My colleague Mark Robyn recently reviewed a series of tax proposals being considered in Colorado, including a so-called “Amazon taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. .” Such a tax, currently under legal challenge in New York (including a Tax Foundation amicus brief), requires out-of-state companies to collect the state’s sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. if they pay in-state “affiliate” websites for click referrals. New York argues that such activity is sufficient “nexus” with the state to justify tax collection obligations, but it is a departure from the historic “physical presence” (company property or employees in the state) rule.
While the Center on Budget & Policy Priorities (CBPP) has praised Amazon taxes as a way to get out-of-state companies to collect sales taxes, most other scholars think they are unwise, unconstitutional, or both. And even the CBPP concedes (at a panel last week on the topic) that they are not solutions to short-term state budget deficits like many legislators think they are.
These concerns may have been heard. The Council on State Taxation (COST) has alerted us that the Colorado bill, HB 1193, has been amended in two significant ways.
First, the bill drops the “Amazon” affiliate nexus provision but adopts an “ordinary” attributional nexus provision similar to those seen in New Jersey and a few other states. This is a less aggressive expansion of the definition of “physical presence,” holding that a company has nexus if a “component member” of a larger “controlled group” has physical presence in Colorado. The Supreme Court has previously considered this is the “furthest extension” of nexus, and it sends a bad signal to the interstate business community.
Second, the bill makes life very unpleasant for out-of-state companies that do business in the state. Sellers must notify each buyer that sales tax is due on the transaction or face a $5 per transaction fine. Sellers must also send each buyer an annual tally of all purchases, and this information would be given to the state as well. It’s essentially all the obligations of tax collection without the actual tax collection.
More on nexus issues:
- A Uniform Physical Presence Standard Would Limit Destructive State Efforts to Export Tax Burdens, by Joseph Henchman, February 4, 2010
- “Amazon Tax” Unconstitutional and Unwise, by Joseph Henchman and Justin Burrows, September 15, 2009
- Why the Quill Physical Presence Rule Shouldn’t Go the Way of Personal Jurisdiction, by Joseph Henchman, November 5, 2007