Supreme Court Rules in Favor of Online Sales Tax Collection; Indiana Poised to See Millions in New Revenue

The U.S. Supreme Court decision issued yesterday in South Dakota v. Wayfair has been awaited by many brick-and-mortar retailers and state budget-makers for over 25 years. In a nutshell, the Supreme Court’s decision (5-4) will permit states to move forward with sales tax collection from online retailers.

The Court overturned the Quill v. North Dakota decision (and Bellas Hess on which Quill was based) dealing with sales tax on mail orders – dating back to 1992, well before the internet boom. The Court found those old decisions to be “unsound and incorrect” and deemed them to be “an extraordinary imposition by the judiciary on states’ authority to collect taxes and perform critical public functions.” The old cases found that requiring the collection of sales tax, when the seller has no physical presence in the state, an undue burden on interstate commerce – a constitutional issue. The “physical presence” test effectively prohibited states from requiring an out-of-state business to collect sales tax from its customers. But now the Court has stated that it “can no longer support the prohibition of a valid exercise of states’ sovereign power”. To put it simply, times have changed. There is readily available software that online retailers can utilize to set up the sales tax collection; it’s no longer a big deal. Separately, the online retail market has become so huge in the last two-plus decades as consumer shopping preferences have shifted; that’s made it all the more imperative that the segment be on a level playing field tax-wise with brick-and-mortar stores.

The Court also addressed the widely-held notion that this issue needed to be resolved by Congress. The Court responded to that saying, “It is inconsistent with this Court’s proper role to ask Congress to address a false constitutional premise of this Court’s own creation.”  In other words, the Court created this dilemma, if you will, with the Quill case and determined it needed to be the one to then provide a remedy.

The new ruling essentially upholds the South Dakota statute that allowed the state to require online sellers to collect sales tax if they deliver over $100,000 in goods into the state, or have over 200 separate transactions with customers in the state. (Technically, the case was remanded to the South Dakota Supreme Court to issue a new determination without the Quill case serving as a controlling precedent.) The Court found that the requirement under other precedent – that the seller have legal nexus in the state – was clearly met by the sales thresholds of the South Dakota Act.

The Indiana Chamber has been a long-time advocate for online sales tax collection; it is one of the key goals in our Indiana Vision 2025 plan. State lawmakers, led by former Sen. Luke Kenley, were also attuned to these issues and quite wisely enacted legislation in 2017 that was modeled after the South Dakota statute. In fact, our law is essentially identical. This means that with a law that the U.S. Supreme Court has now found legally sufficient, Indiana is poised to begin requiring online sellers to collect and remit Indiana sales tax from their Indiana customers. Again, this is directed at those online sellers who meet the $100,000 or 200 transaction thresholds outlined above.

 It is worth mentioning that Hoosiers are already legally obligated to pay the online sales tax when they file their state income tax returns, but as a practical matter almost nobody does. Uncollected sales tax from online transactions has resulted in substantial loss of revenue to states, thus increasing the tax burden on those who do pay the taxes they owe. Estimates place the uncollected tax for the state of Indiana at more than $100 million annually, perhaps as high as $200 million. That number has grown exponentially with the popularity of online shopping and is only going to keep rising.

So here’s to the U.S. Supreme Court for rectifying this long-standing problem, leveling the playing field between businesses and placing the sales tax burden evenly.

Tech Talk: Scoring the Votes, Tallying Your Benefits

It seems so long ago that an up-and-down software-as-a-service legislative journey ended successfully with passage of now Senate Enrolled Act 257. The bottom line: Indiana put a definitive stake in the ground, becoming just the fourth state to clearly establish that it will not tax such SaaS transactions. (Summary on Page 2 here).

But with the 2018 Indiana General Assembly not wrapping up its work until a one-day special session in mid-May, an evaluation of the legislators’ work and a review of how members benefitted from Indiana Chamber advocacy have just recently been released.

