Wayfair, Overstock Dragged Into Indiana Online Tax Fight

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Alex Ebert

You sue me, I sue your friends.

The Indiana Department of Revenue has turned the tables in a lawsuit that challenges the state’s ability to collect taxes on out-of-state sellers. Instead of just denying the claims of the two trade associations suing to stop its collections over internet retailers, on Aug. 28 the state dragged Wayfair Inc. and Overstock.com Inc. into the suit in hopes of getting a court-backed declaration that it can tax those sellers regardless of physical nexus in the state ( Am. Catalog Mailers Ass’n. v. Krupp , Ind. Super. Ct., No. 49D01-1706-PL-025964, answer and third-party complaint filed 8/28/17 ).

Despite Overstock’s 2016 revenue of $1.8 billion and Wayfair’s 2016 revenue of $3.4 billion, neither “currently collect or remit gross retail tax to Indiana,” as required under House Enrolled Act 1129, the department alleged in its third-party complaint filed Aug. 28. The third-party complaint didn’t say how much the state could collect from Wayfair or Overstock if it won this action.

The state’s maneuver could expedite or preempt other potential challenges to the state’s tax, as these companies have fought against similar digital sales taxes in other states. Under the new law, 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.

Additionally, the move might also be an attempt to link Indiana’s lawsuit to current litigation pending before the South Dakota Supreme Court. Oral arguments were held Aug. 29 over South Dakota’s attempt to enforce a similar digital sales tax against Wayfair, Overstock, and Newegg Inc.

Indiana’s “economic nexus” legislation tracks the same sales threshold adopted by several other states, including Alabama, Tennessee, and Wyoming, where litigation also is pending in the hopes it will reach the U.S. Supreme Court. Specifically, states want to undo Quill Corp. v. North Dakota, the 1992 U.S. Supreme Court decision that prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

In a statement, Indiana Gov. Eric Holcomb (R) said he signed the law “with full awareness” that Quill prohibits states from collecting sales and use taxes from out-of-state retailers.

“In light of the rapid evolution and capabilities of software and technology, the incredible growth of online sales in recent years and other factors, it’s time for the Supreme Court to revisit and overturn this ruling,” Holcomb said in a statement. “Hoosier-based businesses need the ability to compete on a level playing field as soon as possible.”

‘Confident’ Court Will Enjoin

Washington-based NetChoice, one of the associations bringing the Indiana lawsuit, didn’t immediately respond to requests for comment. The other party, the Washington-based American Catalog Mailers Association, declined to comment. The ACMA, like NetChoice, is entangled in the other pending lawsuits as well.

Steve DelBianco, executive director of NetChoice previously told Bloomberg BNA that he was “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.”

The Indiana Department of Revenue, Wayfair, and Overstock didn’t immediately respond to requests for comment.

Wayfair and Overstock are part of the $293 billion market of discretionary Internet retail purchases.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

For More Information

Text of the answer and third-party complaint is at http://src.bna.com/r5q.

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