United States

Indiana will enforce economic sales tax nexus beginning Oct. 1

TAX ALERT  | 

ORIGINAL ALERT – May 3, 2017: Indiana enacts economic sales tax nexus provisions

UPDATE:

Recall that Indiana enacted an economic sales tax nexus statute in the spring of 2017, scheduled to become effective on July 1, 2017. The statute was quickly challenged and enjoined from enforcement. Subsequently, a challenge to South Dakota’s economic sales tax nexus law, the first statute using an economic threshold to challenge physical presence nexus, was decided by the U.S. Supreme Court in South Dakota v. Wayfair on June 21, 2018. The Wayfair decision eliminated the physical presence standard and opened up the possibility for states to enact economic sales tax nexus provisions.

On Aug. 27, 2018, the last challenges to the Indiana law, which was substantially similar to the South Dakota law, were settled and dismissed, paving the way for general enforcement of Indiana’s economic sales tax provision beginning Oct. 1, 2018. Indiana’s economic sales tax nexus provision requires remote sellers that do not have physical presence in Indiana to collect and remit sales tax on Indiana retail transactions as if they have physical presence in the state if: (1) the retail merchant’s gross revenue from sales into Indiana in a calendar year exceeds $100,000; or (2) the retail merchant makes sales into Indiana in more than 200 separate transactions. Gross revenues are based on the combination of sales of tangible personal property delivered into Indiana, products transferred electronically into Indiana or services delivered into Indiana.

Takeaways

Indiana economic sales tax nexus will go into effect for remote sellers on Oct. 1, 2018. Taxpayers should act now to evaluate whether they have physical presence, and a current sales tax liability, or will have economic nexus in Indiana and determine whether they will need to register with the department and begin collecting sales tax. Taxpayers with potential liabilities should develop a strategy around managing risk and remediating the liabilities.

Separately, the Indiana Department of Revenue is offering remote sellers tax relief by allowing certain remote retailers that sell to Indiana residents to enter a one-time Special Initiative Voluntary Disclosure Program. The program is in effect until Dec. 31, 2018 for companies that have inventory located at third party Indiana warehouse, sell to Indiana customers, have never registered for or filed tax returns in Indiana for the type of tax in question, and have never been contacted by the department about the type of tax in question. The program allows qualified applicants to limit tax liability look-back to Jan. 1, 2017 for sales and use tax and calendar or fiscal year 2017 for income tax, avoid audit, and waive penalties. 

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