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Colorado E-Commerce Tax Under Fire

by Mike Godfrey, Tax-News.com, Washington

03 May 2010


The US Direct Marketing Association (DMA) and the American Catalog Mailers Association (ACMA) are fighting a rearguard action against the recently passed Colorado House Bill 1193. This law was effective as of March 1, 2010 and, according to the State of Colorado, companies must comply by May 1, 2010.

“This bill targets direct marketers and is meant to be so onerous that your businesses concedes to collect tax in Colorado,” said Neil O’Keefe, DMA’s vice president of multichannel segments. “If this bill stands in Colorado it will surely be picked up by other states in an effort to close their budget deficits on the backs of our businesses and by interfering with your customer relationships and the level of loyalty that you have worked years to develop.”

This bill requires businesses to:

  • Notify Colorado customers that they are required to report the tax owed on their purchases;
  • Send, by January 31 of the following year, a notice to all of their Colorado customers of the total amount of their purchases in the previous year; and
  • File an annual statement with the Colorado Department of Revenue summarizing the total amount of purchases made by each Colorado resident in the previous year.

According to the DMA, there are fines associated with failure to comply with any of the provisions above:

  • USD5 for each failure to notify Colorado residents of their obligation to report tax owed;
  • USD10 for each failure to send Colorado customers a year end summary of their purchases; and
  • USD10 for each failure to include a Colorado purchaser on the report that must be submitted to the Department of Revenue.

ACMA President and Executive Director Hamilton Davison is seeking monetary contributions to a legal fund to contest the legislation. The Colorado law may be challenged as violating the right of Congress to regulate interstate commerce as embedded in the Commerce Clause of the US Constitution. It could also be contested in a consumer class action on privacy grounds.

The legislation could also conflict with the 1992 Quill Corp. vs. North Dakota case, in which the US Supreme Court ruled that retailers who do not have a physical presence in a state do not have to collect and remit sales taxes there.

Davison maintained that the Multistate Tax Commission, which coordinates policies on interstate commerce, was showing an interest in the Colorado law and other states such as Tennessee and California could incorporate elements in their intended legislation on the issue.

“Fact is, every state needs more revenue today,” wrote Davison. “Out-of-state companies, who do not use any state services and who do not elect state politicians, are easy targets.”

The collection of sales tax on intra-state trading has been the subject of recent legal action by Amazon.com, which arose when states such as New York sought to force e-commerce retailers with local marketing affiliates to collect sales tax on the state's behalf.

A comprehensive report in our Intelligence Report series examining the new possibilities that offshore e-commerce open up for business, and analysing the offshore jurisdictions that have led the way in offering professional e-commerce regimes for international business, with a particular focus on e-gaming, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report6.asp
TAGS: tax | business | sales tax | commerce | law | internet | e-commerce | legislation | United States

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