The e-commerce industry has had its eyes fixed on Colorado lately, alarmed by the state's new law designed to raise funds by imposing a sales tax on Internet purchases made by state residents. The law, passed earlier this year, requires out-of-state Internet sellers to disclose customer purchasing history to Colorado's Department of Revenue. The sellers must inform their Colorado customers that they, the customers, must report to the state their tax obligation.
Yes, Colorado, like every other governmental entity, is facing a huge cash crunch and needs to raise funds. And, no, all taxes under all circumstances don't represent the apocalypse that alarmists claim. Still, Colorado's approach is troubling.
One, there is the issue of imposing a state sales tax on purchases from companies without a “nexus,” or presence, within the state; heretofore that hasn't applied to most purchases from catalogers much less Internet sellers. Then there's the specter of forcing the disclosure of consumer purchasing history. That raises troubling issues of state intrusion into the affairs of private citizens. The Direct Marketing Association has filed suit in federal District Court in Colorado challenging the constitutionality of the new law on privacy and other grounds.
There's also the negative impact on local businesses that are Internet affiliate resellers. According to the Colorado Internet Tax blog, launched by opponents of the new law, Internet sellers that already have dropped their Colorado affiliates include Amazon.com, BudShop.com, Coca-ColaStore.com, the Conair online store, TheCrayolaStore.com and TheHersheyStore.com.
Thus, Colorado not only loses the tax it intended to get from Internet sales now vanished but also tax income it might have gained from the affiliates forced out of business by the state's improvident money grab.
While this issue of “use taxes” has been simmering for at least a decade, it's been heating up lately and not just in Colorado. In June, Oklahoma enacted a law that mimics the Colorado statute. North Carolina, also seeking increased tax revenue, has requested that Amazon.com turn over information on customers who bought about 50 million items since 2003, prompting Amazon to file suit. And Ohio has informed outdoor gear company L.L. Bean that it has to fork over $210,000 in sales taxes under a similar state law that went into effect in March.
One thing is certain: A flurry of disparate laws will continue to be met by a blizzard of lawsuits, as antagonists settle in for a drawn-out fight. However the issue is resolved, the current situation—with multiple states passing a hodgepodge of bills that threaten small-business viability and consumer privacy—seems untenable.