Colorado ‘Amazon tax’ unconstitutional?
[UPDATE: ‘Amazon tax laws,’ for those who are wondering, represent attempts to get around a Supreme Court ruling regarding out-of-state transactions. Residents of states who have a sales tax are theoretically expected to pay sales tax on all transactions, not just ones that take place in-state: however, vendors with out-of-state customers have long taken the position that trying to keep track of every jurisdiction’s sales tax rules is an undue burden upon them. The Supreme Court agreed, ruling that vendors are only required to track and collect sales tax on transactions for states where they had a physical presence. This effectively means that online retailers such as Amazon.com are effectively released from the burden of collecting sales tax information. Various Democratic state legislators – blanching at the very idea of trying to enforce individual residents from reporting their online transactions for taxation purposes – have attempted to make an end run around this ruling by writing legislation declaring in-state affiliates of online retailers as counting in terms of ‘physical location:’ Amazon’s typical response is to immediately cancel all affiliate programs in the targeted state, thus eliminating any need for them to collect sales tax information.]
That’s the preliminary ruling by a US District Court judge, at least: he’s ruled that the law is unconstitutional on Commerce Clause grounds, and has issued a preliminary injunction to prevent the state of Colorado to enforce the disclosure rules on out-of-state vendors before the deadline. I am not a lawyer, but the short version is that the judge ruled that the Amazon tax law violated the Commerce Clause by putting regulatory and disclosure burdens on out-of-state vendors that were not present on in-state ones; that the plaintiffs (including the Direct Marketing Association) had a valid chance to prevail in the broader case; and that until the issue was involved it would be inappropriate for the State of Colorado to collect information as per the Amazon tax law.
This is only a preliminary injunction, obviously: if this court or a higher one decides that the law is Constitutional after all it’ll be reversed. That’s why Colorado House Majority Leader Amy Stephens (Republican, of course) is introducing legislation repealing the original law. Colorado Senate Majority Leader John Morse (Democrat) is reflexively opposing the repeal, even though he’s sufficiently ignorant of the ruling as to apparently think that either the DMA or its members have revenue caps of $600/year. New Governor Hickenlooper is thus in a bit of a jam; he’s facing a House that decidedly flipped last election cycle and a looming court controversy, and a remarkably uneducated set of Senate allies on the other. That this can be fairly categorized as a ‘bit of a jam’ tells you a lot about the current ideological condition of the various state Democratic parties.
And, note: the entire point of this law was and is effectively moot anyway. Amazon promptly pulled out of its Colorado affiliate program a year ago as soon as the law was passed, as per its standard policy. The state of Colorado isn’t getting that sales tax money – and it isn’t getting the income tax that would normally come from transactions made through the affiliate program, which Amazon.com does report and people do pay state and federal income tax on (full disclosure: I am one of them, as I am a Maryland Amazon Affiliate)*. It would be a good idea for state governments to stop thinking that this is 1955. Yes, the states have had the ability in the past to collect state sales tax on effectively all transactions that involved state residents. Yes, the Internet effectively and overwhelmingly subverts the old methods to collect that tax. No, the states cannot force the Internet to conform to the old model. No, it’s not particularly fair. Yes, the states will be better off if they come up with a different revenue model that takes advantage of the new commercial paradigm. No, that the onus is on state government to come up with said model is not particularly fair, either. All so stipulated.
Moe Lane (crosspost)
*I assume that this was what state Senator Morse was talking about, or meant, or something. It’s hard to tell with some of these guys.