Indiana retailers press for online state sales tax

Indiana's retail lobby urged state lawmakers Monday to pass an online sales tax provision that they said would level the playing field for businesses in the state and raise hundreds of millions of dollars in revenue. But lawmakers gave a lukewarm reception to the proposal likely to spark a backlash from online retailers.

The Indiana Retail Council and the Alliance for Main Street Fairness held a news conference in the Indiana Statehouse Monday to urge legislators to use their authority to force sites like Amazon.com and Overstock.com to pay the sales tax beginning the next budget cycle, netting the state somewhere near $300 million per year.

A 1992 Supreme Court ruling, however, prohibits states from forcing a business to pay sales taxes if that business does not have a physical presence in the state. What constitutes as a physical presence is debatable, and usually up to lawmakers, but the standard criteria include local affiliates, distribution centers and stores.

Using such tax loopholes, council president Grant Monahan said, erases the fair playing field between Indiana retailers and their online competition.

"The failure of internet retailers to collect sales tax puts Indiana retailers at a 7-percent disadvantage that is costing the state revenue and brick-and-mortar retailers the chance to grow," Monahan said.

But Senate Appropriations Committee Chairman Luke Kenley, R-Noblesville, said he didn't expect to include the online tax into the state budget plan now pending in his committee.

Kenley said the proposal for a state law wouldn't solve the problem because online retailers without physical sites in Indiana still would not collect the sales tax.

"What we need is for all online retailers to remit the sales tax," Kenley said.

He said there also was no sound reason to overturn the state's agreement with Amazon, but that a national solution by Congress was needed, as the number of states that are enforcing the online tax in order to generate revenue has increased over the past few years.

A 2007 deal to get Amazon to open its first warehouse in Indiana came with the promise that Indiana lawmakers wouldn't push for an online sales tax, the Indianapolis Business Journal reported. The state leaders brokering the deal also repealed a state law that required companies with a physical presence, including distribution centers, in the state to collect taxes on products used in Indiana.

The agreement led to the opening of two warehouses in the state, providing close to 1,500 jobs, according to company press releases.

Seattle-based Amazon and Salt Lake City-based Overstock did not immediately comment on the issue.

However, Amazon isn't against a sales tax but wants "a constitutionally permissible system that is applied evenhandedly," according the company's vice president of public policy Paul Misener's past comments.

Moves to tax Amazon in the past have caused the retailer to close facilities and cut ties with local affiliates, something that could cancel out the potential benefit of an online sales tax, Indiana Commerce Secretary Mitch Rood told the Indianapolis Business Journal.

But such political tangles don't change the council's stance on the tax.

"Well, it wouldn't surprise me if there was backlash from online retailers," Monahan said. "After all, they're operating now from outside the law. They're operating with a 7-percent advantage over Indiana retailers. I suspect they're not going to like that."