E-Commerce has fundamentally changed the way that consumers shop, with sales growing over 12% in 2013 according to the U.S. Department of Commerce. Presently e-commerce accounts for $322 billion in annual sales, representing significant growth each year from 2009 when e-commerce totaled $209 billion.
While this trend has been promising for online retailers, it’s proven to be a huge headache for state legislators who are tasked with recuperating what they see as lost sales tax from online sales. On June 9, 2014, Colorado’s Gov. John Hickenlooper signed the Marketplace Fairness and Small Business Protection Act into law, representing his state’s attempt to modernize the laws of e-Commerce sales tax to reflect current realities.
The new law expands the definition for what constitutes nexus for retailers based outside of Colorado, so that the Department of Revenue can now collect taxes from businesses that don’t have a significant physical presence in the state. Its supporters in the state legislature claim that House Bill 1269 will infuse the treasury with a stimulus of more than $67 million in sales tax during the upcoming year.
While the bill spares small businesses that have less than $50,000 in annual sales, it will have a far reaching effect on any larger retailer making sales within Colorado. This is due to a clause in the bill that creates a presumption of nexus for online retailers. The tables have been flipped, so that the burden of proof is now on the online retailers to show that they do not have nexus in the state of Colorado. If a retailer is unable to prove their lack of nexus, they will be obligated to pay state taxes.
Other states including New York, Missouri, and Maine have passed similar legislation that have been dubbed “Amazon laws” after the dominant leader of U.S. online retails sales. However, House Bill 1269 will not affect Amazon itself, since Amazon took preemptive steps and cut off its relationships with its affiliates based in Colorado. In fact, Amazon has spent millions of dollars on Capitol Hill in recent years to lobby for a nationwide internet sales tax that would grant it a competitive edge as it continues to expand.
Colorado’s bill is modeled after the similarly named federal Marketplace Fairness Act (MFA), which was passed by the Senate in May of 2013 and would grant states the authority to collect taxes from online purchases.
With little likelihood of forward progress on the MFA in the House this term, the state of Colorado has decided to try out a version of the MFA on its own. Its supporters are optimistic that its benefits will be plainly observable in the coming year, and if so, we can expect additional states to pass their own versions in the foreseeable future.
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