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“Amazon” Legislation Fails Again to Take Hold in Colorado

Posted By William Mueldener, Tax Principal, National Director of State and Local Tax Services, Hein, Friday, March 27, 2015

On March 3, 2015, the U.S. Supreme Court issued a ruling in Direct Marketing Association v. Brohl impacting Colorado “Amazon” sales tax reporting requirements.  The question asks, can Colorado force on-line retailers to report the purchases made by customers in Colorado to the Department of Revenue to allow the state to enforce collection of use tax directly on the customer?  Essentially, use tax is a sales tax paid by the customer. However, instead of being paid to the vendor, as is the case with a sales tax, the customer pays the use tax directly to the taxing jurisdiction.  The decision has the effect of reinstituting the federal district court’s partial summary judgment against the state and the permanent enjoined enforcement of Colorado’s reporting requirements.  Basically, Colorado is legally prohibited (enjoined) from enforcing the reporting requirements upon the retailers.  For a copy of the Court decision, please click here:

By no means does the decision provide a conclusion to the question of whether states may impose sales tax collection requirements or reporting requirements for on-line retailers.  In fact, the decision only tells us that the U.S. Supreme Court found the Federal Tenth Circuit Court made a misguided decision in determining that the Tax Injunction Act prohibited the Federal District Court from enjoining Colorado’s tax reporting and notification requirements.  However, one of the interesting items to come out of the decision, is the passion communicated by certain Justices regarding the need to revisit the legal limitations placed on a state’s ability to require on-line retailers to collect state and local sales taxes.  This passion reflects the high-emotion that has been displayed by many brick and mortar retailers and state legislators in the ongoing concern that it is an unfair advantage for on-line retailers not to need to collect sales tax on transactions.  The emotion is embedded, in part, in the perceived competitive advantage afforded to the on-line retailers over their brick and mortar competitors who are required to collect sales tax from their customers. 

Justice Kennedy, in addressing Quill Corp. v North Dakota, the 1992 case that has severely hampered states’ ability to impose sales tax reporting on the Amazons of the world stated: “Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.  A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.  It [Quill] should be left in place only if a powerful showing can be made that its rationale is still correct.”  While this statement represents the opinion of Justice Kennedy, it conveys a message that the issue is within the purview of the Court, and a case focusing on the issue may only be a matter of time.

As background for those not intimately following the evolution of the dispute, Colorado has been struggling, along with many other states, to stem the loss of revenue from the ever growing e-commerce industry.  As consumers purchase more goods from vendors over the internet, state and local governments struggle to ensure sales taxes are applied to the transactions.  The limits on the taxing agencies arose from a history of U.S. Supreme Court decisions that determined it was a violation of the U.S. Constitution to require a retailer to be burdened by collecting sales tax when that retailer’s only connection with the taxing jurisdiction, was from its goods being shipped to customers via common carrier, such as the US Postal Service.   States have historically tested this limitation, and in 1992 the U.S. Supreme Court reiterated its position on Quill that it was only appropriate to allow a state to impose a sales tax collection requirement, when a retailer had a physical presence in the state. 

Quill was a company that sold office products through catalogs, and shipped the products to its customers by common carriers.  The company maintained no physical presence in North Dakota through stores, trucks, employees or any other business assets.  At the time of the dispute between Quill and North Dakota, the State Court took the position that North Dakota had created “an economic climate that fostered demand for Quill’s products…”  North Dakota itself protected that market, and the state’s infrastructure enabled Quill to deliver its catalogs to customers in the state which ultimately resulted in over one million dollars in sales to the company. As such, the state should be able to require Quill to collect sales tax.  This opinion, as stated by North Dakota in 1992, is virtually identical to the complaints raised by states today; that companies such as Amazon and Overstock should be required to collect sales tax because they are benefiting from customers within the state’s market.  Nevertheless, in 1992, the Supreme Court reversed the North Dakota State Court’s position, and held that imposing a tax collection requirement on a retailer unduly burdened that retailer, and impeded interstate commerce which was a violation of the Constitution’s Interstate Commerce Clause.  The burden to a retail company was created in large part because of the vast number of jurisdictions within the United States that could require a business such as Quill to collect and remit tax, a number that at that time was well in excess of 6,000.

