INDIANAPOLIS – Indiana is losing an estimated $77 million in annual sales tax revenue to online purchases – enough to try to collect but not enough to solve any big budget problems, according to a new study sponsored by the Indiana Fiscal Policy Institute.

The analysis – conducted for the institute by Ball State University’s Center for Business and Economic Research – also said that state officials should not fear that trying to collect the tax from online retailers will lead to an exodus of companies.

The report comes as Indiana lawmakers are studying whether to try to force online companies – including Amazon.com and Overstock.com – to collect sales taxes in the same way that brick-and-mortar retailers do.

“This is not a question of raising taxes. It’s whether you apply the tax to all levels of business,” said John Ketzenberger, president of the Indiana Fiscal Policy Institute. “It’s a matter of tax equity. It’s a matter of tax neutrality and those are two important concepts that the legislature should consider.”

Currently, only companies that have a physical presence in Indiana – such as a store or a warehouse – are required to collect the sales tax. Indiana lawmakers approved an exception for Amazon so the company would locate distribution centers in the state. Amazon now has four of those centers in Indiana.

Customers who make purchases from companies that don’t collect the tax are then required to claim their purchases and submit the taxes when they file their income tax returns. However, few Hoosiers do so. Last year, the state collected about $3 million from such payments, while the state collects about $6.2 billion in sales taxes overall.

That’s led brick-and-mortar stores to demand that the state take steps to collect sales taxes from Amazon and other online retailers. And mall giant Simon Property Group – which is headquartered in Indianapolis – has sued the state over the issue.

Congress is also looking at the issue and is considering legislation that would require all online retailers to collect sales taxes. Amazon has supported a federal law.

Michael Hicks, director of Ball State’s Center for Business and Economic Research, said the issue is one that would best be handled by Congress, not states.

But absent federal action, there is reason for Indiana officials to consider legislation. Other studies have put different numbers on Indiana’s losses due to online sales. One study from the University of Tennessee estimated the state loses at nearly $220 million.

to online sales. An estimate from the state’s Office of Management Budget puts the number under $100 million.

Hicks said none of the studies are right or wrong. They simply use different methodologies for their estimates.

However, he said, they all point to the same basic conclusion – that state officials are facing a public policy question about the fairness of the sales tax system.

Ketzenberger said the institute’s goal was to provide information to make that debate easier, despite an anti-tax climate among voters and elected officials.

“This is not about raising taxes,” Ketzenberger said. “I understand the political climate, but this is a public policy question.”

Posted 11/22/2011