Indiana's Online Sales Tax Fight Could Fizzle Without Federal Help

Sep 1, 2017

Indiana’s battle to collect online sales tax from businesses that don’t have a physical presence in the state will more likely play out in Congress than in the courts, says one economist.

Indiana does collect sales tax from companies such as Amazon, which has seven distribution centers across five counties.

But the state also wants to tax online retailers including Wayfair and Overstock, which don’t – but still earn more than $100,000 a year from Hoosiers.

The state is suing those companies, seeking judicial backing for a bill passed earlier this year.

Indiana University economist Kyle Anderson says the U.S. Supreme Court ruled in 1992 that states can’t demand sales tax from non-resident companies.

“As more and more transactions are moving online … in the future, state coffers are really going to be hit,” he says.

But he doesn’t think the case will get far at the state judicial level.

“I think this is something that a lot of states are raising, that ultimately is going to have to be decided by Congress at the federal level,” Anderson says.

And there’s a reason for them to do it, he says: Americans now spend money and do their taxes much differently than at the time of the original Supreme Court decision.

“Twenty-five years ago, companies had a compelling business reason to say, ‘Look, it’s just too burdensome to track all these transactions and make all these payments,’” Anderson says. “Whereas now, you can imagine there’d be an electronic clearinghouse and that’d be pretty low-cost.”

He says he expects the issue will be resolved nationally and sales tax collected “much more uniformly” within a decade.