Monday, March 15, 2010
Amazon.com is fighting with Colorado over sales tax collection
Thousands of people functioning as "Amazon affiliates" make a few bucks to a few hundred bucks each month by sending business to Amazon.com. Whenever someone clicks on a link on an affiliate's blog or website to buy a book or other item on Amazon.com, the affiliate gets a commission.
Last week, about 4,000 affiliates lost business when Amazon.com announced it was cutting ties with its Colorado-based affiliates.
Amazon blamed a new state law requiring it to collect up to an estimated $4.6 million in online sales taxes a year.
Amazon has dropped affiliates in two other states — North Carolina and Rhode Island — that passed laws requiring the company to collect state sales tax on online purchases. Those states claimed that in-state affiliates were akin to outposts for online retailers, and therefore the companies had to collect sales tax. Getting rid of the affiliates got Amazon off the hook from doing so.
In Colorado, the situation is different. The state's new law doesn't link paying the tax to the presence of affiliates; instead, it requires out-of-state retailers to help enforce collection of the 2.9 percent state tax that online consumers in Colorado are technically supposed to pay already, though few know about it or do it.
Each year, retailers would have to tell their customers what taxable items they bought and that they need to pay the tax to Colorado. Retailers also would have to turn over those documents to the state to help enforce the law.
Backers of the law say that Amazon still will have to comply, whether it has affiliates in Colorado or not. They believe that Amazon cut off the affiliates to make a point in a larger battle over online sales taxes, and to deter other states from adopting Colorado's approach.
In an e-mail to Colorado affiliates, Amazon didn't directly say what cutting them had to do with the new tax. The company said the law was aimed at inducing it to collect taxes itself and that it would reinstate the affiliates if the law was repealed or if Colorado followed a "constitutional" approach to collecting taxes.
A 1992 U.S. Supreme Court ruling found that states can only make companies collect sales tax if they have a physical presence in the state to prevent out-of-state sellers from having to deal with thousands of separate tax jurisdiction.
Colorado Republican Senator Greg Brophy thinks Amazon might be trying to avoid possible liability for paying back taxes in case it loses a pending legal challenge to New York's online sales tax. That first "Amazon law," passed in 2008, does link the requirement to pay to online affiliates based in New York.
Brophy said it doesn't really matter why Amazon did what it did and that he wants Colorado's law repealed to help affiliates. Majority Democrats aren't inclined to do so, saying that would reward what they see as corporate bullying.
There are signs that other states are interested in Colorado's approach.
Joe Huddleston, executive director of the Multistate Tax Commission, which advises states on tax policy, said officials from about 20 states participated in meetings in person and by phone in Denver last week to discuss the Colorado law.
He said they're interested in any approach that's successful in helping plug budget deficits and protect in-state retailers who make up a big part of their tax base.
The National Council of State Legislatures, meanwhile, has been working for the last decade to get Congress to help states collect online sales taxes.
A bill could be introduced in the coming weeks, said Neal Osten, NCSL's federal affairs counsel, but it would only help the 23 states that have aligned their tax laws so that, for example, they all have the same definitions of what items of clothing are taxable and which aren't.
That would leave out Colorado and some of the largest states, including California, that haven't joined the effort.
California lawmakers are once again considering a New York-style Amazon law that was vetoed by Gov. Arnold Schwarzenegger last year. Similar bills are pending in Iowa, New Mexico, Vermont and Virginia. Rhode Island is considering repealing its law after failing to collect any revenue by the end of 2009.
Fred Nicely, of the Council on State Taxation, a trade organization Amazon belongs to, said his group favors a national solution. If other states adopt Colorado's approach on their own, he said the confusion over what is taxed and what isn't will grow. (info from The Associated Press)