The State of Colorado Tax Law from Interstate to Internet

admin March 16, 2010 0

Since the legislature passed the Colorado Sales and Use Tax Law—House Bill-1193, the state of Colorado business is part of an unfolding national saga with uncertain boundaries on the Internet.

The new Colorado law seeks to raise revenue for the state by enforcing sales tax on out of state transactions. But Amazon, one of the biggest online retailers, has reacted against the enforced tax as it warned it would, by cutting all ties with its Colorado business affiliates—many who earn a percentage by referring leads to Amazon from their online home businesses, blogs and sites. Amazon did the same thing when North Carolina, Rhode Island, and Hawaii passed similar tax laws. Hawaii has since rescinded its tax law and Amazon reinstated its Hawaiian online affiliates, as it has said it would do with Colorado affiliates.

Amazon, which bears the burden of reporting all state taxes, calls the State of Colorado tax law unconstitutional. In 1992 the Supreme Court ruled that a state cannot force businesses to collect sales taxes unless they have a physical presence within that state. Interstate taxes were ruled “unduly burdensome.”

Many are calling the tax bill unconstitutional, maintaining the Constitution was originally drafted to encourage interstate commerce by prohibiting tax or duty between rivaling states (Article 1, Section 9, Clause 5).

The Denver and Colorado business community has been widely against the HB-1193 bill, which would make it prohibitive to add jobs in Colorado during rough economic times. The Denver and Colorado business online affiliates have been especially proactive reaching out to legislators to testify and educate regarding online business. Many disabled and elderly online proprietors make only supplementary income.

But Colorado business lawmakers argue that Amazon is unfairly keeping local businesses down. Online advocates argue that navigating the boundaries of countless tax jurisdictions via cyberspace is far more complex and cumbersome than operating locally. Others argue for a Streamlined Sales and Use Tax Agreement to simplify online tax boundaries.

The State of Colorado tax law is contentious from all sides. The burden appears to be on Colorado sales affiliates left like abandoned victims by Amazon. Meanwhile, the legislation of HB-1193 authorizes the state of Colorado to impose strict regulations on retailers like Amazon. If Amazon fails to collect state taxes on a single item or otherwise fails to notify its affiliates and the IRS, there are big penalties. The law is explicit:

“Failure to do so results in a $5 fee per infraction. Retailers must also submit an annual tax report to customers, stating that they owe the Colorado taxes…The notification specified… shall be sent separately to all Colorado purchasers by first-class mail…”

On top of paperwork are implied legalities. The state of Colorado tax law further states that if any retailer fails to voluntarily collect Colorado sales tax and supply information when requested, the IRS “by subpoena issued under the executive director’s hand, may require the attendance of the retailer” to a government hearing. The director is further authorized “to apply to any judge of the district court of the State of Colorado to enforce such subpoena by an appropriate order…”

The campaign to raise money in the state of Colorado through interstate retail is in a contentious state.

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