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December 15th, 2009, 06:50 PM #1Colorado Internet Tax
From this document:
“(b) The soliciting, either by direct representatives, indirect representatives, manufacturers’ agents, or bydistribution of catalogues or other advertising, or by use of any communication media, or by use of the newspaper, radio, or television advertising media, or by any other means whatsoever, of business from persons residing in this state, and by reason thereof receiving orders from, or selling or leasing tangible personal property to, such persons residing in this state for use, consumption, distribution, and storage for use or consumption in this state.” [§39-26-102(3) (a) and (b), C.R.S.]
If you are “doing business” as defined by paragraph (a) above, you must open a Colorado sales tax account. If you are “doing business” as defined by paragraph (b) above, you should open a retailer’s use tax account."
Doesn't this mean Colorado can also collect taxes from merchant advertising in Adwords, Yahoo, Adcenter + TV + Print Press + Radio ....etc... ...wow
December 15th, 2009, 11:49 PM #2
- Join Date
- January 18th, 2005
These laws are on the books in a number of states (including North Carolina), but cannot be enforced because they are clearly unconstitutional.
There is ample U.S. Supreme Court precedent that "mere advertising" is not enough to create a "nexus" sufficient to require companies to collect sales tax.
There is lots of talk in some states about "enforcing existing tax law," because "talk is cheap." Governors and legislators (and sometimes even state tax officials) can make speeches about enforcing these unconstitutional laws, and can absurdly call out-of-state merchants "law-breakers," because speeches don't have any legal effect.
In some states, these older "advertising nexus" laws have actually been ruled unconstitutional. But when a court overturns an unconstitutional state law, this doesn't re-write the legal code, so these laws remain "on the books" even though they cannot be legally enforced. And if other states choose not to enforce a similar law (because the laws are so obviously unconstitutional, or after similar laws are ruled unconstitutional in other states), then that state's law might never be officially overturned by a court, and may thus "appear" to still be valid -- even though any later attempt to enforce the law might be quickly blocked or eventually overturned by the courts.
The new "affiliate-advertising nexus" tax laws in NY, RI, and NC all use language that pretends that an online publication accepting performance-based advertising is just like a "commission salesperson" (case law has ruled that "nexus" may exist if a a company pays commission salespeople who are actively involved in selling products to in-state consumers, if the sales people have their "feet on the ground" in the state).
These states know that their new laws are unconstitutional, but they know it may take years before appellate courts rule, and these states hope that risk-averse merchants will collect billions of dollars in sales taxes in the interim.
Last year, that seemed plausible, because after New York enacted the "nexus law" with "retroactive effect," Amazon decided not to challenge the "retroactivity" provision, but instead "rolled over" and began collecting the tax in New York, expecting that the courts would soon invalidate the unconstitutional law. This emboldened other states, despite the termination of New York affiliates by hundreds of other merchants.
But when NC and RI passed identical laws, Amazon terminated its advertising relationships with web publishers in those states, and is not collecting sales tax for those states (nor are the vast majority of other online resellers).
As a result, it is now clear that states which enact the new "advertising nexus" language will not only fail to collect meaningful additional sales taxes (nor shift any consumer purchases from online to local stores), but the states will lose significant amounts of income tax as merchants terminate their advertising relationships with in-state publishers and shift those advertising dollars to other publishers in other states.
December 16th, 2009, 12:36 AM #3
Mark thanks for clarifying. Makes a lot of sense.
Do you have a guess as to why Colorado is using a current "tax law" versus simply passing a new one (like it appears to have been the case in most other states: NY California Hawaii ....) ?
Do you have a speculative opinion on the seriousness of the Colorado approach and how the timeline of event will unravel for Colorado affiliate and their merchants (look like they are saying enforcement 7/1/2010) ?
If this is a serious concern for a Colorado affiliate and since no legislative vote appears to be required for enforcement to start, is our only hope a governor vetoe or is that even too little too late ? In other words, are there any positive scenarios for Colorado affiliates ?
Thanks a Ton.
December 16th, 2009, 12:35 PM #4
- Join Date
- January 18th, 2005
I can't possibly anticipate what the Colorado sales-tax-collection agency might do. If they've formally circulated a proposed regulation, and the regulation is enacted, then the real question is how out-of-state merchants will respond. Most likely, they would respond in the same way they responded in RI and NC.
Note that the existence of these laws or regulations in any state doesn't actually mean that the laws will be enforced. While I have very little experience or knowledge in this area, my understanding is that enforcement resources are even more limited for sales-tax collection than for income-tax collection. Thus, I would expect that most states seeking to force sales-tax collection by out-of-state merchants would start by sending letters to any "top 100" or "top 500" web merchants (as gleaned from free internet lists). Follow-up would probably be limited to responding to specific complaints -- which might be filed by any competitor who collects sales tax in that state.
But whether the laws are enforced or not, a substantial number of merchants will likely adopt a "risk-averse" strategy, which would be to terminate all advertising relationships with web publishers in these states.
As a business decision, it's not difficult: being forced to collect sales tax for a particular state would add substantial "compliance costs" and audit risk, in addition to potential reduced sales to state residents, and these potential "losses" would far exceed the likely "loss of sales" due to termination of all performance-based web advertising in the state. Merchants who elect to simply ignore the unconstitutional law (or who affirmatively announce non-compliance) would risk huge legal costs to litigate a federal constitutional issue through multiple appeals. (Regardless of the strategy chosen, and even after courts overturn these laws and enforcement efforts, large out-of-state merchants like Amazon will always be named as "law-breakers" or "cheaters" in politicians' speeches.)
December 17th, 2009, 01:05 AM #5
Mark thanks for sharing your view point. It helps to see how these scenarios might play out. On a positive note it looks like the document that alerted us is still "just" a proposal from the governor's staff and that legislative voting would be required (and I would add unlikely to pass).
Here is my congressman's response:
Again thanks Mike.
Also thanks to your vigilence Millie it appear we, now, have some congressmen aware of this bad proposal and of its consequences for Colorado affiliates.
Note: I'm still developing my contingency plan. Never too careful.
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