Indiana’s sales tax, by far the state’s largest source of revenue, is the subject of several legislative efforts this session. Aside from nudging the federal government to adopt streamlined sales tax legislation and/or resolution of the issue in court—requiring online retailers to collect and remit the tax on purchases—or establishing similar authority in Indiana, the House Ways and Means Committee adopted a significant resolution last week.
House Resolution 3, sponsored by Rep. Tim Brown, cleared Ways and Means 21-0 after its scope was broadened by an amendment from Rep. Ed DeLaney. Brown, chair of the Ways and Means Committee, has advocated the studying the state’s sales tax system, specifically whether to expand the tax to additional services.
Indiana is among the states that taxes relatively few services, and a study by the Indiana Fiscal Policy Institute indicates it’s becoming a problem for the state. Hoosiers are consuming fewer goods and more services, gradually eroding the sales tax base that provides nearly 50 percent of Indiana’s tax revenue, or more than $7 billion a year.
The IFPI study is a comprehensive look at the tax base, the habits of consumers and the implication for the sales tax, as well as the challenges inherent in expanding the tax to more services.
Brown’s resolution urges the Legislative Council, of which he’s a member, to assign the sales tax issue to a interim study committee for consideration. The resolution notes “Americans spend an ever-increasing share of their income on services and an ever-decreasing share on goods,” and that “the shift in consumption preferences away from generally taxed goods in favor of generally untaxed services serves to narrow the sales and use tax base.”
The resolution also notes sound tax policy typically includes the “broadest possible tax base at the lowest possible tax rate. Expanding the sales and use tax base to include services could allow for a substantial reduction in the sales and tax use rate while maintaining revenue neutrality.”
At 7 percent, Indiana’s sales tax rate is among the nation’s highest. The IFPI study concluded the rate could be reduced by at least 2 percent, depending on how many services were included in the sales tax.
The resolution is eligible for consideration by the full House.