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July 30, 2012

Pressure building for online sale tax

Maureen Hayden CNHI Statehouse Bureau

INDIANAPOLIS — Federal legislation that would allow Indiana and other states to collect millions of dollars in unpaid sales taxes on online purchases may be getting closer to reality.

Indiana state Sen. Luke Kenley, the Republican chairman of the state Senate appropriations committee and a key player in the online sales tax issue, said pressure is ramping up on Congress to act.

Earlier this week, both the U.S. House and Senate held committee hearings on online sales tax legislation. They heard bipartisan testimony from leaders of cash-strapped states who said they need a federal law to recoup an estimated $18 billion in revenues lost to online sales that go untaxed.

“The pressure is really beginning to build,” Kenley said. “I  think it could happen this year.

Kenley has spent a decade on the issue, working on a multi-state agreement to streamline the much-varied sales taxes that exist across the states. Two bills, one in the House and one in the Senate, would clear the way for states to collect an online sales tax if they sign onto the streamlined sales tax agreement.

Indiana stands to gain millions in tax revenues — estimates range from $77 million to $200 million-plus a year— at a time when it’s phasing out the state’s inheritance tax. State fiscal experts say the inheritance tax phase-out will cost Indiana about $165 million a year in revenue, starting in 2020.

Kenley’s comments echo those made by Democrat congressman John Conyers of Michigan, ranking member of the House Judiciary Committee, which held a hearing Tuesday on the issue. “I think the bottom line is that tax-free sales on the Internet may be coming to an end,” Conyers said.

Both Kenley and Conyers may be optimistic, given the current state of gridlock in Washington, D.C., and the fear among some lawmakers that they’ll be tagged as tax-hikers if they support online sales tax legislation.

Still, a double dose of congressional hearings in one week — plus a rising number of lawmakers from both parties signing on with their support — is a big indicator of progress, Kenley said.

“These are real signposts along the road,” he said.

The online sales tax issue has lingered for years, following a 1992 Supreme Court decision that let most online-only retailers off the hook from collecting state and local sales taxes on purchases made by their customers. The court said it was up to Congress to come up with a fix.

Backers of federal legislation that would allow states to collect the online sales tax include the National Governors Association, and the giant online retailer, Amazon.com, which had been fighting individual states’ attempts to force it to collect the tax.

Amazon.com, struck a bargain with Indiana Gov. Mitch Daniels this year when it agreed to begin collecting Indiana’s 7-percent sales tax on Internet purchases, beginning in 2014 if a federal law doesn’t pass before then. At the time, state fiscal experts said untaxed purchases made online by Amazon customers in Indiana accounted for about $25 million a year in lost tax revenues.

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