The 2018 Legislative Vote Analysis, as the name suggests, grades lawmakers on their support for pro-economy, pro-jobs initiatives. Scores for 2018 range from 47% to 100%. Two Chamber priorities, however, are not included in the analysis as they did not advance to the floor for full votes due to leadership decisions. Those were efforts to raise the smoking age to 21 and reform the state’s smallest townships.

Indiana Chamber President Kevin Brinegar notes, “For this exercise, it means that two critical pieces of legislation never came into play, so ‘tough votes’ weren’t taken and overall vote scores are higher as a result.”

View the full report or one-page summary of legislator scores.

Overall, the Chamber’s advocacy work resulted in savings for Indiana employers of $615 million – or $228 per employee. Major efforts included the following:

  • Tax savings, most significantly avoiding direct tax increases due to conformity with federal tax reform, and the SaaS sales tax exemption
  • Defeat of a variety of labor and insurance mandates

What do the Chamber efforts mean for your organization? If you have 10 employees, it’s $2,280; for 25 employees, $5,700; or 100 employees, $22,800.

View the 2018 Legislative Return on Investment.

A One Day Special Session (and More?) Preview

Today, the Indiana General Assembly reconvenes to pass five bills; four had been through the entire process during the regular session that ended on March 14 and were ready for final passage.

To use a basketball metaphor to describe the situation with these bills: The ball was still in the shooter’s hands when the shot clock went off. And the bills to be taken up in the special session will substantively be the same bills that were making their way down court in the final minutes of regulation. The only other bill is a technical corrections measure to reconcile inadvertent conflicts in language of bills that passed – i.e., two bills amending the same section of the code, but with slightly different wordage. Such technical corrections bills are routine.

As we reported last month, there are two tax administration bills. House Bill 1316 – the one to update Indiana with the federal tax reform changes – is both significant in effect and time sensitive. Failure to pass this legislation would greatly complicate 2018 returns and be of substantial consequence to Indiana and its taxpayers. Meanwhile, Senate Bill 242 includes a number of provisions the Indiana Department of Revenue sought to improve tax administration.

The remaining two bills are in the education realm: one addressing school safety issues and the other involving state oversight of financially distressed school systems – often regarded as the Muncie and Gary schools bill. There are lingering disagreements attached to the provisions of the latter legislation (testimony was heard earlier this week by the Legislative Council), and it will reignite debates that were had during the regular session. But it is expected that the time allotted for rehashing these debates will be limited.

Given the timeframe, there is little for legislators to do except formally act on the five bills. That leads us to the question: Will they in fact get all their work done in a single day? Probably so, once they suspend most of the rules that would, if applied, serve only to prolong the proceedings.

Separately, it appears there is some other significant business to be conducted by the Senate while they are all in town. Rumor has it that the following day (May 15) will be devoted to some serious internal politics. That would be the selection of a new Senate Pro Tempore to replace the retiring Sen. David Long (R-Fort Wayne). Talk is of a “binding straw poll” seeking to lock members into a statement of who they intend to support when a formal vote is taken in November, after the fall election. Senators Rod Bray (R-Martinsville) and Travis Holdman (R-Markle) are the acknowledged frontrunners for the Senate leadership post.

Indiana Chamber Comments on SaaS Tax Clarity Bill Signed Into Law Today

Bill Waltz, Indiana Chamber of Commerce vice president of taxation and public finance, comments on Senate Bill 257 being signed into law, providing clarity on the tax exempt status for software-as-a-service (SaaS) transactions:

“Since last summer, the Indiana Chamber has been leading the charge to see this clarification become law, with language originating in our tech policy committee. Our advocacy team and several members of the committee met with all the interested parties to build momentum and consensus. We put a lot of work into the effort because the stakes were high. The state’s significant momentum as an attractive place for innovative and entrepreneurial companies was in jeopardy without a sensible solution.

