Kenley's bill reflects his sales-tax frustration

09 Feb 2017 8:14 PM | John Ketzenberger (Administrator)

For years Sen. Luke Kenley has worked to find a federal solution to a problem most states face: how to collect sales tax from online retailers. For years Congress and others in Washington D.C. have failed to act.


Kenley’s frustration is palpable in Senate Bill 545, a measure that would give the Indiana Department of Revenue authority to require online retailers who have 200 transactions a year in Indiana or $100,000 in annual sales here to collect and remit the state’s sales tax. This is the bill’s purpose, but the bill’s fourth section is the truly revealing part.

First, a little background.


The federal courts determined long ago—it was so long ago the ruling pertained to catalog sales—that retailers didn’t have to collect and remit state sales taxes unless they had a physical presence in the state. Local retailers have long complained that gave their catalog/online competitors an automatic 7-percent price break, which cost them a lot of money.


Now Hoosiers who buy things from catalogs or online are supposed to declare those purchases and then pay the 7 percent sales tax. The state collected about $2 million, according to an Indiana Fiscal Policy Institute report from 2011, which seems awfully low since that represents just $29 million in sales.


In fact, the report estimated the state could be losing some $70 million a year in sales tax revenue for transactions completed online. Hence Kenley’s effort to find a way to collect more of that lost tax revenue.


The first three sections of Kenley’s bill read like most others. It adds language to outline the reasons and procedures for collecting the tax, the parameters for who must participate and the Department of Revenue’s responsibilities. Standard stuff, until you get to the fourth section and Kenley unloads his frustration.


The first six paragraphs of the fourth section make Kenley’s case. The lack of a federal solution means Indiana’s loses legitimate sales tax revenue, a diminished state tax base and an advantage for online retailers over those physically in the state.


Then Kenley calls for action. “The Supreme Court of the United States should reconsider its doctrine that prevents, under certain circumstances, states from requiring remote sellers to collect gross retail tax, and as the findings of this section make clear, this argument has grown stronger, and the cause more urgent, with time,” reads the seventh paragraph of the fourth section of Kenley’s bill.


Kenley, who chairs the Senate Appropriations Committee, holds a juris doctorate from Harvard. He knows what it means to call out the U.S. Supreme Court. The bill goes on to declare “the state’s immediate intent to require collection of gross retail taxes by remote sellers. Expeditious review is necessary and appropriate because, while it may be reasonable notwithstanding this law for remote sellers to continue to refuse to collect the gross retail tax in light of existing federal constitutional doctrine, such a refusal causes imminent harm to Indiana.


“It is the intent of the general assembly to apply Indiana's gross retail tax and use tax obligations to the limit of federal and state constitutional doctrines,” Kenley’s bill concludes, “and to specify that Indiana law permits the state to immediately argue in any litigation that such a constitutional doctrine should be changed to permit the obligation to collect state gross retail tax as provided in IC 6-2.5-2-1(c).”


This language may seem like the usual stilted stuff found in all bills, but I’m hard-pressed to recall any legislation that calls on the U.S. Supreme Court to act. If Kenley was calling into a sports-talk radio show, his take would be considered straight fire.


The bill cleared the Senate 42-1 on Feb. 2 and moved on to the House for consideration. It’s still so hot it’s smokin’ on the Speaker’s desk.

Indiana Fiscal Policy Institute

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