmakers provide is throwing good money after bad into programs which do not perform or acheive intended results. Unfortunately, this may yet be another avenue to collect new taxes and fund unproductive programs.
  • GOP Deception????
    Jim,

    You need to quit getting your news from the mainstream mafia, I mean media. It is common knowledge the Simon's are huge Democrats and even sponsored a large fundraiser for Obama during the Presidential election. You've swallowed the Democrats' talking points hook, line and sinker that the GOP supports all "fat, rich guys", which is clearly false. You were dead on about the party supporting the fat rich guys and taking money from the poor, you just had the wrong party. By the way, poeple are outraged. They are called the Tea Party. Get on board.
    • Simon a GOP contributor?
      Jim - The first problem with your theory is that Simon is NOT a big Republican contributor; the Simons are Democrats!
    • Haha
      I love how they call Indiana "cash strapped." We are one of three states holding their heads above water right now, whats with the over exaggeration??? Even though it sucks I would have to pay more taxes I have to agree that it sucks, but the internet is cutting out of the money that Indiana made before. Does this tax hit Indiana buyers or just those who buy from companies selling online from Indiana?
    • STOP SPENDING STUPID
      First, it's ridiculous to claim online retailers have some kind of advantage over storefronts because of taxes, when the online retailer has the distinct disadvantage of having to add shipping costs to every purchase.

      Second, I'm getting really tired of paying taxes that are used to pay representatives that can't do anything except figure out more ways to give more people more cuts of more of my money, which, by the way, will require me to pay more taxes... this insanity has to end.
    • Poor Headline
      The proposed tax is not an Internet tax, but rather a sales tax on purchases made through the Internet. A very poorly worded headline.
    • Why stop at taxing the internet?
      Don't forget every dollar taken in taxes is one less dollar available for spending, saving or investing by the individual. Why does government always think they know more about spending my money than I do? Perhaps the answer isn't more taxation, but fewer entitlements and spending schemes from our brain dead legislator, two of whom are DeLaney and Kenley. And our polititians wonder why the Tea Party movement has gained such a voice. God forgive us for sitting on our haunches and electing such power drunk spender!
    • Not a New Tax
      I agree with the proposed legislation. Bricks-and-mortar businesses have to collect Sales tax. They compete directly with online sellers in many cases. Sales tax introduces a price disparity that hurts local businesses. State and local sales taxes are intended to collect money based on purchases (which helps correct for under-reported income), and use those funds to pay for local services such as police, fire, parks etc. Now that more business occurs online, those intended revenues have dropped off. In my opinion the Main Street Fairness Act is modernizing the law to catch up with the reality that so much business is now being conducted online.
    • Another burden
      Wouldn't that be against all existing NEXUS rules? If a business has no physical presence in a state, it does not need to collect taxes for the state. So Indiana wants to be the first state to break this rule? This would be a huge burden for small companies selling via the Internet. I can see why Simon wants to have this law - less competition.
    • GOP Deception Tax, tax tax, and give tax relief to the 2% club.
      The bottom line is that Simon is a big GOP contributor. He is threatened by competition and typically, he has asked the GOP to tax the heck out of internet sales. This would trickle down to more people who go to the malls and buy things, of which, Mr. Simon takes a cut of the net sales in addition to the rental fees for the space.
      Looks like the GOP is all about padding the fat rich guys and taking from those at the bottom. People should be outraged.
      I don't know anyone who chooses to buy on the internet because they will avoid paying sales tax. I find that they are offered items at a cheaper cost (after shipping) or they are offered items that are not available locally.
      • Expanded Sales Tax; Reduced Current Tax?
        The only way this should happen is if other taxes are reduced or repealed. It would be great if Indiana's out-of-control state income tax was done away with; property taxes would suffice as well. This legislation is nothing more than politicians looking for ways to expand government services, and therefore expand government itself.
      • Just another tax
        Our government has an insatiable appetite. More taxes on top of more taxes. Just another way to fatten their wallets. I'm tired of it!
      • Just another tax
        Our government has an insatiable appetite. More taxes on top of more taxes. Just another way to fatten their wallets. I'm tired of it!
      • Uhmmm
        Why stop there. All mail order businesses (catalog, etc) should be included too! Why descriminate against one channel of distribution...
      • Okay, let's switch
        I will gladly pay Internet taxes if they take away my property taxes. I am a senior on a fixed income living in a house over-assessed by a system that assesses on paper alone without actually visiting the property. As long as homeowners pay property taxes, they will never own their own homes.
      • Sales Tax
        Maybe they shouldn't charge sales tax at all. As mentioned, shipping charges sometimes offset sales tax charges. If they add tax to online purchases, it will run many of those companies out of business, which is possibly their secondary motive.
      • This will only hurt individuals
        The major internet seller is Amazon, and since they have a location in Indiana all residents are taxed on any Amazon purchase. Businesses are required to track and pay use tax monthly on all out of state purchases (including internet) and remit the tax to the state. The only people this will hurt are the individual taxpayers ... no way the State is losing big money Mr. Simon...
        • $400 million later.....
          ..readers should look up the IBJ article by Cory Shuten of April 20, 2009, describing the estimated $400 million in publicly provided tax and other financial rewards the Simons have received in the last 20 years...
        • Big picture
          When I buy over the Internet, it's often because the online retailer has a larger selection of styles and sizes than what is available in a Brick and Mortar store. And the shipping charges are often higher than what the sales tax would be if I bought it in a store. I don't mind shopping in a store, but if I can't find the item, I will go online. Why should I have to pay Indiana tax on an item I bought online because I couldn't get it in Indiana?
        • Give me a break
          People shop on-line for better reasons than to maybe save the 7% sales tax. It's easy, convenient, and less expensive.
        • of course
          Well, Leo, the money for those tax cuts has to come from somebody! Why not us poor saps?
        • More policitcal baloney
          The last two purchases I made on the internet from two different companies totaled over $900 and I was charged Indiana sales tax. I find it more and more difficult to believe the politicians and rich business owners.
        • Just Another New Tax
          This is nothing more than an attempt to create a new tax. There are more small business online today than major retailers. Politicians are always looking for more ways to take your money and big business is looking for another way to cut out any "advantage" small businesses may have.
        • Hypocrisy at work..
          As the Dimocrat national politicians rant about 'tax cuts for the rich', we are expected to ante up more tax dollars so that billionaire David Simon can get 'fair' treatment.....what a joke!

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        1. Really, taking someone managing the regulation of Alcohol and making himthe President of an IVY Tech regional campus. Does he have an education background?

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