Online retailing has changed a lot of things, but one of the things it’s changed the most, much to the chagrin of state legislatures, is how much sales tax states collect. Namely, less.
The problem is the way the laws are set up: online retailing is technically mail-order, and unless the mail-order company has a physical presence in the state, they can’t collect state sales tax.
Most states have tried to argue that if online retailers have an affiliate program that they can collect sales tax — a move which prompted Amazon to shut down the affiliate program. Colorado, though, has a “use tax,” which is a law that states if you buy things from outside Colorado, you have to report what you bought out of state and pay tax on it.
Shockingly, nobody in Colorado actually does this, so the state was hoping to force Amazon to fork over the sales records of Colorado residents to make them pay the use tax. This was, of course, a violation of Colorado citizens’ privacy. Additionally, Amazon is loathe to raising customer costs with taxes — not having to tack on sales taxes does give them a competitive advantage, after all — so the Direct Marketing Association, of which Amazon is a major part, sued on its behalf.
It argued that the reporting requirements were an unconstitutional burden on interstate commerce, and that under the Commerce Clause of the Constitution, only Congress had the power to compel out-of-state retailers to submit tax paperwork across state lines.
On Friday, Judge Robert Blackburn agreed. He found that the reporting requirement impermissibly discriminated against out-of-state retailers. While Colorado’s law isn’t targeted explicitly at non-Colorado businesses, it is targeted at businesses that do not collect Colorado sales tax, which amounts to the same thing.
In other words, sorry Colorado, you’ll screwed. We suppose the state can make up for it by taxing beer and cigarettes even more. And we’re sure that will be popular!