“And this policy is important not just for tech companies, but for those who do business with them. The new law is straightforward on what transactions are exempt. Having clarity around that will help grow Indiana’s software development economy, as well as prevent onerous taxation of other necessary business expenses throughout the business community.

“We thank Governor Holcomb for his leadership and legislators for listening to our members and taking this important step forward to further demonstrate Indiana’s technology commitment. The state is now in a very favorable position to reap very real economic benefits and attract more and more of the software-as-a-service industry.”

Sen. Travis Holdman, author of SB 257 (left) and the Chamber’s Bill Waltz 

Victory! Software-as-a-Service Bill Set to Become Law

This week, the Senate unanimously approved the House changes to Senate Bill 257 (Sales Tax on Software). This bill began as a top Indiana Chamber goal; it was embraced by the administration and made a priority of the Governor, the Senate got it introduced and rolling, then the House took good legislation and made it even better.

The Senate concurrence vote means the bill is on its way to Gov. Holcomb and there will be SaaS (software as a service) tax clarity in Indiana!

This is exactly what the Indiana Chamber has been working toward since last summer and it is good news for the SaaS industry. Senate Bill 257 is a straightforward piece of legislation that can reap very real economic benefits for the state. We thank legislators for listening to our members and taking this important step forward to demonstrate Indiana’s commitment to embracing the growth of the SaaS industry. The legislation puts Indiana in a very favorable position to attract more and more of this burgeoning business to our state.

Key Workforce Development Legislation Still a Work-in-Progress

In the Indiana General Assembly, both House Bill 1002 and Senate Bill 50 have been significantly amended in ways that we support, but also in ways that give us some concern. We have strong support for the thoughtful and deliberate work on the study by the Legislative Service Agency of all workforce programs. It is extremely thorough and we look forward to the results of each year’s report and presentation. We also support the language regarding the Next Level Jobs Employer Training Grant program. The career and technical education (CTE) student information portal for local employers is a prime example of a creative model without having to spend extra capital. And we also support expanding the Employment Aid Readiness Network (EARN) Indiana program to include part-time students.

We hope to continue the conversation on the makeup of the Governor’s Workforce Cabinet in conference committee and have some questions as to how this will work in conjunction with the State Workforce Innovation Council (SWIC), a similar existing cabinet that is required to have its membership be 50% employers. We appreciate the language in the bill allowing the Indiana Chamber to be consulted with on a gubernatorial appointment for a business leader to the panel; however, we question why we cannot simply utilize the SWIC.

If we are tied to the idea of creating a new cabinet, we feel strongly that we should have more employer voices at the table, plus give the Indiana Chamber a seat as well. The Chamber’s place on the cabinet would provide historical knowledge on workforce issues, representing the voices of thousands of members and investors throughout the state and providing consistency when we have a new Governor who would make the majority of the appointees (be they employers or agency heads).

In close, though these bills are better and moving in the right direction, they still need work. The Chamber will continue to advocate for strong policies throughout conference committee.

SaaS Bill Even Better After Amendments

Senate Bill 257 (Sales Tax on Software) took a very positive turn this week when it was amended by the House Ways and Means Committee. After hearing considerable testimony from members of the Chamber’s Technology and Innovation Policy Committee in a hearing last week, it appears the message was received! That message: It would be beneficial to the software industry to provide simple clarity regarding the exempt status of software as a service (SaaS).

The Ways and Means Committee amendment deleted a good amount of language that we were concerned could raise new questions and run counter to the objective of reducing uncertainty about software transactions.

These changes make clear that it is only in the case where prewritten software is delivered electronically (downloaded) that the transaction is considered a retail sale subject to sales tax. And when someone buys the right to remotely access software, the transaction is not taxed. Through these positive amendments, the bill now more directly serves the objective of clarifying that SaaS transactions – those involving the use of software to essentially provide a service – are excluded from taxation.

