Colorado's Debt Has Direct Impact on Direct Marketers

New Law Will Create Privacy Concerns for Consumers, Job Losses in the Industry

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Robert Allen
Robert Allen
States across America are struggling with historic budget deficits and, in some cases, double-digit unemployment rates. But rather than make tough choices to pare spending, state legislators are looking to raise new revenue wherever they can find it, regardless of the long-term economic impact their actions might have on job-creating businesses.

Direct marketing, which employs well over a million Americans, is the target of one such ill-advised policy decision in the state of Colorado.

If the new Colorado law stands, expect other cash-hungry states to introduce similar bills, and soon.

The Colorado law, which became effective March 1, 2010, requires non-sales-tax-collecting out-of-state marketers to:

  • Notify Colorado consumers in every transaction that state sales or use tax is due on every purchase they make via direct marketing -- i.e., the internet, direct mail, mobile-marketing apps, telephone, etc.
  • Provide purchasers -- via first-class mail -- with a year-end summary of every purchase he or she has made, and
  • Provide the Colorado Department of Revenue an annual report on the total dollar amount of purchases, where they were shipped and where they were billed for every Colorado customer who purchased items via multi-channel direct marketers.
  • In other words, non-tax-collecting out-of-state direct marketers are being forced to act as the tax-collection police for the state of Colorado at their own expense.

    To quantify the impact of just the second requirement -- if not changed by the Department of Revenue -- a small company with a 12-month buyer file of 500,000 Coloradans would have to mail about 8,000 first-class letters each year at an estimated cost of 50 cents each, or a total of $4,000 a year. If a state such as California were to adopt this as law, the costs would climb to in excess of $30,000 a year. If a dozen states were to enact similar laws, the costs could be ten times that.

    That doesn't factor in the loss of business from customers declining to shop remotely out of concern for loss of privacy. It certainly doesn't take into account job losses that invariably would occur within the marketing community, nor the loss of payroll and income taxes from those losing their jobs.

    The Direct Marketing Association is preparing legal action in Federal court to block this onerous law. We believe the law is counterproductive and unconstitutional. The 1992 Supreme Court decision Quill v. North Dakota has protected out-of-state retailers from having to collect state and local sales taxes for the past 18 years, and the DMA expects that precedent to stand.

    The DMA will act as the plaintiff in this suit so no individual business has to stand out in front on this.

    Times are tough for state governments. We all understand that. The Rocky Mountain State is facing a $1.5 billion deficit on an $18.2 billion budget for the fiscal year beginning July 1. But its tax-reporting law will do more harm than good.

    Direct marketing makes an enormous contribution to the U.S. and state economies. In 2009, marketers -- commercial and nonprofit -- spent $149.3 billion on direct marketing in the U.S. Direct marketing accounted for 8.3% of total U.S. gross domestic product, and there were more than 1.4 million direct-marketing employees in the U.S.

    States like Colorado need to take those contributions into account when they consider quick-fix legislation designed to plug budget gaps. Being penny-wise and pound foolish will only further inhibit economic growth and deepen the problems we are facing today.

    Robert Allen is interim president-CEO of the Direct Marketing Association.
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