Online shoppers urged to pay sales tax

INDIANAPOLIS, Ind. (WANE) - Many people consider it an advantage to shop online to avoid paying sales tax. What they may not know is that if they don't pay sales tax in Indiana on Internet purchases, they are breaking the law.

The Indiana Department of Revenue has put out the following news release detailing state law that requires the payment of sales tax on Internet purchases:

Hoosiers who took advantage of any online shopping in 2009 will want to check their receipts to see if Indiana sales tax was collected as part of those purchases. If not, those Hoosiers will need to total the amount of those purchases and report it on their 2009 Indiana income tax filing by April 15, 2010.

“Indiana law has required Hoosiers to calculate and pay sales tax for a number of years on any catalogue, mail-order or online purchases where Indiana sales tax was not charged as part of the total sale,” said Commissioner John Eckart. “Too often we hear this reported to the public as ‘voluntary.’ But it’s no more voluntary than drivers being required to stop at a red traffic light even if a police officer isn’t around.”

Last year, more than 26,000 taxpayers in Indiana reported use tax, amounting to more than $1.6 million. Each year, more than 3.1 million people file individual income-tax returns in Indiana.

Indiana’s sales- and use-tax law is intended to ensure that local Indiana businesses, “those who set up shop in Indiana, provide jobs and are required to collect and pay state and local taxes,” Eckart said, are not put at an economic disadvantage against out-of-state businesses that are not required at this time to collect sales tax.

A federal court ruling from the 1980s prohibits all states from requiring these online retailers to collect sales tax from their residents. However, Indiana has had a law on the books since 1969 requiring Hoosiers to pay use tax, which essentially is state tax for any purchases where Indiana sales tax was not collected.

“It’s how a system works,” said Eckart. “We trust each other to do the right thing, even when there is no one standing over our shoulders watching our actions.”

Congressional legislation is currently under consideration that could require out-of-state businesses that conduct Internet sales to collect sales tax on behalf of its customers’ states. Some legislative experts believe the Congressional decision will be in favor of states, which could leave out-of-state businesses owing back taxes to Indiana and others.

Many online businesses starting to collect sales tax
To avoid the uncertainty that this pending Congressional legislation could create for out-of-state online businesses, more than 1,800 of them have voluntarily begun collecting sales tax on behalf of states through a program called Streamlined Sales Tax.

“States in this program provide amnesty from the risk of possibly owing back taxes if these businesses start collecting now,” Eckart explained.

Indiana has been a member of the Streamlined Sales Tax initiative since 2005 and has seen its online sales-tax collections from out-of-state businesses increase from a little more than $6 million in 2006 to more than $23 million to date in 2009.

Businesses already having a physical presence in Indiana are required to collect sales tax from their online sales.