A Marion Superior lawsuit is accusing Indiana of violating the state constitution by not collecting sales taxes from Amazon.com Inc.
On behalf of Indianapolis-based Simon Property Group Inc., law firm Cohen & Malad filed the suit Thursday against the Indiana Department of Revenue in an attempt to force the state to collect sales taxes from the online operations. The mall powerhouse claims the state's "illegal and unconstitutional" decision to exempt Amazon from sales-tax collection gives the giant online retailer "an unfair advantage in the market."
Specifically, the suit asks the court to mandate that the state’s revenue department issue an assessment to Amazon for unpaid gross retail taxes and use taxes, as well as interest and penalties. One of the counts alleges not collecting those taxes amounts to a violation of Article 1, Section 23 of the Indiana Constitution that prohibits disparate treatment of citizens – in this case, Amazon’s online operations here versus the other merchants required to pay the taxes.
“Defendants have failed and refused to comply with their statutory duties to issue such assessments, despite demand,” the suit says. “Their failure, without legislative authority, illegally and unconstitutionally exempts Amazon from the obligations to collect Indiana Gross Retail Tax and Use Tax, despite the fact that Amazon sells hundreds of millions of dollars of taxable goods to Indiana residents with many of those sales taking place wholly within Indiana every year.”
The suit cites a study by professors at the University of Tennessee that estimates Indiana will forego about $195 million in revenue in 2012 alone by failing to compel out-of-state retailers like Amazon to collect sales taxes.
Simon earlier had requested that the state begin collecting sales taxes on purchases made from within the state's boundaries on Amazon.com. Online retailers typically are required to collect sales taxes on purchases from within states where they have a physical presence, but Indiana has not forced the issue with Amazon.
The decision by Indiana officials to take a kid-glove approach was an important factor in Amazon's decision to open four local distribution centers that employ thousands of Hoosiers. Of course, traditional retailers employ many thousands more.
Amazon has faced pressure in most of the states where it operates to collect sales tax, particularly as state coffers dried up during the recession. Some states have been hit with lawsuits, as well as threats that distribution centers would be removed from those locations.
To help lure Amazon to Indiana, the state in 2007 repealed a law requiring companies that didn’t maintain a place of business in the state — but had affiliated locations — to get a retail merchant’s certificate, subjecting them to the same tax-collection duties as brick-and-mortar shops. Amazon now has three distribution centers in the state and has announced plans to open a fourth.
Gov. Mitch Daniels’ administration — as well as Amazon officials — have advocated a federal solution to address the issue. Key fiscal leader Sen. Luke Kenley, R-Noblesville, has been at the forefront of efforts to get a federal law requiring online sales-tax collections. Kenley, who spent two days in Washington, D.C., this week discussing the matter with federal lawmakers, is among those who are hopeful the issue could get traction in Congress this year.
Both House and Senate bills have been filed, and a bipartisan group of senators, including Illinois Democrat Dick Durbin and Wyoming Republican Mike Enzi, intend to introduce a bill on the issue early next week, Kenley said. They’re also tentatively planning a Nov. 30 hearing on the issue.
Kenley said Friday that he’s not inclined to support a state solution, which Sen. John Broden, D-South Bend, said he intends to introduce during the next legislative session. Broden had tried to insert a similar measure into the budget bill during the 2010 session.
Aside from what happens at the state legislative and Congressional levels, the issue could ultimately play out in courtrooms and pave the way for the Supreme Court of the United States to revisit this sales tax issue as it involves online operations. In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the court held that a business must have a physical presence in a state for that state to require it to collect sales tax. Although it didn’t specifically address the Internet at that time, the holding effectively has barred states from collecting sales taxes from most online operations.