INDIANAPOLIS – Indiana is losing an estimated $77 million in annual sales
tax revenue to online purchases – enough to try to collect but not enough to
solve any big budget problems, according to a new study sponsored by the
Indiana Fiscal Policy Institute.
The analysis – conducted for the institute by Ball State University’s Center
for Business and Economic Research – also said that state officials should
not fear that trying to collect the tax from online retailers will lead to
an exodus of companies.
The report comes as Indiana lawmakers are studying whether to try to force
online companies – including Amazon.com and Overstock.com – to collect sales
taxes in the same way that brick-and-mortar retailers do.
“This is not a question of raising taxes. It’s whether you apply the tax to
all levels of business,” said John Ketzenberger, president of the Indiana
Fiscal Policy Institute. “It’s a matter of tax equity. It’s a matter of tax
neutrality and those are two important concepts that the legislature should
Currently, only companies that have a physical presence in Indiana – such as
a store or a warehouse – are required to collect the sales tax. Indiana
lawmakers approved an exception for Amazon so the company would locate
distribution centers in the state. Amazon now has four of those centers in
Customers who make purchases from companies that don’t collect the tax are
then required to claim their purchases and submit the taxes when they file
their income tax returns. However, few Hoosiers do so. Last year, the state
collected about $3 million from such payments, while the state collects
about $6.2 billion in sales taxes overall.
That’s led brick-and-mortar stores to demand that the state take steps to
collect sales taxes from Amazon and other online retailers. And mall giant
Simon Property Group – which is headquartered in Indianapolis – has sued the
state over the issue.
Congress is also looking at the issue and is considering legislation that
would require all online retailers to collect sales taxes. Amazon has
supported a federal law.
Michael Hicks, director of Ball State’s Center for Business and Economic
Research, said the issue is one that would best be handled by Congress, not
But absent federal action, there is reason for Indiana officials to consider
legislation. Other studies have put different numbers on Indiana’s losses
due to online sales. One study from the University of Tennessee estimated
the state loses at nearly $220 million.
to online sales. An estimate from the state’s Office of Management Budget
puts the number under $100 million.
Hicks said none of the studies are right or wrong. They simply use different
methodologies for their estimates.
However, he said, they all point to the same basic conclusion – that state
officials are facing a public policy question about the fairness of the
sales tax system.
Ketzenberger said the institute’s goal was to provide information to make
that debate easier, despite an anti-tax climate among voters and elected
“This is not about raising taxes,” Ketzenberger said. “I understand the
political climate, but this is a public policy question.”