In more recent years, as states have continued to seek ways to maintain their sales tax revenue, yet address the limitations imposed by the Court in the Quill decision, some have passed new legislation focused on the connection between the on-line retailers and the direct marketing agents driving customers to the websites.  The logic of these new laws is often based on the idea that the direct marketing agent provides the physical presence for the retailer in the state required to allow sales tax collection to be enforced, thereby complying with the requirements outlined in Quill.  In 2010, Colorado passed a variation of this law that did not specifically require the retailer to collect the tax but, if the retailer did not voluntarily comply with sales tax collection, the law imposed a regime of reporting requirements.  These reporting requirements necessitated that the retailer tell the customer at the time of a purchase that the customer needed to pay “use” tax on the purchase directly to the state, an annual summary should be provided to all customers that purchased over $500 worth of goods (to remind them of their purchases and the associated tax obligation), and an annual report per customer that would be sent to the Colorado Department of Revenue which detailed the customer, the category of purchases, and the total sales amounts.  If a retailer did not comply with the reporting, there would be a host of penalties imposed per violation by the retailer.

The Federal District Court enjoined these reporting requirements stating that they were a violation of the Interstate Commerce Clause per Quill.  The Federal Tenth Circuit Court of Appeals reversed the lower court’s decision on the basis that the Tax Injunction Act (TIA) of 1937 barred a federal court from enjoining, suspending or restraining the assessment, levy or collection of any tax under State law…”  The United States Supreme Court reviewed the application of the TIA and concluded that this provision was intended to only limit a federal court’s actions in cases were a state was specifically looking to assess, levy, or collect tax from a specific taxpayer, and could not be invoked in cases such as Colorado.  In the words of the U.S. Supreme Court, “The TIA is keyed to the acts of assessment, levy, and collection themselves, and enforcement of the notice and reporting requirements [in Colorado] is none of these.”

I think we can assume that we will see more cases addressing these questions in the years to come.

For more information, contact William Mueldener, Tax Principal, National Director of State and Local Tax Services, or call (303) 298-9600.

Tags:  Advocacy  legislation 

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Telecom package signed into law

Posted By Nissa Szabo, Industry Affairs Manager, Monday, May 12, 2014
Friday, May 9th was a very excited day for the technology community and Colorado consumers. The Governor signed the telecom reform package - largest-ever telecom package signed into law in the nation. The package will help create a level playing field as companies continue to modernize their offerings to Colorado consumers. The package includes a bill that will boost broadband deployment to eliminate barriers and streamline processes to make investments in broadband more effective. Another bill will modernize current statutes to reflect current technology. The telecom definitions have not been updated for over twenty years. CTA is very proud to have had the opportunity to be part of such a large piece of history in the state.

Tags:  advocacy  legislation  technology  Telecom 

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The Power of Collaboration

Posted By Erik Mitisek, CEO, Monday, May 5, 2014

This Friday, the Governor is scheduled to sign into law five pieces of legislation that together, create the Telecom Reform Package for Colorado.  Good news: Colorado did it!


After working on telecom reform for the greater part of the last four legislative sessions (four years), what made this year different?  Collaboration.  During this session all stakeholders came together before the session even started and committed to the process of passing what would become the Telecom Reform Package.  Coming together was the key element.  The 2014 legislative session, around this complex technology and telecom issue, was marked by collaboration.  The willingness to align shared interest, find the point where all parties succeed, and collectively ban together to move Colorado forward.


For that, congratulations to the Colorado technology community for this spirit of partnership. 


Looking to the process that helped pass the Telecom Reform Package this year, I think that there is much to learn about building Colorado together.  Building communities together.  Building our businesses together.


Collaboration wins.  Last fall, I referenced that in Colorado, “C” is for collaboration.  And that holds true now more than ever.  It is in our spirit, our heritage, and work ethic to cooperate and help Colorado succeed.  


