by Claudia Bruemmer

Earlier this week, Amazon and Indiana Governor Mitch Daniels announced an agreement to the effect that Amazon will voluntarily start collecting Indiana sales tax on web purchases January 1, 2014. However, there is a backlash from Indiana retailers who want Amazon to start collecting now. They oppose the deal because they believe Amazon has the capability to start collecting taxes now, and the delay continues to give unfair advantage to online retailers.

It is estimated uncollected online sales taxes in Indiana total $75 million a year. Of that estimated total, Amazon sales tax revenue would range from $20 to $25 million per year.

Currently, online retailers without a physical presence in the state do not have to collect sales tax on Internet purchases. As ecommerce has increased in recent years, the exemption from Internet sales taxes has come under fire by brick and mortar retailers in several states. In September, Amazon made an agreement to collect web sales taxes in California beginning September 2012.

Many elected officials and legislators believe the only answer to Internet sales tax problem is a federal solution that treats all retailers and all states alike. Amazon has made agreements or tax collection with several states so far. Some states have enacted legislation that requires large online retailers collect sales taxes. Amazon’s immediate solution was to stop dealing with those states. However, it now sees the handwriting on the wall and has been making agreements to collect taxes with various states individually.

Early last year, Illinois adopted a law requiring online retailers with a physical presence in Illinois to begin collecting sales taxes. Amazon avoided the issue by dropping its Illinois affiliates, which typically earn commissions for directing shoppers to an online store.

Amazon’s agreement with Indiana is similar to others it signed last year with California and Tennessee, where the retailer has agreed to proceed with plans to invest in new distribution facilities that would result in thousands of new jobs. Amazon has also been lobbying for federal legislation, but the effort could take until 2013 to get final legislation through.

Amazon currently collects sales tax in the state of Washington, where its headquarters is based; in Kansas and Kentucky, where it maintains distribution centers; in North Dakota; and in New York, where it is collecting sales tax while awaiting the result of a court case on a New York law requiring online retailers to collect sales tax if they get sales leads from in-state affiliate web sites such as blogs.

Another giant web-only retailer, Overstock.com recently proposed that states provide merchants with tax-collection software and to cover the cost of using it. The “Equity in Sales Tax Collection Act Bill” proposed by Overstock contends it would be more fair to retailers than the pending sales tax bills under consideration in Congress.

Overstock proposes that states provide the software that would automatically compute and report to the states the proper sales tax amounts of each retail transaction. Overstock suggests that states could provide such software to work with bricks-and-mortar store cash registers, point-of-sale systems and online billing programs. That would level the playing field among retailers by taking the sales tax collection responsibility away from store retailers rather than adding collection duties to web-only retailers.

Overstock’s proposal wants retailers relieved of liability for errors made in calculating sales tax, and it would allow retailers to retain at least 2 percent of the sales tax collected. The proposal also wants the states to reimburse the software  providers with a minimum of 3 percent of the amount of sales tax collected in each retail transaction.

With all this activity in legal agreements and proposed legislation, and with the big retailers that originally were adamant about not collecting Internet sales taxes making  proposals for sales tax collection, it won’t be long before sales taxes come to ecommerce.