NEWS-SENTINEL EDITORIAL: Changes in tax system may be blessing/curse to small business

The bumper sticker says, “Boycott Amazon; support local businesses.” Perhaps you’ve seen it. Many of Indiana’s brick-and-mortar stores have been going out of business, largely due to the national shift to e-commerce. Besides having to pay for infrastructure and staff, these businesses must collect sales tax, while many of their online competitors have not had to.

But that will soon change. Beginning Oct. 1, Indiana residents purchasing products online from out-of-state sellers will be charged the state’s 7 percent sales tax when the Indiana Department of Revenue says it will begin enforcing the 2017 online sales tax state law.

While that’s good news for brick-and-mortar businesses — it levels the playing field — it’s also good for state government, which has been losing lots of tax revenue. The Indiana Chamber of Commerce estimates the ruling could bring the state up to $200 million in annual revenue.

Due to the 1992 Supreme Court case Quill Corp. v. North Dakota, states were prohibited from collecting sales tax from businesses unless they have a physical presence in the state. That decision was rendered before Amazon and the growth of e-commerce as the nation’s dominant retail venue.

Indiana passed legislation last year requiring businesses outside the state, that make at least $100,000 a year, or more than 200 individual transactions, to collect a 7 percent tax. Indiana businesses also have to comply with sales tax laws in the other states they sell in.

The law was challenged in court last year and wasn’t immediately enforced. The Department of Revenue said the lawsuit will likely be dismissed following a June 21 Supreme Court ruling that allows states to expand sales tax collections to businesses that sell online or through the mail. The case involved a 2016 South Dakota law similar to Indiana’s. Online companies Wayfair Inc., Inc. and Newegg Inc. sued the state. In a 5-4 decision, the court ruled that states have the ability to impose sales taxes on online purchases.

It has been reported that 19 of the top 20 online retailers are already collecting sales tax — including Amazon. But some argue that the court’s ruling could put a daunting burden on small businesses that operate online because they would have to implement systems to keep up with all the obligations involved. The ruling potentially means thousands of small businesses will be responsible for taxes in some 10,000 state and local jurisdictions nationwide.

To help those businesses, 24 states, including Indiana, will offer free software to help them meet their sales tax obligations. The Indiana Department of Revenue said retailers can join the Streamlined Sales Tax Registration System to learn how to comply with multiple state sales tax laws.

Eventually, we trust, this will all work out for the best.