Federal Judge Issues Injunction Against Colorado “Amazon Tax”

January 31, 2011

Colorado legislators in 2010 recognized that New York-style “Amazon taxes”-claiming that Amazon.com and other out-of-state businesses are physically present in the state if they have relationships with in-state independent affiliates who refer customers-don’t raise revenue, lead to lots of constitutional litigation, and signal business unfriendliness. Contrary to claims that they create a level playing field with brick-and-mortar businesses, the result sought would be brick-and-mortar businesses tracking and collecting one sales tax while online businesses track and collect 8,000+.

So rather than go that route, Colorado adopted a disclosure-focused requirement, a second generation of “Amazon tax.” All online retailers are found to be present in Colorado, but are “only” obliged to disclose to customers that they need to pay tax on their purchases. This disclosure, however, requires analysis of the base and computation of the rate in each taxing district (8,000+ nationwide, many local ones in Colorado), can’t be sent with the shipment, must be sent by U.S. mail, and all purchases must be disclosed to the Department of Revenue. It’s a regulatory scheme so complicated and burdensome that its purpose is to force Amazon to just collect the tax itself.

On January 26, a federal judge in Colorado enjoined enforcement of the Colorado law, in a suit brought by the Direct Marketing Association. Judge Robert E. Blackburn wrote that “the plaintiff has shown a substantial likelihood that it will succeed in showing that the act and the regulations are discriminatory because, in practical effect, they impose a burden on interstate commerce that is not imposed on in-state commerce.” Judge Blackburn’s ruling follows a ruling against a similar North Carolina regulation.

So far this year, quite a few states are considering bills to adopt New York-style taxes (which also exist in North Carolina and Rhode Island). This has surprised me, since they haven’t worked anywhere and indeed have done significant harm. Illinois Gov. Pat Quinn has one on his desk he is mulling, and bills have been introduced in Arizona (H.B. 2551), Hawaii (H.B. 1183), Mississippi (H.B. 363), and New Mexico (H.B. 95 and 102), with others rumored in California and Connecticut. In Rhode Island, H.B. 5115 would repeal that state’s “Amazon tax.”

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