The law would require out-of-state retailers with sales in excess of $100,000 who do not collect and remit Colorado sale tax to:
- Notify the purchaser that the retailer does not collect Colorado sales tax and the the purchaser is obligated to self-report and pay use tax. (Transactional Notice)
- Provide each customer who purchases more than $500/year from the retailer with an annualreport of the prior calendar year's purchases and infomr the customer that the retailer is required to file an annual purchase summary reporting the customer's name and total purchases to the Colorado Department of Revenue. (Annual Purchase Summary)
- Provide the Department of Revenue with an annual customer information report stating the name, billing and shipping address, and total purchases for each of its Colorado customers. (Customer Information Report)
A state tax will be sustained against a commerce clause challenge provided it:
- is applied to an activity with a substatial nexus with the taxing state
- is fairly apportioned
- does not discriminate against interstate commerc
- is fairly related to the service provided by the state
These requirements were found to be unconstitutional because they violate the Commerce Clause regulating interstate commerce. These requirements would have been imposed on out-of-state retailers and not in-state retailers. Therefore, these requirements are discriminatory. In order for the law to stand Colorado would have needed to prove that there was justification in the local benefits that would flow from the law and the unavailability of nondiscriminatory alternative adequate to preserve the local interests at stake.
The plaintiff argued that there were alternatives to collecting use tax:
- Some states include a line on their resident income tax returns on which residents report use tax due
- The DOR could increase audits of business consumers
- Consumer education and notification programs may increase compliance with use tax obligations.
The state said that it had not previously included a line on its income tax returns for reporting use tax. However, it said that Colorado did include a consumer use tax return with income tax return forms but that practice was discontinued because the amount of tax collected did not justify the printing expense.
As it stands, Colorado can not rely on out-of-state retailers to collect and remit sales and use tax on Colorado residents. My prediction is that states will continue to attempt to collect use tax through "Amazon" type laws. Those state will use the Colorado law as a starting point and attempt to correct it on constitutional grounds. Those grounds may include requiring all retailers both in-state and out-of state to report customer purchases. This might get by the discriminatory part. States may also increase audits of residents to seek compliance.
What are your thoughts on "Amazon" style tax laws?
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