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Indiana considers online sales tax

  • Mar 10, 2017 | Gail Cole

 Indiana looking to capture more tax revenue from online sales.

A bill that would impose a tax collection obligation on certain out-of-state sellers based on their economic activity in Indiana is making its way through the Legislature. Senate Bill 545 was approved by the Senate in a 42–1 vote and is now under consideration in the House Committee on Ways and Means.

The measure would require out-of-state retailers to register with the state and collect and remit sales and use tax when one of the following conditions is met:

  • The retail merchant’s gross revenue from sales into Indiana in a calendar year exceeds $100,000
  • The retail merchant makes sales into Indiana in more than 200 separate transactions

As has been the case in several other states with similar measures, the state expects retailers to refuse to comply with the law should it be enacted. SB 545 authorizes the Indiana Department of Revenue to “bring a declaratory judgment action against such a remote seller to establish that the remote seller has an obligation to collect sales tax and that the remote seller’s obligation to collect sales tax is valid under state and federal law.” The measure also prohibits state agencies from enforcing the measure during pendency of a declaratory judgment action.

Indiana follows South Dakota’s lead

A similar law that went into effect in South Dakota on May 1, 2016, has never been enforced. Even before it took effect, Senate Bill 106 was challenged as unconstitutional by numerous entities, including Overstock.com and the American Catalog Mailers Association. Earlier this week, South Dakota state officials welcomed the news that SB 106 was declared unconstitutional by a state circuit court.

The South Dakota case is now one step closer to the doors of the Supreme Court of the United States. If it ends up before the bench, the state will ask the court to overturn Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the seminal case that upheld the precedent that a business cannot be compelled to collect and remit sales and use tax on behalf of a state unless it has a substantial physical presence in that state. (Learn more about nexus, the connection between a business and a state that creates a tax obligation.)

To date, the high court has refused to take on any case that challenges Quill. A growing number of states are now pushing the issue with legislation handcrafted to challenge the 1992 decision. If Indiana enacts SB 545, the state will join South Dakota, Alabama, Oklahoma, and several other states hoping for a judicial solution to the online sales tax debate.

It’s a question of tax revenue

Indiana lost somewhere between $77 million and $195 million in 2012 due to untaxed internet sales. Consumers are supposed to pay use tax to the state if sales tax wasn’t collected at checkout on purchases that are used or stored in Indiana. However, few buyers do this, and enforcement of use tax compliance is difficult.

If enacted, SB 545 would take effect July 1, 2017. However, the legislature does not expect it to increase sales tax collections “until a final court decision has been reached.”

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.