This month, think about how you and your organization can collaborate to make a better Colorado.  You can see the progress through the lens of Telecom Reform how impactful we can be when we work together.  The future of the Colorado technology community is in each of your hands, and the ability to forge relationships, partnerships and work together, will make the difference.


Thank you for all you do to make Colorado what it is - and collaboration wins!


In partnership,

Tags:  advocacy  Colorado  legislation  technology  Telecom 

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Marketplace Fairness Act Moves toward Final Vote

Posted By Julie Chiron, University of Denver, Tuesday, April 23, 2013

Marketplace Fairness Act Clears Cloture Vote by 74-20; Final Vote Expected this Week

We reported several weeks ago that the US Senate approved the Marketplace Fairness Act in concept during an amendment vote for the 2014 Budget. At the time Senate Finance Committee Chairman Baucus (D-MT) expressed his opposition to the bill and his frustration that the amendment had bypassed his Finance Committee and regular order. Legislation on this issue has been in the Senate for many years, so many have argued that the Finance Committee has not been without opportunity to review the bill. We can now follow up that report to say that the bill has been renumbered as S. 743 in an attempt to circumvent the Chairman’s opposition and bring the bill directly to the Senate floor. Majority Leader Reid (D) filed a cloture motion last Friday, which matured at 5:30 pm on Monday. Cloture was invoked by a vote of 74-20. ("Cloture” is a procedural vote that allows Senators to short-circuit a filibuster and set a time certain for debate. As explained by the Congressional Research Service: "Cloture enables Senators to end a filibuster on any debatable matter the Senate is considering. Sixteen Senators initiate this process by presenting a motion to end the debate… Then, for most matters, it requires the votes of at least three-fifths of all Senators (normally 60 votes) to invoke cloture. The primary effect of invoking cloture on a question is to impose a maximum of 30 additional hours for considering that question…. During this 30-hour period, in general, no Senator may speak for more than one hour, [and] amendments must be either pre-approved prior to the cloture vote, or be ruled germane to the bill.”) Thus, debate on the legislation will likely continue the rest of the week, and a final vote is expected sometime on Thursday. We will be watching the debate and vote very closely this week.

Tags:  Industry  legislation  public policy 

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Advocacy for the Industry - It's Our Job To Alert Leaders to A Riptide Eroding Technology

Posted By ORG Colorado Technology Association (CTA), Colorado Technology Association (CTA), Friday, May 28, 2010

Alerting Leadership in The State - A Riptide Called 1192 Has Emerged
That Will Erode our Technology Economy

As we begin the summer, and engage in more outdoor activities, we pay attention to lifeguards who warn us of potential dangers for ourselves as well as family members.  Many times, lifeguards tell us what we don't see, because they view a pool or ocean from a higher place, and their job is to constantly be aware of changing conditions.

At CSIA, we view our job in part simliar to lifeguards, because we want you to have the most vital environment for your company and this industry, while we also look out for potential threats or changing conditions.  That's why we were so actively engaged in the recent legislation session here in Colorado.  Our elected officials worked to determine how to balance a declining state budget while we were there to make sure that the software industry -- and those who use software for business productivity and growth - weren't severely impacted.

Unfortunately, we're beginning to see a riptide that's beginning to pull high-paying tech jobs and business away from Colorado, although at the surface, it still appears to be calm. 

We're seeing these changes from our post above the daily business, and it's concerning.

At the beginning of the legislative session, we were very concerned about the effects of HB1192 because we felt it would cause an erosion of jobs from the state, and a barrier to the growth of these high-paying jobs for our economy.

Now that it’s been a few months, unfortunately, we’ve experienced even more than we thought.
Here are 4 key points, and the reason we bring this to your attention is to ask you to join us in working directly with the Department of Revenue as they determine the interpretations for these new taxes, as well as to join us in continuing our conversations with leaders across the state.  These conversations are important so that influencers can work with us to stop the erosion of tech jobs before it becomes worse.

