Should state governments be able to force out-of-state retailers to aid in the collection of taxes on goods purchased by state residents? On December 12, the Supreme Court declined to review a circuit court ruling that let stand Colorado’s 2010 “Amazon tax”—so nicknamed because its main goal was to capture revenue from online sales. By implication, other states are now free to pass similar measures. Continue reading “Kill the Amazon Tax”
Tag: Use Tax
Dems’ New Taxes and Regulations Hit Colorado Tomorrow
A media release from Colorado House Republicans reports that two of the Democrats’ onerous, rights-violating laws go into effect tomorrow: “Senate Bill 029 will impose more than $13 million in fees on retail paint products to fund a new paint recycling program,” while “Senate Bill 103 . . . will phase out the sale of traditional plumbing fixtures, such as [for] toilets and shower heads, and mandate only low-flow products be sold in Colorado.” I’m still angry over the Democrats’ idiotic Amazon tax. Is there any reason for me not to vote party-line Republican this year? It seems like every day Colorado Democrats create some new reason for me to loathe them.
What About Colorado’s Millions of Other Tax Scofflaws?
Today the Denver Post lambasted Douglas Bruce, citing his “reckless and brazen” evasion of state taxes. Recently Bruce was convicted on multiple charges.
I have no doubt that Bruce a) organized his finances in ridiculously convoluted ways (as he seems to be able to do nothing simply), b) agitated virtually every politician, bureaucrat, and leftist ideologue in the state, and c) gravely erred by representing himself in court. Whether he’s actually technically guilty of violating the state’s tax laws, I could not say definitively without studying his case more carefully. What is obvious is that, on the moral level, what’s he’s actually “guilty” of is daring to spend his own money in politically unapproved ways.
But there’s a deeper point here that practically everybody else seems to be ignoring: the large majority of Colorado residents are likely in violation of the state’s use-tax laws. I wrote about this matter earlier in the year. My guess is that millions of Coloradans are tax scofflaws. So, in the broader sense, obviously Bruce’s prosecution is selective; the state simply ignores millions (or at least hundreds of thousands) of cases of (generally unwitting) tax evasion every year.
Here’s the comment I sent over to a couple members of the Post‘s editorial board: “Fair enough regarding Doug Bruce, though the prosecution still smells of political retribution. However, my guess is that well over 80 percent of those currently piling on Doug Bruce are in violation of the state’s use-tax requirements. I’d actually be curious to learn what fraction of the Denver Post editorial board is in compliance with the use-tax laws. I personally think it’s a problem that probably the overwhelming majority of Colorado residents are in violation of the tax law, but apparently this is not the sort of story the Post regards as interesting.”
Update: Curtis Hubbard, the editorial page editor of the Denver Post, informs me that he did in fact address the use tax less than two weeks ago! Somehow I missed that article. He correctly points out that most people don’t pay it and that the state doesn’t enforce it. However, his solution to the problem is to force out-of-state online retailers to collect the tax and remit it to the state. I have a rather different idea for how to equalize the treatment between in-state and out-of-state businesses:repeal the sales tax for in-state businesses (even if done in a revenue-neutral way by increasing other tax rates).
Let’s Eliminate the Sales Tax
As my dad and I argued last year, Colorado should eliminate the sales tax (along with the use tax) even if done in a revenue-neutral way by increasing the income tax rate.
Consider a few of the many problems with the tax:
* Interstate commerce has created huge problems for collecting and administering sales and use taxes.
* Paying the sales tax over small-scale intrastate commerce is incredibly difficult. For example, I can directly sell my book, Values of Harry Potter,practically anywhere in the world, but I cannot afford the paperwork nightmare of selling it directly in Colorado. (You can still buy it on Amazon!) In my experience, many small businesses simply ignore the sales tax laws.
* Paying the use tax is an absolute nightmare, and the fact that hardly anybody does it turns most Coloradans into criminals.
* Sales taxes disadvantage local stores, yet forcing out-of-state businesses to collect sales taxes would create “as many as 15,000 tax rates to administer” — a bureaucratic nightmare.
The obvious solution to all these problems is to simply eliminate the sales tax.
Thankfully, the Joint Budget Committee has placed the Colorado budgetonline starting with 2004-05. Looking at the budget for fiscal year 2011-12, we can learn what eliminating the sales tax would mean.
