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Indiana Taxes All Online Retail Transactions, Even Amazon.com Purchases

There has been confusion over how to interpret Amazon.com’s recent decision to open a fourth distribution center in Indiana, particularly as it relates to Indiana’s taxation of online purchases. The following are a couple of points to help clear things up:

  1. Amazon.com.indc LLC, a Delaware subsidiary of Amazon.com, Inc. a/k/a Amazon, will be opening the new facility, not Amazon.
  2. Amazon does not have a place of business anywhere in Indiana and has taken other steps to avoid a “substantial nexus” between it and Indiana, which is a prerequisite for Indiana imposing an obligation on Amazon to collect and remit sales tax on its behalf.
  3. Companies (such as Amazon) that are closely related to other companies that engage in regular soliciting of retail transactions from potential customers in Indiana or maintain a place of business in Indiana (such as Amazon.com.indc LLC) do not have to obtain a merchant’s certificate or collect and remit sales tax from Indiana customers thanks to the repeal of IC 6-2.5-8-10 in 2007. States such as Rhode Island, Connecticut, Texas and Illinois have gone in the opposite direction by enacting provisions like the repealed IC 6-2.5-8-10.

The end result is that under Indiana law, Amazon is like any other out-of-state online retailer (like Overstock.com or Drugstore.com) that can sell goods to customers in Indiana without having to collect and remit sales tax to the state. The story does not end there. Just because Amazon and other online retailers do not have to collect and remit sales tax on the purchases made by customers in Indiana does not mean that those purchases are not taxed by the state. Under Indiana law, Indiana residents who purchase goods through out-of-state online retailers are required to pay use tax on such purchases. The use tax and retail sales tax rates are the same: 7 percent. So, if there are any tax revenues lost by Indiana as a result of the benefits that Amazon and other online retailers enjoy under state law, it will be a result of Hoosiers not abiding by their own state’s tax laws.

With that said, sales tax collected and remitted by Amazon and other online retailers is viewed as “sure” money compared to the use tax that is supposed to be forked over by state residents at the end of each year, but states such as Rhode Island, Connecticut, Texas and Illinois have learned that there is nothing “sure” about that money as they are challenged in court and/or their ties to the online retailers are severed. Their efforts to turn online retailers into their tax collectors may end up costing them to the benefit of Indiana and similarly-minded states.

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