Simon Versus Amazon.com

Giant mall owner Simon Property Group is challenging the Indiana Department of Revenue's decision not to collect sales taxes on Indiana sales by giant online retailer, Amazon.com, by filing a lawsuit in Marion Superior Court. As part of a deal to entice the online retailer to establish several distribution centers in the state, the Daniels' administration gave the online retailer a pass on being required to collect sales taxes on sales made to consumers within Indiana. While online retailers have traditionally been permitted to make sales within states it does not have a physical presence without collecting state sales taxes on those sales under a long-standing U.S. Supreme Court decision, the same has not been the case for those with a physical presence in the state, which should stand in the same position as other brick and mortar retail establishments. The IBJ's Cory Schouten has more:

The Indianapolis-based mall powerhouse said it filed the suit Thursday not to collect "monetary damages" but to level the playing field for Indiana's brick-and-mortar retailers including the tenants at its 27 Indiana shopping centers.

The lawsuit, filed in Marion County Superior Court, claims the state's "illegal and unconstitutional" decision to exempt Amazon from sales-tax collection gives the giant online retailer "an unfair advantage in the market."

The suit cites a study by professors at the University of Tennessee that estimates Indiana will forego about $195 million in revenue in 2012 alone by failing to compel out-of-state retailers like Amazon to collect sales taxes.

Simon earlier had requested that the state begin collecting sales taxes on purchases made from within the state's boundaries on Amazon.com. Online retailers typically are required to collect sales taxes on purchases from within states where they have a physical presence, but Indiana has not forced the issue with Amazon.

The decision by Indiana officials to take a kid-glove approach was an important factor in Amazon's decision to open four local distribution centers that employ thousands of Hoosiers. Of course, traditional retailers employ many thousands more.

Simon's legal argument probably rests on equal protection grounds. Tax cases of this nature must generally satisfy the rational basis test, which gives a lot of discretion to the government to fashion tax laws by differentiating among taxpayers by class. The courts probably give too much deference to the government to classify taxpayers, which results in what would otherwise be similarly-situation taxpayers being taxed quite differently. The entire income tax as far as I'm concerned should be declared unconstitutional because of the plethora of special tax breaks built into it that allow taxpayers to game the system too much to avoid paying their fair share.