Page 6 of that document reveals that total “excise taxes” (sales, use, and related taxes) bring in $2,184,400,000 (let’s say $2.2 billion). Income taxes bring in $4,692,200,000 (let’s say $4.7 billion). So, very roughly, eliminating the sales tax in a revenue-neutral way would require an increase in the income tax of somewhere less than fifty percent. Of course I’d rather see net taxes decline, but I could live with a revenue-neutral shift in order to get rid of the onerous sales tax.
My ‘Use Tax’ Case Resolved, Tax Remains a Problem
The good news is that the Colorado Department of Revenue is no longer threatening to seize my property over “use tax” allegedly due. An agent told me over the phone today that the Department would accept the original payment of $436.93 from my wife and me as payment in full for the past seven years of use taxes.
This, then, concludes my case, which I discussed in an article last monthand in a June 15 follow-up.
But the problems I had with the tax only underscore its broader problems — problems the legislature should address.
To back up, what is the “use tax?” If you buy something from out of state without paying state sales tax on it, you’re supposed to track such sales and cut the state a check for an equivalent amount.
Of course, hardly anyone actually pays this tax, and most people I’ve talked with have never even heard of it. But this exposes most Coloradans to potential criminal charges, property seizure, and arbitrary enforcement. That’s wrong.
So you can imagine why, after my wife and I actually paid the tax, we were frustrated to suffer further harassment and intimidation at the hands of the Department of Revenue. Specifically, the Department sent us three letters, all of which claimed we still owed the entire use tax for last year. Two of the letters also claimed we owed an additional amount for 2009. The final letter threatened to seize our property if we didn’t pay the 2009 amount. That’s more than a little irritating, given that we had already paid the entire 2010 tax, plus the 2009 tax with an 18 percent penalty.
But apparently the Department of Revenue’s idea of generating tax revenue is to relentlessly harass and threaten people who actually pay the damned tax, and totally ignore everyone else who doesn’t pay it. (I’m talking about consumers; I’ve heard anecdotally that the state makes some effort to enforce the “use tax” among businesses.)
The other major problem with the tax, beyond the problem of enforcement, is that it’s an extreme hassle to pay. Seriously, we’re supposed to track all our out-of-state purchases and then calculate the tax ourselves? That’s obviously ludicrous, which is why few do it.
Just to calculate and pay the initial tax, my wife and I spent 6.5 hours combined. Then we spent around two more hours responding to the Department of Revenue’s first two erroneous letters. We spent an additional 98 minutes (combined) on June 15 responding to the Department’s third letter. Yesterday I spent an additional 14 minutes further reviewing the matter. (I also had trouble sleeping and spent most of the day worrying about it.) Today I spent just over an hour on the phone with the Department of Revenue. Combined, my wife and I spent about 11.4 hours dealing with the tax, which transfered to the state $436.93. In addition, the Department of Revenue devoted who knows how much more time to the matter. In sum, a huge portion of the value of the tax was eaten up in the paying of the tax. And that hardly accounts for our emotional distress.
(This is aside from the obvious point that we are out the $436.93, which I am quite confident I could have spent better than the state’s bureaucrats will manage.)
Thankfully, the Department’s agent I reached today by phone was quite helpful and friendly, and she resolved the matter within a few hours.
What happened in our case, she explained, was that the Department’s “system actually calculated penalty, interest, and penalty-interest, which is double interest.” The agent said she waived all penalty and interest beyond the 18 percent we already paid, so now “there is nothing due.” (I still have no idea how a person is actually supposed to calculate all the penalties and interest according to the formal rules, but apparently just paying the extra 18 percent does not necessarily cut it.)
So why did the Department claim we owed the entire 2010 tax? The agent further explained that the Department had reallocated the portion of our payment intended for that year to the additional penalties for previous years.
I do want to state publicly that I sincerely appreciate the Department’s agent for working quickly to resolve the issue. (I only wish her efforts had not been necessary.)
So how should the tax be legislatively modified? At minimum, the legislature should clarify an easy-to-calculate penalty for late payments, adjusted for the degree of lateness. In my experience the existing rules are impenetrable.
However, I believe the legislature should go far beyond that and repeal the “use tax” altogether. It is a nuisance tax, inherently difficult to pay and enforce, and so it turns vast numbers of Coloradans into scofflaws, typically without their knowledge.
