INDIANAPOLIS — While thousands of Hoosiers may spend “Cyber Monday” shopping online for holiday gifts, state Sen. Luke Kenley may be on Capitol Hill asking Congress to close a multi-billon tax loophole long enjoyed by Internet retailers.
The influential Republican state lawmaker has asked to testify at a Congressional hearing in support of federal legislation that would compel online-only retailers to start collecting and remitting sales taxes like their bricks-and-mortar competitors do.
The hearing in front of the House Judiciary Committee is scheduled for the Monday after Thanksgiving — the biggest online shopping day of the year.
The timing is intentional: Cyber Monday sales hit a record-breaking $1 billon last year, and a big chunk of those sales were made by online-only retailers like Amazon.com, which doesn’t collect the sales tax owed on purchases.
Kenley says his testimony, if he was allowed to give it, would boil down to a mantra he’s been repeating for more than a decade to get Congress to act on the issue: “This isn’t about imposing a new tax. This is about collecting a tax that’s already owed.”
On Thursday, Kenley was in Washington, D.C., talking about the upcoming hearing and lobbying Congressional Republicans to support a federal solution that’s vexed the 45 sales-tax states that are losing an estimated $23 billion a year in revenues from taxes that go uncollected on Internet sales. Kenley, who chaired the State Budget Committee forced by declining state revenues to oversee cuts to public schools and public services, said Indiana’s share of lost taxes may be close to $200 million a year.
He’s pushing for a federal fix to the current law says a state can’t force an out-of-state Internet entity to collect and pay the sales tax the state’s residents are required to pay on purchases made in brick-and-mortar stores.
On his way back to Indiana, Kenley heard about the lawsuit slapped against the State of Indiana by the Indianapolis-based Simon Property Group, the nation’s largest mall owner. In the lawsuit filed Thursday, Simon contends the state’s refusal to make Amazon collect and remit the state’s 7 percent sales tax amounts to an “illegal and unconstitional” taxpayer-funded subsidy to the Seattle-based online retail giant.
Simon’s argument is based on the fact that Amazon does have a presence in Indiana: three large distributions centers that the online retailer agreed to build in Indiana after the state gave the company a pass from having to collect the state’s 7 percent sales tax.
Kenley said the lawsuit, if successful, won’t solve what he sees as a bigger problem that needs a national solution. “But it does focus more attention on the issue,” said Kenley, who heads a multi-state coalition pushing for a federal online sales tax bill.
Betsy Laird, senior vice president of public policy at the International Council of Shopping Centers, said attention to the issue is mounting because state lawmakers like Kenley know the impact of losing tax revenues at a time when states are cash-strapped.
Also pushing the issue to the forefront are organizations like hers, which represent brick-and-mortar retailers and mall owners who argue the current law puts them at a competitive disadvantage because they have to tack on the sales tax while online-only retailers don’t.
“I think there’s a growing realization that the (sales tax) laws needs to be modernized and brought into the 21st century.”
Laird and Kenley both noted two key developments: The Congressional “supercommittee” that’s been charged with reducing the federal deficit by $1.2 trillion during the next decade is being pressured by legislators and bricks-and-mortar retailers to include an online sales tax solution in its plan. While it wouldn’t add money directly to the federal treasury, supporters say it would help ease the demand for federal dollars from states.
In addition, a new piece of federal legislation that would allow states to collect sales tax on Internet transactions is expected to be filed next week with bipartisan support. The bill already has the backing of Illinois Democrat Sen. Dick Durbin, who filed a similar bill earlier this year, and Republican Sens. Lamar Alexander of Tennessee and Mike Enzi of Wyoming.
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