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Flashpoint

April 17, 2011

FLASHPOINT: Indiana needs to address the issue of tax fairness

Despite some modest improvements to Indiana’s economy and a tenuous stabilization of the State’s revenues, the next two-year budget will see very little revenue growth over the previous two-year budget cycle. Our public schools and state colleges should brace themselves for more education cuts. And yet, in these difficult economic times, Indiana is turning a blind eye to hundreds of millions of dollars in state sales tax revenue that under existing law should be paid to the State of Indiana. The sales tax dollars that are presently going uncollected are taxes that should be paid on purchases made over the internet.

While estimates vary, the non-partisan National Conference of State Legislatures estimates that by 2012 Indiana will lose an estimated $400 million in sales tax revenue each year.

Here is how this occurs: Under existing law, retailers with a physical presence in our communities such as Target or Best Buy are required to collect and remit Indiana’s 7 percent sales tax on every sale they make directly to the Indiana Department of Revenue. Online retailers, however, lacking a physical presence in the state, are not required to collect and remit the Indiana sales tax. Instead, it is up to individuals to keep track of all their online purchases throughout the year and then complete a Schedule 4 form on their Indiana individual tax return and remit the sales tax due from the online purchases. Last year, out of 3.1 million individual tax returns filed with the state, only 24,000 individuals filed a Schedule 4 form and the sales tax remitted totaled only $1.4 million. This falls well short of the $400 million annually that is estimated to be due the state.

Certainly, while the state loses sales tax revenues in this equation, the biggest losers are the thousands of Indiana retailers with storefronts and a physical presence throughout our communities. These brick and mortar retailers say that the biggest threat to their profitability is not the economy or rival competitors in the community, but rather it is online retailers. These local retailers, who build stores, hire employees, and pay property taxes to fund our local schools and to pay for police and fire service operate on the slimmest of profit margins often in the range of 5 percent.

Online retailers who do not have any physical presence in the state are handed an immediate 7 percent price advantage on every sale because online retailers are not required to collect and remit sales taxes.

States throughout the country such as New York, North Carolina, Illinois, Colorado, Rhode Island, Vermont, Arkansas and Hawaii, have taken legislative action to close this sales tax loophole that currently allows online retailers such as Amazon.com and Overstock.com to gain an unfair price advantage over local retailers in our community. There may have been a time in the 1990s when online retailers actually needed a boost to jump start their sales, but now 20 years later, when these online retailers sell goods totaling $33 billion with growth in the range of 10 percent per year, they no longer need a government conferred handout at the expense of retailers with a physical presence in our communities.

If you are a local retailer or someone who cares about our state’s ability to adequately fund public education and important programs such as corrections or health care for the aged and disabled, please contact your state legislator and ask them to support tax fairness and require online retailers to collect sales taxes on purchases just like the brick and mortar retailers are presently required to do.

State Sen. John Broden, South Bend, is the ranking Democrat on the Senate Appropriations Committee and a member of the state Budget Committee. He represents Senate District 10, which encompasses portions of St. Joseph County including South Bend and Mishawaka.

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