Beginning October 1, 2018, taxpayers must begin collecting and remitting sales tax to Indiana in conformity with South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018). Indiana was one of the first states to follow South Dakota’s lead when Indiana enacted legislation last year, House Enrolled Act 1129, which effectively mirrored the laws passed by South Dakota. That led to a lawsuit, American Catalog Mailers Ass’n and NetChoice v. Krupp, Holcomb, and Indiana Dep’t of Revenue, Marion Sup. Ct., Case No. 49D01-1706-PL-025964. That lawsuit was stayed after the United States Supreme Court accepted review in Wayfair, and then jointly dismissed following Wayfair, and following agreement on certain conditions to the dismissal, on August 27, 2018.
To its credit, the Indiana Department of Revenue (“Department”) has made a sincere effort at balancing the desire to require compliance and obtain this tax revenue against the practical considerations for an orderly implementation of this compliance obligation. Like all other states, following the Supreme Court’s decision in Wayfair, the Department needed to determine its next steps in light of the holding in that case which left many questions unanswered. The Department’s actions have included the following:
- Organizing an internal team dedicated to Wayfair related issues and hiring an experienced state tax practitioner to head up this initiative;
- Collaborating with other state revenue agencies to identify best practices, and advocating for consistent implementation measures nationwide;
- Participating as a member in the Streamline Sales Tax Project with similar objectives of facilitating a consistent transition process;
- Soliciting input from taxpayers and taxpayer organizations with different perspectives and concerns;
- Resolving the pending litigation in order to facilitate its October 1, 2018 implementation date;
- Continuing to consider additional legislation to address technical issues and to promote clarity; and
- Researching publicly available data to identify vendors who are not registered with the plan to contact them.
Like South Dakota, Indiana provides a similar statutory nexus threshold (more than $100,000 of revenue or 200 or more transactions), facilitates compliance through the Streamline Sales Tax Project, and its law does not take retroactive effect. But there is no shortage of remaining issues, among them:
- What counts as a “transaction” (e.g., how do you handle bundled transactions, related party transactions, master agreements with multiple subparts, and exempt transactions, among others), and how will Indiana handle compliance in that initial year in which the thresholds are exceeded;
- Will Indiana supply compliance software for taxpayers who do not participate in the SSTP;
- Is physical presence still relevant (e.g., such as if the threshold is not otherwise met);
- How will Indiana enforce these obligations against foreign (non-U.S.) sellers;
- What obligations, if any, will be imposed on marketplace providers;
- How will sales be sourced, such as with drop shipments;
- What documentation will be required or allowed for online exempt transactions (e.g., electronic exemption certificates; invoices);
- How aggressive will Indiana be with respect to “responsible officers”;
- Will registration trigger a nexus questionnaire, including for Indiana adjusted gross income tax; and
- Will Indiana apply the Wayfair nexus standard to the Indiana adjusted gross income tax?
- Will Indiana entertain any leeway with this implementation date should a taxpayer provide good cause to show it needs more time to become compliant?
To date, the Department has been thoughtful and diligent in identifying issues and measured in its approach. We understand that the Department plans to publish responses to FAQs and provide other guidance on some of these issues. But this has been and will continue to be a challenging transition process for taxpayers and states, as states such as Indiana are still in the process of identifying issues and formulating their positions on those issues. Taxpayers will need to continuously monitor and adjust in order to fulfill their compliance obligations and manage their risks.