Colorado courts revisit the issue of a state tax on Internet sales, the so-called ‘Amazon tax.’
The Denver Post has reported that opponents of Colorado’s ‘Amazon tax’ – a proposed sales tax applied to online purchases made with out-of-state retailers – have returned to court in late January of 2014.
The current law of the land, HB 10-1193, became effective on March 1, 2010. It specifies that “out-of-state retailers must collect and remit state sales tax from Colorado residents” if “part of a controlled group of retailers” designated by the Internal Revenue Service. The law was intended to compel Amazon and similar large retailers to collect sales tax in Colorado. In practice, it has been easily circumvented, and Amazon has been able to avoid collecting such taxes by distancing itself from its former in-state retail affiliates.
Furthermore, a federal judge rejected the Colorado law in 2012, declaring it unconstitutional and suggesting that it would "impose an undue burden on interstate commerce." (Denver Post, “Federal Court Tosses 2010 Amazon Tax Law.”)
According to the recent Post article, The Direct Marketing Association (DMA), a large trade consortium that represents businesses throughout the US and worldwide, has endeavored to clarify this earlier ruling in Denver court by urging it to echo the federal decision of 2012 and declare the law unconstitutional.
In response, the state of Colorado invoked the Commerce Clause of the US Constitution, arguing that the Clause
was intended to foster an open national market, not ... to shield retailers doing substantial business within a state from reasonable state laws. (Denver Post, “Clarity on Colorado's "Amazon Tax" Law Could Come Friday.”)
The 2010 law directs out-of-state retailers such as Amazon that do not collect Colorado sales taxes to provide its customers and the Colorado Department of Revenue with detailed purchase notifications. This was intended as a response to federal law, which prohibits the collection of sales taxes from retailers that are not physically present in the state.
These notices would inform customers that instead of ordinary sales taxes, they would owe the state a so-called “use tax” to be sent directly by them to the state Department of Revenue. The DMA lawsuit claims that the drafters of the 2010 Colorado law surmised that the threat of such a “use tax” would compel Amazon to begin collecting sales tax in Colorado in order to avoid sending direct notifications to consumers. In court DMA lawyers argued that,
Shortly after passage of the (law), the Department's Tax Policy Director stated publicly that he believed most affected retailers would choose to collect Colorado sales tax to avoid the unpleasant option of having to send tax notices to customers.
George Isaacson, a DMA attorney, suggested that this sort of coercion amounts to discrimination toward Amazon and other clients.
Melanie Snyder, a lawyer with the Colorado Attorney General’s office, sees the issue differently. According to Snyder,
You can treat people differently, and that doesn’t mean it’s discrimination.” (Durango Herald, “Amazon Tax Goes to Colorado Court.”)
A follow-up opinion article by the Denver Post editorial board reinforced its support for HB 10-1193 and the state’s efforts to force Amazon and its brethren to collect sales taxes from Colorado residents and provide them to the state.
Denver District Judge Morris Hoffman’s decision on the case is expected soon. As an early indicator of how he might rule, the same Denver Post editorial observes that Hoffman has already called into question whether or not current interstate sales taxation law “continues to make sense in an Internet context.” (Denver Post, “Uphold Colorado Law on Amazon Tax.”)