California, Colorado Push Creative E-Commerce Tax Plans

Written by Fred J. Aun
March 4th, 2010

In the ongoing legal tax-collection battle between pureplay E-tailers and U.S. states, California and Colorado are getting a bit creative. California is joining New York in what is becoming a big states versus small states strategy, while Colorado is requiring those pureplays to tell state residents how much tax they owe based on their E-Commerce purchases. Yeah, that’s exactly what consumers want to hear from Amazon.

Amazon has steadfastly pushed back against state tax efforts, primarily by canceling affiliate relationships in states that try to hit up its affiliates for sales taxes. The states feel they can take this approach because, although Amazon might have no physical presence or storefronts, the same isn’t true for affiliates.

Amazon’s reaction to the tax-the-affiliate approach was cancelation of affiliate programs in North Carolina and Rhode Island. But it filed a lawsuit in New York, on the rationale that the New York market was too large to ignore.

A similar decision could come into play in California, where Gov. Arnold Schwarzenegger vetoed an affiliate tax bill last year. But legislators in Sacramento are not willing to give up. Gambling that Amazon will not want to turn its back on the money coming in from its thousands of California-based affiliates, the California lawmakers are considering a new affiliate taxation bill.

The measure defines “retailer” as any business entering into agreements under which a person in the state, “for a commission or other consideration, directly or indirectly, refers potential purchasers, whether by a link or an Internet Web site or otherwise, to the retailer.” To qualify, an E-tailer would need more than $10,000 in yearly sales.

As described earlier, Colorado is taking another approach. Gov. Bill Ritter last month signed into law a bill that requires pureplay E-tailers to tell Colorado residents how much money they owe in state taxes based on their E-Commerce purchases. Additionally, the law forces those pureplays to advise customers in Colorado that anything they buy online is subject to state tax. The companies are being ordered to do so both at the time of purchase and in summaries to be sent at the end of each year.

But, in an attempt to steer clear of a 1992 U.S. Supreme Court ruling that states couldn’t collect sales taxes from retailers that had no physical presence in that state (on the rationale that they weren’t using police, fire, medical, education and other state services), the Colorado law explicitly does not ask that the pureplays collect the tax money. Nor is Colorado attempting to collect taxes from pureplay affiliates.


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