The Indiana Chamber has been making the case for the need to eliminate the previously existing ambiguous language and convincing legislators that a clear, simple, straightforward piece of legislation can reap very real economic benefits. Our efforts are reflected in this much streamlined version of SB 257. We thank the Ways and Means Committee for listening to our members and taking this important step forward to demonstrate the Legislature’s commitment to embracing the growth of the SaaS industry in Indiana. The revised bill puts Indiana in a very favorable position to attract more and more of this burgeoning industry to our state.

Video: Midterm Evaluation of the Indiana General Assembly

Indiana Chamber President and CEO Kevin Brinegar provides a midterm evaluation of the 2018 Indiana General Assembly. Among the key bills that did not survive the first half of the session: raising the smoking age from 18 to 21 (a common-sense step for dealing with health care costs and lost productivity that causes more than $6 billion in annual impact). In addition, an effort to modernize the state’s local government system by consolidating the smallest townships was not brought for a vote.

Areas that are still a work in progress include reforming the state’s workforce development programs, incorporating computer science requirements into schools, clarifying tax treatment for Software-as-a-Service (SaaS) and continuing to move forward on long-term water resource management.

Short Session Starts With a Flurry of Activity

The Governor and General Assembly have continually heard from Hoosier employers on the need for a skilled workforce – and better aligning state programs with job demand. The good news is bills are being introduced to address those concerns. While only a handful of measures have been released to date, we are seeing legislation related to training tax credits and grants, as well as efforts to streamline current workforce programs. We anticipate a comprehensive workforce bill (1002) will be introduced in the House later next week.

The Governor’s computer science bill (SB 172) requires all public schools to offer a one-semester elective computer science course at least once each school year to high school students. We expect a hearing on this measure in the next two weeks. Both this and the workforce efforts are 2018 Indiana Chamber legislative priorities.

Senate Bill 257 has been introduced by Sen. Travis Holdman (R-Markle) to serve as the beginning of discussions on clarifying the exempt status of computer software sold as a service (SaaS) – a Chamber priority. Holdman is also authoring another major piece of tax legislation, SB 242, which contains a variety of tax matters. The House bills are coming in too, with a good number already filed addressing local tax issues.

Speaking of local matters, the Chamber is very pleased to see that the House Republican agenda includes a bill that will make township government more effective and efficient by the merging of townships (approximately 300) where less than 1,200 people reside. Such local government reform has been a longstanding Chamber goal.

In addition to SB 257, other technology-related bills include Rep. Ed Soliday’s (R-Valparaiso) autonomous vehicle (AV) proposal to position Indiana to safely test and implement AV technology with automobiles. The bill also will address truck platooning, which uses GPS and WiFi technology to allow trucks to more closely follow each other for greater efficiency, on Indiana roads.

Rural broadband, high-speed internet and small cell wireless structures technology all will be topics for the Legislature to debate. Certified technology parks also will be discussed with the idea to have an additional capture of sales and income tax revenue for those complexes that perform well.

In health care, enabling employers to ask prospective employees if they are smokers not only heads the Chamber’s wish list but also appears to be gaining traction this go-round. Eliminating the special protections (currently in state statute) for smokers is found in SB 23 and will be guided by Sen. Liz Brown (R-Fort Wayne). The bill has a pretty good chance of getting a hearing in the Senate – which would be a first. Previously, a measure was taken up in a joint hearing in the House.

Increasing the tobacco tax and raising the legal age for smokers to 21 are policies that likely will be included in a bill to be introduced by Rep. Charlie Brown (D-Gary). The Indiana Chamber is supportive of both.

Nine utility-related bills are on our radar screen at this point. They range from tweaks of last year’s big legislation (like SB 309, which addressed rising energy costs and a long-standing struggle between the investor-owned electric utilities and larger consumers of energy) to compulsory sewer connection, excavation for infrastructure, regulation of solar energy systems in homeowners’ associations and new water legislation. Separately, Sen. David Niezgodski (D-South Bend) has a proposed ban on coal tar pavement sealer, which we oppose.

