For a little over a month now, Indiana has officially required out-of-state, online sellers to collect Indiana sales tax. Many states, including Indiana, anticipated the U.S. Supreme Court decision in Wayfair v. South Dakota, handed down this summer, and began planning for it long ago. Indiana passed legislation modeled after the South Dakota law that was sanctioned by the Court in its landmark decision. Translation: The Indiana Department of Revenue (IDOR) was pretty much ready to roll.
After the Court’s decision, IDOR issued a notice to online retailers that they would start collecting sales tax from their Indiana customers effective October 1. Consequently, if retailers transact more than 200 sales or $100,000 in Indiana sales they needed to start collecting and remitting the tax, regardless of whether the sellers have any physical presence in Indiana or not. See the IDOR release.
Ten other states began collection requirements when Indiana did, while a handful are applying even earlier start dates. A few more were effective November 1, a couple others will be in December and a half-dozen or so as of January 1, 2019. Almost all the states (except those few that don’t have a sales tax) are considering legislation of some kind to require such online sellers to collect their state sales tax.
Not everybody, however, will be on as solid legal ground as Indiana. The Court blessed South Dakota’s law and recognized that it had a number of safeguards to reduce the administrative burden on these remote, out-of-state sellers. A close reading of the decision suggests that those protections may be needed before a state can impose a collection obligation on sellers that have no physical presence in their state.
Indiana meets all the implied tests: We are a member of the Streamlined Sales Tax program like South Dakota; our statute has same thresholds as the South Dakota law; and we will not be implementing it retroactively. Again, these factors were all seemingly relevant to the Court decision. Nevertheless, a lot remains unsettled for Indiana companies. There is, unfortunately, much inconsistency in what states are choosing to do in reaction to Wayfair. Whatever the particulars, one thing is certain: States will be continuing their efforts to require online sales tax collection.
Some are hopeful that Congress will step in and provide some uniformity and simplicity. However, this doesn’t appear too likely. Although federal legislation has been introduced, the many political forces that prevented any consensus on legislation prior to Wayfair remain in place. The reality is that Congress had every opportunity to act before Wayfair. In fact, Congress was implored by many to resolve the issue for years prior to Wayfair. Simplicity and uniformity would be welcomed, but most observers indicate that until much more agreement exists among the states and various interested parties, Congress is less likely than ever to step in now that the Court has ruled.
Many well-intended parties are trying to work on all the litany of issues. But nothing will slow or deter the states. They will keep moving forward and their actions are likely to generate even more new questions. They will not only be passing more laws to require collection from the sellers, but another wave of legislation is anticipated – with provisions focused beyond the sellers themselves to those who facilitate the transactions. These entities are referred to as “marketplace facilitators.” They are the people who provide online forums and platforms for the sellers, aka the means for sellers and buyers to connect.
As a practical matter, states realize what’s most desirable is for the taxes to be collected at the point of the mouse click/sale. States will be looking for ways to get these marketplace facilitators to collect and remit the sales tax. This new world of online sales tax collection, and the myriad of laws governing those transactions, is really only just beginning.
For more detail on what’s happening in other states, see this article from the Tax Foundation.
Resource: Bill Waltz at (317) 264-6887 or email: [email protected]