Quest for online sales tax revenue is ongoing
Legislative bills will address online collection
The Colorado Statesman Sports Department
Next week, the House will take another stab at finding a way to go after the sales and use taxes the state is owed, but can’t collect, from those who purchase goods and services online. At least two, and possibly three bills, all dealing with the issue in different ways, are going to be part of a lengthy hearing in the House Finance Committee on Wednesday, April 24.
The first bill is House Bill 13-1295, carried by Speaker of the House Mark Ferrandino, D-Denver, and Sen. Rollie Heath, D-Boulder. HB 1295 would put into place a federal solution to the online sales tax issue that has plagued Colorado lawmakers since at least 2010.
What’s at stake? Potentially hundreds of millions of dollars annually in sales and use taxes. The National Conference of State Legislatures (NCSL) estimates that Colorado lost $352.6 million in sales and use taxes that went uncollected from customers of online and catalog retailers in 2012 alone.
The General Assembly has tried several times in the past four regular sessions to find a way to get those tax dollars. It started in 2010, when Democrats pushed through HB 10-1193, dubbed the “Amazon sales tax” by Republicans. The law required out-of-state online retailers that do not collect Colorado state sales and use taxes to notify customers that they are obligated to pay those taxes. The Direct Marketing Association filed suit in 2010 to block the law’s implementation. Last year, U.S. District Court Judge Robert Blackburn ruled in favor of the DMA, and issued a permanent injunction against the law. The state is appealing the decision to the 10th Circuit Court of Appeals.
Blackburn said the law violated the Commerce Clause of the U.S. Constitution as it pertains to interstate commerce, and opined that the matter could be resolved only at the federal level, either by Congress or by the U.S. Supreme Court.
Last month, the U.S. Senate, in a nonbinding resolution, endorsed a national “Marketplace Fairness Act.” The Act, as described by marketplacefairness.org, would grant states the authority to compel online retailers to collect sales and use taxes at the time of transaction. The Act also requires states to simplify their sales tax laws. Twenty-nine governors from both parties, including Colorado Gov. John Hickenlooper, have endorsed the Act; it also is supported by Amazon, Wal-Mart and dozens of trade associations, including the Colorado Retail Council. The Direct Marketing Association is opposed.
Ferrandino told The Colorado Statesman that the Senate vote on the resolution was 75 to 24, showing that it had bipartisan support. Sen. Mike Enzi, R-Wyoming, and several Democrats are the Act’s prime sponsors. States are really putting a lot of pressure on the federal government to act, Ferrandino said recently. As a result, “it’s incumbent on us to make sure there’s a system in place to comply.” According to The Hill, U.S. Senate Majority Leader Harry Reid, D-Nevada, filed a motion Wednesday to have the bill come directly to the floor and bypass a committee hearing. The Senate vote on the Act could come as soon as next week.
Ferrandino’s bill would implement the Act’s simplification requirements. He called the state’s tax system “very complex” because of its mix of tax policies for home rule cities and special taxing districts. The state needs to begin dealing with those complexities now in order to meet the requirements of the federal Act, once it is passed by Congress, he said.
While passage of the federal Act might not take place this year, Ferrandino said he believes it will happen in the foreseeable future. “It’s better for us to get the system ready. Once they act, we turn on our system to begin collecting those taxes.”
The Act also requires states to have a uniform sales tax base, which for Colorado would be the state base. That’s a master list of goods and services that are taxable, how those items are defined, and what goods and services are tax-exempt. In addition, state sales taxes must be collected and remitted through a central point, which the Department of Revenue would handle for Colorado.
Ferrandino’s effort has drawn an unlikely supporter: Rep. Amy Stephens, R-Monument, who led Republican opposition in 2010 and subsequent years to the Amazon sales tax bill. For the last several years, Stephens has worked on an NCSL taskforce on interstate commerce and taxation that believes the issue should be resolved at the federal level.
Stephens told The Statesman this week that HB 1295 is a “good first step,” although she would prefer to see the bill run as an interim committee that could spend the summer looking more closely at the issue and bringing in all the stakeholders “If we’re going to do this, let’s do it right.”
Stephens noted that 24 states have signed onto a streamlined sales tax system that is supposed to work hand-in-hand with the Act, but Colorado hasn’t joined because of the home rule issue. Stephens doesn’t favor the streamlined effort because it is more complex than it should be, and she thinks Colorado could do better.