1. HB1192 is still very unclear for companies as well as city employees across the state, so we are hearing from dozens of companies who are being told conflicting information from revenue departments. For example, the legislative declaration we negotiated clearly underscores that IT services and contract labor are NOT to be taxed. It further states that no SaaS software is to be taxed, but that’s not what companies are being told. The DOR is inundated with all of the emergency regulations from all of the tax changes, and so companies are telling us it is very difficult to receive clarification from the Colorado DOR - or other cities. The result is dozens of companies who are frustrated with the lack of information – and, the amount of time they now have to spend to try to get clarification as well as educate other city employees about these new taxes.

2. Just from the companies with whom we’ve been in contact, we know of 65 jobs that are now not in our state because of HB1192. These are jobs that were originally planned as part of growth or replacement (filling gaps from employee movement) in Colorado and companies have also shared that they are not adding more positions in our state because of the new taxes on software use. The largest concentration was from one company who told us they secured a new project that then allowed them to hire 10 new employees. Instead of hiring in Denver, they are hiring in another state – after all, when projects are secured, companies can’t go back to a customer and ask them to absorb extra tax costs, so companies have a choice on reducing their margins or finding people from other states. Simple math – they will hire people in other states.

As a reminder, the average salary for an IT job in Colorado is $88,000, so 65 jobs means more than $5.5 million in payroll for the year. In addition, each of those people would have then contributed to the local economy and on and on.

3. We know of two specific technology companies who were considering locating in Colorado; one is in Colorado Springs; one in Boulder. In both cases, Colorado is now out of the running because of the new software taxes as well as a growing sentiment that there is a great sense of confusion about how the new taxes will be regulated. In the case of Boulder, it was compounded because there is a growing perception in Boulder that the City Revenue Department is identifying more and more tech companies and tech users for audits.

4. An additional unintended consequence is users of software don't understand that this tax impacts them too.  From banks and retail shops to large employers – who didn't understand and did not receive information that this new tax would impact them - we're hearing that they didn't understand the new taxes are also for users of software. It was labeled as a tax on software, but because it moved so quickly through the legislature, users of software didn’t understand it would also impact them. As of this time, proactive information has not been sent out, so instead, companies are surprised that the new taxes apply to them.  We don't think that's a great way to do business with our most important industries for both our economy as well as community.

Please Join Us In Next Steps:
1. We ask companies to let us know if they want any clarification about the new taxes, or are going through an audit and need clarifications. While we await information from the DOR, we can help with tax expertise offered by our members. CSIA and Hein & Associates will be presenting briefings for companies in June who want to have further clarification, and to ask specific questions with a tax expert.

2. We are looking forward to conversations with the DOR to help them understand the issues and help them clarify the information.

3.  All CSIA members are welcome to join in on our proactive legislative initiatives, including talking with us with key legislators.  We just recently had the opportunity to have a briefing with Gubernatorial Candidate Scott McInnis and are awaiting a date with Gubernatorial Candidate John Hickenlooper, so that both can hear from the tech industry - and we can hear from them.

Perhaps the most troubling issue is this: Technology companies and technology operations are run by intelligent and innovative people like you who we want and need in our state, and we cannot afford to create an environment that prompts you to grow jobs outside of Colorado.  

This industry is the largest and most important for our current and future economic strength, and we need to do everything we can to keep this industry growing in Colorado.  Because professionals in this industry must determine the best methods of achieving business success, it unfortunately may mean growing jobs in other states outside of Colorado because of our new taxes on technology.  That is deeply concerning for us -- and it should be for all leaders in Colorado as well.

Additionally troubling is this trend will happen quietly under the surface -- as a riptide of sorts --  and so our responsibility at CSIA  is to make sure we are not apathetic – and to alert key leaders so we can make Colorado the state of choice for technology innovation and success.

 Please contact me if you want to help, and we'll share our plan - and welcome your involvement.

-Su Hawk
President, CSIA  303.592.4068

Tags:  1192  advocacy  legislation  regulation  taxes 

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