Holiday Shopping Online? What You Need To Know About Sales Tax

Indiana Public Media News Stafff

If you’re shopping online for holiday gifts, you may have noticed you aren’t being charged sales tax. That’s because most businesses who sell online aren’t required to collect it if they don’t have a physical presence in the state.

Here’s what you need to know about paying sales tax for online purchases.

Most Online Sellers Don’t Collect Sales Tax – With A Big Exception

A 1992 U.S. Supreme Court decision says states can’t force online retailers to collect and remit sales tax if they have no physical connection to the state.

Amazon is a notable exception; the online distribution giant started collecting sales tax in the Hoosier state in 2014. A lawsuit that alleged the company had an unfair business advantage in the state ended in a settlement that prompted the collection.

But, third-party sellers do not collect sales tax, and Amazon reports about half of the sales on its website are from third-parties.

Consumers Are Supposed To Pay The Sales Tax Themselves

Customers who aren’t charged sales tax at the time of purchase are supposed to keep track of what they buy online and pay the appropriate sales tax when they file their taxes every year.

But that rarely happens because most people don’t know about that requirement – or ignore it.

Indiana Is Trying To Force All Retailers To Collect Sales Tax

State lawmakers this year passed a law that directs the state to collect sales tax from online retailers who either sell at least $100,000 worth of goods in Indiana per year or make at least 200 Indiana-based transactions per year. But the legislation is essentially unenforceable unless that 1992 Supreme Court decision is overturned.

So the state filed a lawsuit to allow it to collect sales tax from all online sellers, even ones that don’t have a presence in Indiana.

It’s Not A New Fight – In Indiana Or Nationwide

Sen. Luke Kenley (R-Noblesville) authored this year’s online sales tax law. But Kenley has been fighting for this issue for years.

Other states are also challenging the 1992 Supreme Court ruling; one of those cases may be more likely to reach the Supreme Court before Indiana’s case makes it that far.

When Amazon started collecting sales tax in Indiana in 2014, the company was collecting the tax in few other states. In recent years, Amazon has expanded sales tax collection to all but five states, which have no statewide sales tax.