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Study: State loses millions annually in online sales taxes

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A report released Tuesday morning by the Indiana Fiscal Policy Institute says the state annually loses $40 million to $114 million in sales tax revenue from online sales.

The not-for-profit, along with Ball State University’s Center for Business and Economic Research, conducted the study to help state legislators who plan to take a more serious look at the issue.

“Historically, this has been left to the states, because it’s a state sales-tax issue,” said John Ketzenberger, president of the Fiscal Policy Institute. “But the patchwork of tax districts has caused a lot of people to think that one federal tax might make more sense.”

Whether Indiana should collect sales tax from online retailers has become somewhat of a hot potato, in light of a lawsuit filed early this month by local shopping mall owner Simon Property Group Inc.

Simon’s suit supports the contention of retail advocates that state law already requires the Indiana Department of Revenue to collect sales taxes from online retailer Amazon.com Inc.

To help lure Amazon to Indiana, the state repealed a law in 2007 that required companies that didn’t maintain a place of business in the state but had affiliated locations to get a retail merchant’s certificate, which would subject them to the same tax-collection duties as brick-and-mortar shops.

Amazon has four distribution centers in the state.

The Fiscal Policy Institute’s report contests the notion that a sales-tax exemption is the most important factor leading Amazon to locate operations in Indiana. Rather, Ketzenberger argued that a central location, access to interstates and a viable work force are more important.

“There are far greater questions that are a concern to an organization when they decide to locate somewhere,” he said.

Both state and federal lawmakers, meanwhile, are beginning to weigh in on the issue.

Sen. John Broden, D-South Bend, intends to file a bill in the coming legislative session that would force the state to collect sales taxes from online retailers that have a physical presence or affiliated distributors in the state.

Nine states so far have instituted measures requiring retailers, whether or not they have a physical presence there, to remit online sales taxes.

Indiana Gov. Mitch Daniels’ administration and Amazon officials have advocated a federal solution to address the issue. Three bills are pending in Congress.

Sen. Luke Kenley, a Noblesville Republican, has been at the forefront of efforts to get a federal law requiring online sales-tax collections.

“I’m strongly in favor of doing this, but it has to be done at the federal level,” Kenley said. “The Indiana Legislature cannot do it, in order to achieve a complete solution.”

Estimates of Indiana’s sales tax revenue lost to online sales have varied widely, from as little as $33 million a year to as much as $398 million, according to the Fiscal Policy Institute’s report.

Using existing data and new methods for analyzing the data, the institute pegs Indiana’s annual losses at $40 million to $114 million.

A similar amount likely is also lost to traditional mail-order sales, according to the report.

 

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  • Really?
    We have known for YEARS that internet sales would be consuming the world. So, why did the state wait until now to make a big deal about it? What a backwards way to run the Department of Revenue.
  • Amazon ...
    I have to say that at a time when the economy is depressed and there is a lack of jobs out there amazon is a lot better than the vast majority of warehouse jobs they pay better and they have decent benefits..they might not be the best in terms of showing gratitude but over all having worked many warehouse jobs i have to say this is the better deal in the end the fact is instead of Simon innovating and changing with the times they have decided that they would rather bring other companies down with it .. leveling the playing field is pointless when you have malls littered with thugs and drug dealers and a limited selection of murchandise.and over priced at that even if amazon collected a sales tax id still shop with them just for the selection of goods tell me a store you can buy anything under the sun and ill shop there until then as they say every thing from A to z .... by the way i have a batchlors but couldnt find a job in this market without amazon this would be a horrible time.
  • Think About This
    If they would crack down on food stamp fraud and SS fraud, would they really need to worry about Amazon? I see so many people getting money for nothing and they do not deserve it or qualify. Housing, food, free lunches etc.
  • Educate IN residents
    It is state law that IN residents are to pay taxes on out-of-state purchases: "use tax." Of course that includes online purchaes where vendors haven't already collected sales tax. This was in place well before the development of shopping on the internet, for this applies to activities like mail orders and magazine subscriptions.
  • Residents must pay
    On the comments about State not having legal right to force Out of State companies to collect, how about looking at it from other side. I think the State does require RESIDENTS to pay tax on Out of State purchases. There is a line on the tax return for that to self-report (although I bet less than 1% do!)

    Maybe the State should focus on enforcing that law.
  • THank you Tricia
    Thank you Tricia, for explaining the illegality of forcing a non state entity to collect tax for you.
    Now for the idea that you need to give more power to the federal govt. Are you kidding me - did you not notice that COngress sensures Rengal one month then the next praises him for ???.
  • Understand the Full Law, Not Just the Soundbites
    Does everyone understand that if Amazon pulls the distribution centers and the online retailers cut the local affiliates, the state of Indiana will STILL not be able to collect the taxes from the retailers? Even if they pass this law. It violates the federal Constitution. The Commerce Clause does not allow Indiana to collect the taxes from the retailers if the retailers do not have a local sales force or distributor. This goes way beyond Amazon. Amazon is just the face that Simon is putting on it to make someone the "bad guy."

