Indiana Caught in Web of Digital Sales Tax Lawsuits

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By Alex Ebert

Indiana became the latest battlefront in the struggle over sales taxes levied on out-of-state sellers after two trade associations sued over the state’s remote retailer tax.

The complaint filed by Washington-based NetChoice and the American Catalog Mailers Association (ACMA) asks an Indiana trial court to strike down the state’s recently passed gross retail tax that applies to sellers without a physical presence in the state ( Am. Catalog Mailers Ass’n. v. Krupp , Ind. Super. Ct., No. 49D01-1706-PL-025964, complaint filed 6/30/17 ).

Indiana’s 7 percent sales tax—the second-highest in the nation—must still be collected and remitted if during the calendar year an out-of-state seller has 200 or more transactions in the state or sells $100,000 or more in the state.

Indiana’s “economic nexus” legislation tracks the same sales threshold adopted by several other states—all following the lead of South Dakota, which is engaged in litigation over the constitutionality of its law. The Indiana lawsuit broadens the battle over internet sales taxes, with other lawsuits pending in Alabama and Tennessee.

“We are confident that the court would grant an injunction barring enforcement of the Indiana law, just as a South Dakota court did in March by invalidating a nearly identical law there,” Steve DelBianco, executive director of NetChoice, told Bloomberg BNA by email. NetChoice, along with the ACMA, has also sued South Dakota and Tennessee over their remote sales tax regimes. They withdrew litigation in Massachusetts after the state revoked a directive ordering digital retailers to begin collecting state sales tax.

‘Nuisance Legislation’ or ‘Opportunity’?

“This is nuisance legislation. It’s galling and it’s upsetting,” Hamilton Davison, executive director and president of the ACMA, told Bloomberg BNA. He added that “the State of Indiana is knowingly acting in direct contradiction to established Supreme Court precedent.”

The U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state. An increasing number of states have passed statutes and regulations in recent years to challenge it, hoping the legal skirmishes will encourage a “kill Quill” decision from the Supreme Court.

Davison said he is sympathetic to states’ budgetary concerns. However, he argued that imposing sales tax on out-of-state companies is unfair because compliance across hundreds or thousands of taxing divisions would be too expensive for small sellers who couldn’t afford the software or maintenance required to collect and remit the taxes.

Many of the largest internet retailers, including Amazon Inc., already remit sales taxes through deals with states’ revenue departments.

Invited Litigation

Last week, the Indiana law’s sponsor, Sen. Brandt Hershman (R), said that he and other proponents invited a challenge of the law. This week he said that the lawsuit was “not a surprise.”

“Many states feel it is time to review Quill in the context of today’s economy,” Hershman told Bloomberg BNA via email. “This, along with other state cases, provides an opportunity to seek that review.”

Named defendants Gov. Eric Holcomb (R) and the Indiana Department of Revenue declined to comment.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio, at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the complaint is at

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