The Arrival of Sales Tax on Amazon Purchases in Colorado

A fridge? A best-selling novel? Organic coconut oil?

If you order it on online you can get pretty much anything delivered to your door — maybe even with free shipping. But as of February 1 in Colorado, if it comes from Amazon it will also come with sales tax.

Colorado recently became one of 28 states required to pay sales tax on purchases made on Amazon. The gigantic online retailer used to famously side-step sales taxes, but as needed distribution centers were opened in additional states to fulfill orders and delivery demand, Amazon agreed to apply the tax.

Collecting sales tax on online purchases has been an ongoing legal battle in Colorado fought by the Direct Marketing Association for the past six years. (It made it to the Supreme Court but was recently sent back to the federal court.)

Under federal law, if a retailer doesn’t have a physical presence in the state they can’t be forced to collect the taxes, which triggers a self-reporting requirement by consumers. Yes, buyers in Colorado are supposed to pay taxes to the state when they make an online purchase in the event that sales tax wasn’t added.

State law dictates that online stores keep a record of purchases made by Coloradans and report the sales tax that should have been collected. Those online companies are also obligated to advise the buyers of taxes owed.

Those who support compelling Amazon to collect sales tax in states where it has distribution centers or subsidiaries related to its business say that it has a clear advantage over brick and mortar stores that have no choice but to collect sales tax. Those on the other side of the argument say that states could simply eliminate the tax — and thereby the problem.

The Denver Post described the issue this way:

“DMA [Direct Marketing Association] continues to spearhead a legal challenge to Colorado’s unconstitutional tax and data-collection scheme,” he said. “Requiring out-of-state sellers to disclose private purchase information to the state’s Department of Revenue violates both the Commerce Clause, as well as the privacy of the business-to-customer relationship. DMA has won every argument in this litigation and we are confident the Tenth Circuit will support DMA’s argument and find Colorado’s notice-and-report requirements unconstitutional.

However, on February 23rd, 2016, the Federal 10th Circuit Court of Appeals court upheld the law against the DMA’s challenge. The judge posited that overturning it would result in a statewide “tax shelter” for online retailers. As a result, the decision could lead to a re-energized push for internet sales tax nationwide.

If you need legal help, don’t hesitate to contact me at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com.

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