Indiana senator pushes taxing online sales

A state senator plans to ask his Statehouse colleagues Thursday to help him lobby Congress for the right to tax online sales.

Sen. Luke Kenley, R-Noblesville, said this week he will pitch state lawmakers on the need to apply the state sales tax to online retailers. He estimates taxing online sales could net the state up to $400 million annually, but said it is as much about putting online retailers on the same playing field as traditional merchants.

"Our bricks and mortar retailers are being put at a huge disadvantage in this system," Kenley said. The state levies a 7-percent sales tax on most goods, giving online retailers a sizable advantage.

But the change will have to go through Congress. That is why Kenley said he will ask members of the Legislature's Commission on State Tax and Financing Policy to help him lobby Indiana's congressional delegation for the change.

Indiana Retail Council President Grant Monahan says state lawmakers could make an immediate gain by rewriting state law to apply the tax to Seattle-based online giant Amazon.com. Monahan said Tuesday the state can do this without waiting on the federal government because Amazon operates distribution centers in the state.

"We support that tax for all online retailers across the country, but apart from all that I believe that Indiana can do something now," he said.

Companies he represents with bricks and mortar operations collect sales taxes on online purchases, too, and send them to the states where the buyer had the merchandise shipped, Monahan said. Their "physical presence" in a state mandates they charge and collect the tax.

An Amazon spokeswoman said Wednesday she would rather see the issue addressed by Congress than state by state.

"We believe the sales tax issue needs to be solved at the federal level and we're actively working with the states, retailers and Congress to get federal legislation passed as soon as possible," Amazon spokeswoman Mary Osako wrote in an email response to questions.

Amazon operates three distribution warehouses in Indiana and announced in July it plans to open a fourth in the state.

A 1992 Supreme Court ruling effectively barred states from collecting taxes from most online operations. Kenley is president of the national group lobbying Congress for a new law. He is hoping the measure makes it into the package being crafted by the deficit reduction committee, thus giving it a better chance of approval by the frequently gridlocked Congress.

The Senate's second-ranking Democrat, Illinois Sen. Dick Durbin, is sponsoring the Senate measure. But some Republicans, including many of the freshmen members who have signed anti-tax activist Grover Norquist's pledge, are skittish about signing on with anything that may be seen as a tax hike, Kenley said.

"The solution is in the hands of the U.S. Congress," Kenley said. "We could pass legislation until the cows come home and it is not going to solve the problem."

A state law used to require companies that didn’t maintain a place of business in Indiana but had affiliated locations, such as distribution centers, to obtain a retail merchant’s certificate in order to sell goods to Indiana residents. That subjects the retailer to the same duties as an in-state merchant, including tax collections on products used in Indiana.

But that law was repealed in 2007 as a way to lure Amazon to locate warehouses here, according to lawmakers and economic development officials.