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Amazon Shrugs in Colorado
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The Colorado legislature recently passed a bill (Colorado Bill HB 10-1193) that basically seeks to improve the state’s ability to collect use tax on internet sales. This is a tax that most buyers of the covered products technically should be paying anyway but are rarely collected. Most people think those things they buy online are tax-free when really they were supposed to have paid the tax on their own rather than having it collected by the retailer. As we all know, people rarely do. Colorado and other states have tried to fix this for a couple primary reasons. The first is simply money. They’d like to collect more revenue. The second is to level the playing field for in-state companies. It’s not fair competition if local companies effectively have to charge buyers more for a product because they have to charge tax while online retailers do not. Colorado first tried to tackle this problem by widening the description of a nexus to the state that would trigger collection obligations for sellers. They apparently kicked around the idea of requiring the seller to collect tax if the seller had any affiliate relationships within the state. That caused a backlash from companies like Amazon and its affiliates, so the final legislation made that more or less an irrelevant issue. The bill that passed basically says that out-of-state sellers do not have to collect tax at the time of sale, but do have to notify all buyers that they have an obligation to pay the use tax themselves. These sellers also have to mail a report by January 31 of each year to each purchaser marked “Important Tax Document Enclosed” that outlines the purchases made, the dates of purchase, and if known, whether such purchases are exempt from taxation. This report must also reiterate that Colorado requires a sales or use tax return to be filed and a sales or use tax to be paid, presumably by the purchaser. Finally, these sellers have to send separate reports to the state for each in-state purchaser outlining sales that were made to that purchaser. It’s sort of like 1099’s for consumers. It may prove to be effective, but is obviously pretty burdensome. The odd turn of events, however, came with Amazon’s reaction. Amazon promptly terminated all of its affiliate relationships within Colorado, but said that it will continue to sell directly to Colorado consumers. That does nothing to relieve it of the burdens of the new law that would seem to be most objectionable or costly. As long as the law stands, Amazon will still have to comply with all the notice and reporting obligations regardless of whether it has affiliate relationships in the state. The only way it could eliminate that problem would be to stop shipping products into the state. Amazon’s reaction seems simply to use its affiliates as pawns to put pressure on the legislature, with the apparent thought being that if they inflict enough pain on enough local businesses, the government will cave. There is some evidence this may be having its intended effect as the finger pointing and emergency meetings have already commenced within the legislature. There are several issues with this legislation, but Amazon’s reaction of “wife yells at husband, so husband kicks dog” is claiming a lot of innocent victims. Paul Koenig is a co-founder/managing director of Shareholder Representative Services (www.shareholderrep.com), which serves as a professional shareholder representative following the acquisition of a VC-backed portfolio company. Most Commented Posts |
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March 11th, 2010 at 7:15 pm
Why do you claim
“As long as the law stands, Amazon will still have to comply with all the notice and reporting obligations regardless of whether it has affiliate relationships in the state. The only way it could eliminate that problem would be to stop shipping products into the state.”
I don’t see how Colorado can regulate an out of state business that has no nexus in the state?
Could they do that to a business located in Canada that shipped products to CO residents through shipping companies?
I am trying to understand the basis for this claim.
March 12th, 2010 at 10:33 am
Good point Lynn. Amazon could certainly elect not to comply on the basis that the law does not apply to it. I was assuming that Amazon would want to be in compliance with the law and then likely fight it in court (which, by the way, I think they should do), but as you point out, that’s an assumption I probably shouldn’t have made. I just assumed they would not take the position of willfully violating the law and then hoping they prevail on the legal arguments.
March 12th, 2010 at 11:19 am
The title of this article is by leaps and bounds the best I’ve seen on the topic. Congratulations Paul: Stroke of genius.
Lynn, the answer is complicated, but basically, for regulatory purposes, Amazon DOES have nexus in Colorado (Due Process nexus). Amazon can’t be required to collect the tax because it does not have tax collection nexus (Commerce Clause nexus). (This is the Quill case.) So the answer to the Canada question is “yes”, Colorado could (and in fact now does, by operation of the law we’re talking about) require a Canadian business that shipped products to CO through shipping companies to file these reports. If I remember my law school civ pro class right, the case you’re looking for is Worldwide Volkswagon (though it could be Asahi Motors: I always got them mixed up).
March 12th, 2010 at 2:19 pm
I did read the email Amazon sent out and they will continue to sell to Colorado customers. I would assume this whole thing could be settled in a week, if Amazon would decide to not ship to Colorado customers anymore. The CO law is different in its way compared to NY, NC, or RI. No sales and shipments to CO customers would increase the pressure on lawmakers to find a solution.
March 12th, 2010 at 5:51 pm
Goodness gracious! You mean we might have to buy from local retailers?
March 15th, 2010 at 12:01 pm
anonEmouse:
Thanks for the explanation of the various nexuses (hmmm, is that the plural of nexus; maybe nexi?:-).
From your explanation (and it is nice to see an explanation from someone who has been to law school), it seems like the existence of an affiliate program is irrelevant. Is that the case, or is there a legal (as opposed to a political) reason for Amazon to fire its affiliates?
May 13th, 2010 at 6:45 pm
Interestingly, this was on NBC last week!
March 1st, 2011 at 5:46 am
The new Zune browser is surprisingly good, but not as good as the iPod’s. It works well, but isn’t as fast as Safari, and has a clunkier interface. If you occasionally plan on using the web browser that’s not an issue, but if you’re planning to browse the web alot from your PMP then the iPod’s larger screen and better browser may be important.
May 28th, 2011 at 10:32 am
amazing blog will keep checking it thanks
May 28th, 2011 at 10:33 am
very well laid out article
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October 23rd, 2011 at 4:10 pm
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