Stephens also has concerns about a database established in HB 1295. Under the bill, the Department of Revenue must provide online retailers with a database of local taxing jurisdiction boundaries and sales tax rates. Stephens, not a fan of the Department of Revenue track record in the past, is unsure if they are up to the task now. The federal bill suggests other software products that are federally-certified as accurate, and would hold harmless retailers who make errors in sales tax collection based on use of those software products, she explained.
Another issue around the online sales tax issue is privacy. Some of the laws passed, both in Colorado and nationwide, have required retailers to divulge what was being purchased as well as price, a privacy issue that she would like to see addressed in HB 1295. “In the days of hacking, we have to be prudent.”
And while Wal-Mart is listed as a supporter of the federal Act, Stephens said they are also backing a bill that Stephens sees as conflicting with HB 1295 and which was introduced Tuesday.
HB 1312 is sponsored by Rep. Angela Williams, D-Denver, and Sen. Pat Steadman, D-Denver. Steadman told The Statesman that the bill is based on a 2008 law passed in New York and upheld last month by that state’s Court of Appeals. Steadman said the difference between his bill and HB 1295 is that his bill is not conditional on federal action, which requires one to “believe that the U.S. Congress is capable of doing something.” HB 1312 allows for the establishment of a “nexus between the online sales transaction and the state that would enable us to have jurisdiction over that transaction and could then impose and collect sales tax,” Steadman said.
Under the bill, online retailers who deliver taxable goods or services in the state would be required to collect and remit the sales tax. But Stephens believes the bill also may apply to out-of-state businesses that may want to move to Colorado.
The bill says that if a person or company wants to be released from collecting the sales tax, through either written or oral agreement, that agreement must be approved by the General Assembly. That includes agreements struck between companies and the governor through executive order.
Stephens, who refers to HB 1312 as “Amazon 2, but worse” said that could affect out-of-state retailers that want to move to Colorado to build a warehouse or a data center, such as Amazon. Should those companies want to negotiate a sales tax holiday with the state while the company is building the new facility or hiring employees, that agreement would have to be approved by the General Assembly, and could force the company to wait for months when the legislature is out of session.
Rebecca Madigan of the Performance Marketing Association told The Statesman that the New York law upon which HB 1312 is based had as its nexus online advertising. The response by online retailers to that law was to stop advertising on affiliate websites, and that cost the state thousands of small business jobs, she said. HB 1312 strikes current statutory language regarding advertising of any kind as a nexus. How online retailers are defined is overly broad, she said, and the bill could cost the state 6,000 small business jobs. But in the end, the point of the bill and others like it is really not about collecting sales tax. “It’s about forcing Congress to take action,” she said.
Chris Howes of the Colorado Retail Council said his group supports HB 1312 as a matter of fairness. It isn’t an attempt to get online retailers to pay sales taxes; they don’t owe them. Instead, it’s an effort to get the online retailers to collect and remit the sales taxes that should be paid by Coloradans who purchase from those retailers. “We support any measure that will bring fairness to the state sales tax system, so our Colorado retailers who are based here, pay property taxes, support charities, and employ Coloradans can compete in the marketplace against online retailers who aren’t required to collect tax.” Howes said customers go into the stores, try out products and then go online to make the purchase, and the state misses out on the sales tax, and eventually loses jobs when an employer goes out of business. Creating a fair system is the council’s top legislative priority for the 2013 session, he said.
HB 1312 is not yet listed on the House Finance Committee calendar for April 24 but Chair Rep. Lois Court, D-Denver, said it could be included with the two other bills that deal with the sales tax system.
The third bill is HB 1288, sponsored by Rep. Kathleen Conti, R-Littleton, and Rep. Daniel Kagan, D-Englewood. The bill is not specifically designed to address the online sales tax issue but it does address one of the common complaints from online retailers about the complexity of Colorado’s sales and use tax system. HB 1288 requires the Department of Revenue to convene a group that would develop a uniform list of taxable and non-taxable goods and services. The bill applies to the state’s 68 home rule cities, each which have their own tax bases, collection and audit policies. HB 1288 also names the Department of Revenue as a central collection and remittance point, and issuer of sales tax licenses for Colorado businesses.