Legislative Assault on Amazon Hurts Colorado Business

The following article originally was published March 19, 2010, by Grand Junction’s Free Press.

Legislative assault on Amazon hurts Colorado business

by Linn and Ari Armstrong

We told you so. On February 24, Governor Bill Ritter signed a number of business-killing tax measures, including Bill 1193, which attempts to collect taxes for out-of-state sales. The law imposes high compliance costs and red tape. Informally it is called the Amazon Tax.

Last week, Amazon cut off its Associates program in Colorado, meaning the company will no longer pay commissions to those who advertise for Amazon online. Other retailers have either cut off affiliates or signaled they may do so.

The Democrats’ anti-business tax measures could not have come at a worse time. Colorado unemployment rose to 7.4 percent as of January. The Denver Post adds, “Colorado employers last year shed nearly 17,000 more jobs than initially reported,” for a total of over a hundred thousand non-farm jobs lost. Apparently the Democrats’ motto is “kick business when it’s down.”

Unfortunately, numerous left-leaning politicians, advocacy groups, and commentators are flat-out lying about Amazon’s reasons for dropping Associates, painting the decision as arbitrary and vindictive. In fact, Amazon’s decision was a reasonable and perfectly predictable defensive move protecting the company from the unjust tax law. Yet the left has a history of blaming business for the harms of political controls.

What are the legal reasons that Amazon needed to cut off its lucrative Associates program in Colorado?

Colorado legislators have no authority to control businesses in other states. Amazon is located in Washington. The only way Colorado can require out-of-state businesses to comply with Colorado tax laws is if a business has a relevant presence in Colorado. It is Amazon’s Associates program that constitutes such a presence. By dropping its Associates, Amazon seeks to remove itself from the bureaucratic nightmare of Colorado’s tax law.

That is why, in his March 8 press release, Governor Bill Ritter points out that in dropping its Associates, “Amazon is simply trying to avoid compliance with Colorado law.” (Ritter nevertheless smears Amazon for dropping its Associates, though he is the one to blame for it.)

When Rhode Island and North Carolina tried to impose tax obligations on Amazon, the company dropped its Associates program in those states, also to avoid the tax complications. Notably, that happened before Colorado legislators passed an Amazon Tax. Because Rhode Island’s Amazon Tax cost the state revenues, that state is now considering a repeal of the measure, reports Joseph Henchman of the Tax Foundation.

Some people are confused about an amendment to the bill. They wrongly claim that, because legislators amended the bill to omit language about affiliates, Amazon would have been subject to the Colorado tax law with or without the Associates program. Therefore, these critics mistakenly argue, Amazon dropped its Associates not for any benefit to the company but merely out of spite.

Such claims ignore the fact that, regardless of the language of Colorado’s law, federal courts likely will rule that it is the Associates program, if anything, that gives Colorado the right to subject Amazon to tax rules. (Amazon is currently embroiled in a court battle with New York over the matter.) The Associates program is what plausibly establishes the company’s relevant presence in Colorado, giving the state jurisdiction.

Colorado legislators cannot rewrite the U.S. Constitution, which grants the federal government exclusive power to “regulate commerce… among the several states.” The Colorado legislature can subject an out-of-state business to tax rules only if the federal government allows it. Amazon dropped its Associates because the company reasonably believed that doing so would mean it wouldn’t have to comply with Colorado’s onerous tax law.

Thus, when Dave Taylor writes for the Huffington Post, “Amazon firing all of us Associates doesn’t change anything about their tax liability in the state,” we can only chuckle at his Constitutional ignorance. His comments presume that Colorado can subject out-of-state businesses to tax laws just because Colorado legislators say so.

The larger question, however, is whether Amazon should follow the tax law even if it’s not legally obligated to do so. No! The tax is horribly unjust, and it should be repealed whether or not federal courts allow it.

Henchman points to a compliance problem with forcing online retailers to process sales taxes. With all the overlapping tax districts, “retailers large and small must track more than 8,000 sales tax rates and bases.”* By contrast, a local shop must calculate only a single rate.

Moreover, the law needlessly mandates high processing costs. It forces targeted retailers to send tax notifications “to all Colorado purchasers by first-class mail,” and the notification “shall not be included with any other shipments.” The law forbids Amazon from sending lower-cost email notifications, further illustrating that the law is essentially about punishing Amazon, not creating tax parity.

The left should stop smearing Amazon. The rest of us should stand up against the legislature’s unjust law. Thankfully, Diana Hsieh, a former Associate, has created a web page to fight the oppressive tax measure; see RepealTheAmazonTax.com.

* Obviously, this is the case if Amazon had to calculate all the rates in all the states.

See also the following articles by Ari Armstrong:

The Amazon Tax and the Affiliates Amendment

Stop the ‘Amazon Tax!’