    http://www.tricia.me/2011/11/04/internet-tax-looming-in-indiana/
    • Funding
      I wonder how many people that defend Amazon's right not to collect sales taxes are the same ones that complain when they have to pay higher fees for textbooks and school buses due to decreased income and funding from the state?
    • Allow Sunday liquor sales
      You will immediately see an increase in revenues instead of trying to implement an online state sales tax.
    • Federal law w/b "fair" way to go!
      Since Amazon has a proven record of pulling-up stakes and moving to another state to get the tax breaks, don't you think the most logical solution is to support the creation of a Federal law for all states? Amazon has been a god-send to our family in the worst of this economic fiasco - why chance chasing them away? For once, I agree w/Mitch!
    • Other taxes ?
      Assuming Amazon would not have any distribution centers without the current tax law how much in state income tax are the Amazon employees paying? You have to assume they would not be working elsewhere using the same logic as this article. How much in corporate state income taxes is Amazon paying? You also have to assume no business would be located in these same locations using the logic of this article. Here's hoping there is more to this study then showing here.
    • Online taxes
      The devil's advocate in me asks "Isn't having that extra money in peoples pockets a plus the local economy?".
    • Tax 'em!
      I'm all for a state law similar to the one that was repealed. It's not going to drive away the companies: they will simply collect it from the purchasers and because of their advanced computer systems necessary to track the incoming money, they are easily able to remit it to the state in a timely fashion. It doesn't cost them anything at all.

      Sales taxes, if they have to exist, should be applied equally regardless of the sales outlet. Online, mail-order, in person...sales are sales, right?

    • lost tax
      Someone cannot "lose" something they never had. The state never had the legal right to collect this revenue, thus they did not lose anything

      We actually they do...if you buy books/cd's whatever from Amazon, you pay no tax. If you buy at a local store, you do pay tax.
    • Don't let Simon Push you around
      Indiana has been unbelievably progressive in not taxing businesses to death. I hope they do not let Simon bully them; Simon should embrace the fact that online sales (and lack of a tax) are good for everyone, and Simon should work with their tenants on building online sales solutions.

      I want to see what we lose without the Amazons of the world building and creating new jobs here (investment, wages, housing, discretionary spending, etc). I bet these new employees buy from Simon's tenants as well, which add to the sales tax.

      I have faith our State officials will not be duped by the self interest of brick and mortar landlords; who's shareholders, most likely, do not have the interest of our communities, and retailers who refuse to innovate.
    • what jobs
      They changed a law to get Amazon to move here, presumably for the jobs. However, from the never-ending radio and newspaper ads, it seems Amazon is having a difficult time filling the jobs.
    • wrong terminology
      Someone cannot "lose" something they never had. The state never had the legal right to collect this revenue, thus they did not lose anything. It would be like saying I lost the Super Bowl, even though I never played in it. Or the state "loses" millions in taxes every year by not raising the income tax to 90%. It's misleading terminology like this that creates a misinformed public, especially when it comes to tax policy.
      • double talk
        “There are far greater questions that are a concern to an organization when they decide to locate somewhere,” he said.

        Then why did Indiana feel the need to repeal a 2007 law in order to get Amazon to locate here?
      • Law will help
        That is why the state is pushing for a federal law, so that all states will be on an even playing field and they won't have to worry about Amazon moving out.
      • Law Won't Help
        And how much of that "$40 million to $114 million" will the state be able to collect if that law is passed and the online retailers sever ties with their affiliated distributors in the state? Zero. Which is why other states have repeatedly shut down similar laws and why some of the 9 states that have passed them are now looking to repeal them. And in addition to NOT collecting any of that money, the state will actually lose money because it will lose jobs and the income taxes and spending power that go along with those jobs.

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      1. The east side does have potential...and I have always thought Washington Scare should become an outlet mall. Anyone remember how popular Eastgate was? Well, Indy has no outlet malls, we have to go to Edinburgh for the deep discounts and I don't understand why. Jim is right. We need a few good eastsiders interested in actually making some noise and trying to change the commerce, culture and stereotypes of the East side. Irvington is very progressive and making great strides, why can't the far east side ride on their coat tails to make some changes?

      2. Boston.com has an article from 2010 where they talk about how Interactions moved to Massachusetts in the year prior. http://www.boston.com/business/technology/innoeco/2010/07/interactions_banks_63_million.html The article includes a link back to that Inside Indiana Business press release I linked to earlier, snarkily noting, "Guess this 2006 plan to create 200-plus new jobs in Indiana didn't exactly work out."

      3. I live on the east side and I have read all your comments. a local paper just did an article on Washington square mall with just as many comments and concerns. I am not sure if they are still around, but there was an east side coalition with good intentions to do good things on the east side. And there is a facebook post that called my eastside indy with many old members of the eastside who voice concerns about the east side of the city. We need to come together and not just complain and moan, but come up with actual concrete solutions, because what Dal said is very very true- the eastside could be a goldmine in the right hands. But if anyone is going damn, and change things, it is us eastside residents

      4. Please go back re-read your economics text book and the fine print on the February 2014 CBO report. A minimum wage increase has never resulted in a net job loss...

      5. The GOP at the Statehouse is more interested in PR to keep their majority, than using it to get anything good actually done. The State continues its downward spiral.

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