Internet retailer protection from sales tax collection, reporting and payment requirements is commanding increased attention of state departments of revenue. Colorado HB 1193 is the most recent state legislation to focus on out-of-state Internet retailers. HB 1193 imposes strict reporting requirements on out-of-state sellers, creating administrative duties for retailers, as well as constitutional issues. Similar California legislation is pending.
These laws, which are squarely aimed at out-of-state, Internet retailers, do more than impose arduous and arguably, unconstitutional, reporting requirements on sellers. They mark a notable foray by the states into new territory that allows them to circumnavigate the constitutional limits set forth in Quill Corp. v. N.D., 504 U.S. 298 (U.S. 1992).
While some retailers for whom the use reporting requirements apply may elect to comply with HB 1193, it is anticipated that many of these retailers will simply to "turn on" sales tax collection with respect to sales made into Colorado. In doing so, these retailers would mitigate the otherwise onerous reporting requirements. In the alternative, the non-collecting retailer may attempt to avoid the reporting requirements through changing shipping practices, such as FOB shipping point.
HB 1193 raises significant constitutional issues. Namely, by "imposing" a sales tax obligation on retailers with no physical presence otherwise in the state, the Colorado law bypasses the limits set forth under two important Constitutional cases invoking the dormant Commerce Clause--Quill Corp. v. N.D., 504 U.S. 298 (U.S. 1992) and National Bellas Hess v. Department of Revenue, 386 U.S. 753, 763 (U.S. 1967).
Adding to the burdens arguably imposed by HB 1193 is the fact that the Colorado Constitution authorizes cities and counties to be "home rule jurisdictions." Home rule jurisdictions are authorized to enact their own tax schemes which may be, and often are, dramatically different from the State of Colorado's tax laws as well as the tax schemes of other home rule jurisdictions.
California Assembly Bill 2078... [c]ommonly known as the Online Tax Bill, AB 2078, if enacted as proposed, would require online retailers making sales into California to notify their California customers of their obligation to pay use tax to the state. With budget projections for the legislation reported between $100 million and $150 million annually, supplemented by strong support among the Senate majority, passage of AB 2078 is considered likely. If AB 2078 as introduced in the Assembly is passed, it would make California only the second state (after Colorado) to impose a notice requirement on online retailers.
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RELATED LINKS: For more information and further discussion, see:
Bender's State Taxation: Principles and Practice 12.04
Bender's State Taxation: Principles and Practice 16.02