Peter Blake

The 'Amazon Tax' seems to be just a matter of time

A few days after the a federal appeals court overturned a Denver U.S. District Court decision against Internet taxation, a colleague of mine ordered an e-book costing $8.89 through Amazon — and discovered he also had to pay sales tax of 70 cents, or 7.9 percent.

Had the giant Internet marketer quickly surrendered and moved to collect taxes already? It looked that way.

But as it turned out, the e-book was taxed because he had not bought the book directly from Amazon but from a private seller for whom Amazon was acting as agent. Amazon does this for thousands of large and small retailers, and the law requires that it collect tax if those retailers are based in the state to which the product will be shipped, or if they have some sort of physical presence there.

The “product,” in this case, was not physical but ethereal: an e-book that you can’t heft, smell, taste or feel — and which can in theory be retrieved from your Kindle by the publisher if the spirit moves him. But that’s another story.

Colorado is still not among the dozen states where Amazon maintains facilities and thus collects sales taxes on items shipped there. The states are listed on Amazon’s Web site.

In 2010 the revenue-hungry Colorado legislature passed a law requiring large Internet retailers who don’t collect sales taxes to notify their customers that they still owe sales or use taxes on their purchases. Each failure to do so would result in a $5 fine. At year’s end they would also have to remind their customers of all purchases made during the year and tell them again about their tax obligation.

The notice, by the way, would have to be by first-class mail, not email. That’s very expensive, of course, and was designed to prod retailers into collecting the tax instead. It was aimed specifically at Amazon, since historically it has done three times more business on the Web than its nearest competitor.

For good measure, the e-tailer is also obliged to notify the Revenue Department of the total amount of sales it made to each Colorado customer and the sales tax owing. Intimidating, no?

But Denver U.S. District Judge Robert Blackburn permanently enjoined enforcement of the law in 2012 because, he reasonably said, it imposed “an undue burden on interstate commerce.”

Two weeks ago, however, a three-judge panel of the 10th Circuit Court of Appeals reversed the ruling, on grounds of the so-called Tax Injunction Act. It holds that federal courts shouldn’t stop state tax assessments if the matter can be resolved in lower state courts.

The plaintiff in the case is not Amazon but the Direct Marketing Association, a trade group. Its attorney, Jerry Cerasale, said this week the next step is to ask all 10 active judges on the 10th Circuit court to hear the case en banc.

If that motion is denied, he said he has other options: Go to the state courts, as the panel recommended; ask the U.S. Supreme Court to take the case; or do nothing and wait to see what happens at the federal level.

Pending in Congress is the so-called Marketplace Fairness Act, which is primarily promoted by big-box retail chains. They claim having to collect taxes themselves puts them at a competitive disadvantage with Internet retailers who can sell tax-free.

But according to Cerasale, Amazon also supports the bill in its current form, whereas his DMA does not.

According to some observers, that’s because Amazon wants to build distribution centers in more states, in order to make speedier deliveries. It has already cut deals with several states, saying it will build a big warehouse in them if they promise not to impose a sales tax for a few years.

Besides, Amazon is big enough to be able to figure out what it must charge in sales taxes in the thousands of jurisdictions to which it ships, and smaller competitors will have a much harder time doing that.

The bill passed the Senate in May although the five states without sales taxes — Alaska, Oregon, New Hampshire, Montana and Delaware — opposed it.

It is said to face more trouble in the House. But if Amazon joins forces with big-box retailers to pass the measure, the public better prepare for the worst. It looks as though Big Business will climb into bed with insatiable governments once again. It seems to be a trait of human nature: Instead of working to lighten the tax load of everybody, you work to increase the tax load on your rivals.

At least Amazon is working with the DMA on the Colorado case, said Cerasale. With any luck they can keep the injunction in place pending the final appeal, which would give Coloradans at least one more year of Internet tax freedom.

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