Use Tax Criminals

In a recent op-ed published through the Independence Institute, I argue that Colorado’s “use tax” is “a nuisance tax that turns good citizens into tax criminals.” (If, like most people I’ve talked to, you have no idea what the use tax even is, I refer you to the article.)

The op-ed was published by the May 25 Salida Mountain Mail and the May 27 Denver Daily News. Check out either of those publications for the full piece.

I make the following arguments.

* The “use tax” is a time-consuming nuisance for consumers to pay (as my wife and I discovered).

* Because it is such a nuisance, the state makes little effort to enforce it, and hardly anybody pays it. But that turns huge numbers of Coloradans into tax criminals, exposing them to the risk of arbitrary, politically motivated enforcement.

* It is neither fair nor Constitutional of the Colorado legislature to try to force out-of-state companies to enforce the use tax, as those companies gain practically no benefits from Colorado tax expenditures.

* Besides, requiring large, out-of-state companies to help enforce the use tax would not cover all the relevant taxed items, so it would still be a nuisance for Colorado citizens and it would still turn many Coloradans into tax criminals.

Update: following is the entire text.

How many tax criminals has Colorado’s ‘use tax’ created?

You may be a criminal under Colorado’s tax laws without even knowing it. Probably most Coloradans are tax criminals. Merely by reading this article you’ll no longer remain blissfully ignorant of the tax in question, the “use tax.”

So what is the use tax? Anytime you purchase something from out of state without paying Colorado sales tax — say, if you buy something from Amazon — you’re supposed to pay the equivalent use tax to the state for the privilege of using the item here. You’re supposed to keep track of all such items over the year and then cut the state a check.

The use tax is a nuisance tax that’s difficult to pay. Consider the experiences of my wife and me. After we paid the use tax, not only for last year, but for the past seven years, the Colorado Department of Revenue acknowledged our tax compliance by sending us two erroneous letters claiming we owed the tax.

The only reason the Department of Revenue thought we owed the use tax is that we told them we owed it — in the same letter in which we enclosed our check for the entire amount. The tax bureaucrats cashed our check but apparently still failed to notice that we paid the tax. I felt a bit like a minor character in Franz Kafka’s novel “The Trial,” in which the authorities relentlessly pursue a man on mysterious charges.

Dealing with the paperwork consumed a huge portion of the value of the tax. My wife and I spent about 6.5 hours combined figuring out the tax, and about two more hours combined responding to the Department of Revenue’s bogus complaints, in order to pay a total tax of $436.93. The Department of Revenue will waste who knows how much more of their time and ours figuring out that, yes, we did in fact pay the use tax.

Partly because the use tax is such a nuisance for citizens to pay, the state makes practically zero effort to enforce it, collect it, or even notify citizens that it exists. But if you don’t pay your use tax, doesn’t that make you a criminal? That’s the implication of an April 8 release from theColorado Attorney General’s office, which alleges that tax-cutting activist Douglas Bruce committed a felony for evading taxes and a misdemeanor for “failure to file a return or pay a tax.” The complaint against Bruce involves the income tax, but presumably the same rules apply to all taxes.

A law that turns huge numbers of Coloradans into criminals is a bad law. By not even trying to enforce the law, the state encourages citizens to skip it. And most do. But that raises the specter of arbitrary, politically motivated enforcement.

Last year, the legislature tried to pass off enforcement of the law largely to Amazon and other online retailers, in clear violation of the commerce clause of the U.S. Constitution. Not surprisingly, a judge ruled against the law, which still failed to motivate the legislature to repeal it this year. Because of the ongoing dispute, Amazon and other companies decline to pay Colorado residents for referrals (so as to avoid creating a business “nexus”), which costs the state income tax revenues.

In-state retailers argue that the use tax equalizes the tax burden for in-state and out-of-state purchases. But out-of-state companies gain none of the benefits of tax-funded roads, police protection, and so on, so they should not be conscripted by Colorado legislators to help enforce state tax law.

By the very nature of the use tax, there is no good way to enforce it. It is a nuisance tax that turns otherwise good citizens into tax criminals.

Ari Armstrong’s book Values of Harry Potter sells through Amazon, and Ari used to be an Amazon associate. He is a guest writer for the Independence Institute, a Golden-based libertarian think tank. The views expressed in this guest editorial are those of the Independence Institute and not necessarily those of the Denver Daily News.