Indiana will likely go to court over online sales tax

Indiana will likely end up in court over an online sales tax law.

Indiana lawmakers passed a law this spring claiming the state has a right to collect sales taxes from companies using only online transactions, The Indianapolis Star reported.

But a 25-year-old U.S. Supreme Court case prohibits states from collecting sales tax from businesses unless they've got a physical presence in the state.

This means states are losing out on sales taxes, one of its largest sources of revenue. More than 40 percent of Indiana's $18 billion revenue in 2016 came from sales tax.

Sen. Brandt Hershman, R-Buck Creek, who sponsored the Indiana bill, said he anticipates further litigation.

"We welcome the litigation," Hershman said.

Appropriations committee chair Luke Kenley, R-Noblesville, said he's worried stores that operate within Indiana and pay the 7 percent state sales tax are at a disadvantage.

"It's becoming a bigger problem and a bigger issue of fairness," Kenley said. "It's kind of a big issue to our brick-and-mortar stores because they're at a disadvantage here, and they do something for the state by operating in the state and employing people in the state."

The new Indiana law requires online retailers that make 200 separate transactions or have sales totaling more than $100,000 annually in the state to collect and remit the sales tax.

South Dakota passed a similar law in 2016. Online companies Wayfair Inc., Overstock.com Inc. and Newegg Inc. are suing the state. The case is being debated in South Dakota's top court and could make its way to the U.S. Supreme Court.

Opponents of online sales tax, such as e-commerce businesses trade association NetChoice, argue it would be "bureaucratic gymnastics" for companies to have to adhere to differing tax codes in every city and state.

Indiana has made agreements with nearly 2,000 companies, including Amazon, to collect some online sales tax.