Online retailers forced to lean on, rat out Colorado consumers

It’s nearing high noon in the gunfight between the Colorado legislature and Amazon.com.

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Don't forget to let the state know what's in these boxes.

Under House Bill 1193, signed into law two months ago, Amazon and thousands of other Internet marketers must notify all customers that they are obligated to pay a sales or use tax on their purchases.

By Revenue Department rule, the tax notices to customers must start going out no later than Saturday. But Amazon could sue to block the law.

Of course the revenue-hungry legislature would love to force Amazon et al. to actually collect the sales taxes for them instead. That’s much easier than prying them individually from thousands of Coloradans. But it can’t because of the Constitution’s sticky little objection to hindering interstate commerce.

As interpreted by the U.S. Supreme Court over the years, most recently in 1992, a state can’t force a business based elsewhere to collect a tax unless that business has some “nexus” in the state. That’s a fancy legal term usually interpreted to mean a structure.

Apple, Barnes & Noble and others who have retail outlets in Colorado are already collecting the tax when the order is placed.

As introduced, the bill tried to rule that any “affiliates” an out-of-state marketer might have in Colorado were also nexuses, and thus it must collect sales taxes. Affiliates are persons who run blogs or small Web sites that might include a link to Amazon or another major marketer. They get a small commission if a sale is made off the link. But that seemed legally dubious and the sponsors watered down the bill.

Amazon had thousands of affiliates here. But they were all fired after the bill was signed, even though their existence had become irrelevant. Apparently Amazon’s lawyers wanted to play it safe.

The bill is not specifically addressed to Amazon, but because it does almost three times as much business as its nearest competitor, it’s the firm wearing the target on its back.

Each failure to tell the customer that he owes the state tax would cost the marketer $5.

But that’s the mildest part of the bill. It also requires the marketer to remind every customer by Jan. 31 of all the purchases he’s made during the previous year, by date and amount, and remind him, once again, he must pay the sales tax. The notice must be by first-class mail, not over the Internet. That’s expensive, and was clearly designed to “encourage” the marketer to collect the tax instead.

The marketer must pay a $10 penalty for every customer to whom it doesn’t send the summary.

In addition, the marketer must tell the Revenue Department by March 1 the total amount of sales it made to each Colorado customer. Leave one out, and it’s another $10 fine.

There’s no telling when the state might try to fine marketers for not sending out notices. It might wait until year’s end, so the fines can add up.

Amazon could file suit to block enforcement of the law. That’s what it did recently when North Carolina demanded that it supply the name and address of virtually every North Carolina resident “who has purchased anything from Amazon since 2003, along with records of what each customer purchased, and how much they paid.”

Such disclosure, said Amazon in its federal filing, would “invade the privacy and violate the First Amendment rights of Amazon on a massive scale.”

Paul Misener, Amazon’s top Washington lobbyist, conceded in a recent e-mail to legislators that Colorado law isn’t quite as bad as North Carolina’s because it doesn’t require the reporting of the items that were purchased.

“That said,” he added, “often the very name of the seller reveals too much. If someone buys $350 of stuff from communist.com, or cancer.com, or bikiniphotos.com, well, you get the point; that’s private information.”

Merely requiring a company to report purchases by individuals has privacy implications, he noted.

Meanwhile, Amazon is playing hardball in the sales tax section of its Web site. It notes that the new Colorado law was enacted “over our strong objections.” Then it goes on to list the name of every state senator and representative who voted for it. The only thing missing are the dotted lines and the advice to “Clip and take this to the polls Nov. 2.”

A suit by Amazon against Colorado might discourage similar legislation in states where it doesn’t collect sales taxes. That’s all of them except Kansas, Kentucky, New York, North Dakota and Washington, where it has offices or distribution centers.

Local retailers would love to see the Amazons of the world forced to collect taxes. They think it would level the playing field. Of course they forget to mention that shipping charges often amount to the equivalent of the sales tax.

Theoretically, the battle isn’t personal, although you wouldn’t know it if you watched a bizarre YouTube video made by Senate Majority Leader John Morse, D-Colorado Springs. He wept crocodile tears for the fired affiliates. “I have not seen such tyranny, such egregiousness, such retaliation!” he proclaimed. “Amazon, what you are doing is unconscionable!”

He also displayed an Amazon Kindle “that I absolutely love” - and for which he presumably mailed a sales tax check to Revenue - but he’s going to dump it in favor of an iPad from good old tax-collecting Apple.

House Minority Leader Mike May, R-Parker, still believes that the legislature might see the error of its ways and repeal or delay the bill during the last two weeks of the session. But Sen. Greg Brophy, R-Wray, says stubborn Senate Democrats won’t do that.

Those who voted for the bill are lucky that Amazon’s year-end sales tax advisories to customers - with copies to the Revenue Department - won’t arrive until after the election.

Peter Blake writes Thursdays on Face The State. E-mail him at peterblake@facethestate.com.