There are also a number of bills proposing changes to Indiana’s alcohol laws including: Sunday sales, cold beer sales by grocery and convenience stores, and increases in fees and penalties.

The Chamber will be providing more details on all of these bills as the session progresses.

For anyone who wants a refresher about how legislation becomes law, the Chamber has a handy guide free of charge. It includes a diagram of the bill process, a glossary of often-used terms and a look at where bills commonly get tripped up.

Additionally, the Chamber will be providing updates and issuing pertinent documents throughout the session at www.indianachamber.com/legislative.

Chamber Talks Workforce Needs, Impact of Opioid Addiction as 2018 Legislative Session Begins

As the 2018 General Assembly gets underway, the Indiana Chamber is highlighting three big issues expected to be debated in the coming days and weeks: workforce needs, the opioid crisis and smoking rates.

Indiana Chamber President and CEO Kevin Brinegar says, “We’ve done so well recently from an employment standpoint that we’ve almost outstripped our ability to hire skilled workers since unemployment is so low in the state.

“It’s clear we need to raise up the skills of those who are here, but the Indiana Chamber is also suggesting that perhaps we need to pursue a parallel strategy of recruiting people from out of state. Talent is more mobile than ever before and once people gethere, they really appreciate our cost of living.”

But make no mistake, Brinegar stresses, the state’s priority should be on the potential talent pool at home. That means some major changes will need to occur – ones that hopefully start in the new legislative session.
“What we’ve been doing wrong is saying, ‘Here is our program, you come use it and we hope that it will solve your needs.’ Instead, there should be a conscious effort to truly listen to employers and then develop training programs that are demand-driven to what the needs of the marketplace are now.”

Many of those jobs today and down the road are in the middle skills area – skills that require more than a high school diploma but less than a four-year bachelor’s degree. Brinegar states this should be a focus for both Hoosier workers who need to improve their skillset and young students.

“We know from our member companies that they are reaching down to high schools and even middle schools to explore with students what job opportunities there are with their companies, what skills they need to have, what classes they need to take in high school to be eligible to take those jobs. It’s becoming a lot more focused on getting people ready with some specificity for jobs after high school.

“There will always be the need for a number of jobs requiring a four-year degree or more, but the real growth is in show me what you know, show me what you can do, show me what machinery you can operate. That’s the mindset we need to have to transform some of these government silos … along with listening to employers and creating programs that communicate to young people what those job needs are.”

Additionally, the Indiana Chamber is partnering with the Governor’s office and the state’s drug czar, Jim McClelland, to be the source for the business component of the state’s plan to combat the opioid crisis.

“We will be researching on best practices, disseminating information to employers and putting on training programs. I’ve told the Governor’s office that we want to be part of the effort and part of the solution. It’s a big problem and it’s not going to be solved overnight, but this has become an employer problem in addition to a personal and societal problem,” Brinegar offers.

“We’ve rapidly gotten to the point to where employers almost can’t fire somebody for failing a drug test because there isn’t the depth in the workforce to tap into for new workers. Employers are looking for guidance. They want more information on what they can do, how they can train supervisors to recognize signs and know where the effective treatment programs are.”

The Indiana Chamber, a founding member of the Alliance for a Healthier Indiana, would like the same urgency placed on reducing the state’s smoking rates.

“There are 10 times more people dying from smoking-related illnesses every year than opioids. And it’s the most preventable source of disease,” Brinegar notes.

“We need to improve our health metrics, including obesity, which are in the bottom third of the states. I rarely accept average for anything, but if Indiana rose to be just average when it comes to smoking, that would significantly curb health issues and save those individuals and businesses a lot of money on insurance coverage and health care costs.”

Indiana’s current smoking rate is at 21% of the population; the national average is 15%.

Enhanced workforce efforts and reducing the state’s smoking rates are among the Indiana Chamber’s Top 9 legislative priorities for 2018. The full list is available at www.indianachamber.com/priorities.