With Cyber Monday approaching next week, a shopping holiday that functions as Black Friday for online retailers, the Indiana Fiscal Policy Institute released a report this week estimating that the state would lose between $40 million and $114 million in online sales tax revenue in fiscal year 2012.
The study, conducted in coordination with Ball State University's Center for Business and Economic Research, acknowledges the difficulty in projecting lost tax revenues. For its purposes, the authors combined two factors to reach their estimate: a statistical model based on the share of Indiana personal income paid in sales tax, which accounts for trends in consumption patterns, and an analysis of the growth in the number of broadband subscribers in the state.
With those factors considered, the institute projects a loss of $77 million in tax revenue from online sales in the current fiscal year. Accounting for a wide margin of error based on previous studies (plus-or-minus $37 million) leads to the $40 million to $114 million estimate.
As Governing reported in the November issue, state and federal policymakers have been grappling with how to collect sales taxes on those online sales, as multiple studies have estimated that governments are losing hundreds of millions of dollars in revenue.
The issue has gained traction in Indiana after the Simon Property Group, the nation's largest mall developer and owner, sued the state earlier this month, pushing for the state to collect sales taxes on online retailers, the study stated.
The report concluded by attempting to estimate the theoretical impact of a so-called state Amazon Tax on the state's economy. To do so, the authors looked at data collected by the Census Bureau on firms identified as Electronic Shopping and Mail Order Houses in the nine states that have enacted some kind of online sales tax. They concluded a state Amazon Tax ultimately had no impact on employment in those states or on the firms' decision to establish physical locations in those states.
The Indiana Fiscal Policy Institute describes itself as a private, non-profit government research organization dedicated to "continuing research into the impact of state taxing and spending policies in Indiana," according to its website. Its members include the Indiana Association of Realtors, the Indiana Association of Cities and Towns and the Indiana AFL-CIO.
A copy of the report is included below.