But, local retailers would complain, that would unfairly advantage out-of-state sellers. Therefore, as my dad and I argued last year, the legislature should simply abolish all sales and use taxes, even if done in a revenue-neutral way by increasing the income tax rate. (This would require voter approval.) Obviously that would eliminate all the problems associated with paying and enforcing sales and use taxes (including the state’s malicious campaign against Amazon and other online retailers).
The fewer the types of taxes, the better.
Use Tax Nightmare Continues
Legislative spending plus depressed tax revenues have generated a budget crunch in Colorado. So you’d expect state government to encourage people to pay taxes, maybe even seem grateful for it, wouldn’t you?
But consider the incentive structure for the “use tax.” If, like most Coloradans, you’ve never heard of the use tax (or if you pretend you haven’t heard of it), then the state does nothing to you, and you go on your merry way.
Because my wife and I paid the use tax, not only for last year but for the past seven years, the Colorado Department of Revenue has sent us three erroneous letters harassing us about paying the use tax. Which we already paid. Here I continue the chronicle from my write up last month.
The last letter is dated June 13 (but received, ironically on June 15, the anniversary of the Magna Carta, which recognizes rights of due process among others). In this letter, Roxanne Huber, Executive Director of the Colorado Department of Revenue, goes so far as to threaten “seizure and sale of your [my!] personal property.”
I did learn from this letter that I made a minor mistake in paying the use tax for the 2009 period. You see, according to Form “DR 0252 Web (12/03/10” (and who hasn’t perused that one for a little pleasure reading), late payments carry a penalty “not to exceed 18% of the tax due, and interest.” I didn’t understand the “and interest” clause. I thought we just owed an 18 percent maximum penalty, so that’s what we paid. But that’s not the end of it.
Form DR 0252 Web refers the reader to www.TaxColorado.com (lovely domain) for additional information. I tried “Common Questions,” which contains a section, “Internet Sales — Tax Paid by Purchaser.”
THIS page says that for more information I should see Form DR 0252 (which, you may recall, is where I started), or 39-26-106 C.R.S. and 39-26-202 C.R.S. Luckily, I know how to look up Colorado statutes online. So I went to Title 39, “Specific Taxes,” “Sales and Use Tax,” “Part 2 Use Tax.” But section 202 is “Authorization of tax,” so I turned instead to 39-26-207, “Penalty interest on unpaid tax.”
So what does this statute say? And I quote: “Any tax due and unpaid under this part 2 shall be a debt to the state, and shall draw interest at the rate imposed under section 39-21-110.5, in addition to the interest provided by section 39-21-109…”
In other words, this is not something that any actual human being can follow.
But, according to the Department of Revenue’s June 13 letter, there are actually three different sorts of penalties: “Sales tax – Late filing penalty,” “Penalty-interest,” and “Interest.” In my case these things totaled $28, but for some reason we had received “credit” for an apparently arbitrary portion of this, making our alleged amount due $20.07.
But, as I explained to the Department, we had already paid the full tax plus an 18 percent penalty of $20.61, so we owe (at most) $8 for “Penalty-interest” and “Interest,” for which we wrote a check.
To collect that $8 in “Penalty-interest” and “Interest,” the Colorado Department of Revenue sent and posted a letter, and my wife and I spent a combined 98 minutes responding and then posting our own letter.
The June 13 letter also claims we still owe the entire tax for 2010 (which we already paid), plus a penalty (which we do not owe, because we paid it on time). But for whatever reason, the June 13 letter did not add that amount to the “Amount Due with This Statement.”
Previously I wrote that I feel “a bit like a minor character in Franz Kafka’s novel The Trial.” While I do not wish to compare the seriousness of my situation with that in the dystopian film Brazil, I cannot help also comparing Form “DR 0252 Web” to Form “Twenty-Seven B Stroke Six.” Or, as my wife put it, “I feel like I’m in the Twilight Zone.”
In other words, the use tax is absolutely crazy.
***
Tony Bubb commented June 16, 2011 at 7:56 AM
Ari,
Yeah, I’m not surprised. I’ve more or less given up on doing my own income taxes, not because I can’t… I did for almost 20 years…
But the Colorado “Fair Share Division” ends up writing me to tell me that my taxes were incorrectly done in vague and confusing language.
This requires time to unravel that and determine that they have had it wrong, not me, and that I don’t owe anything more.
When you get your taxes done professionally, that service is covered.
Nobody should have to be motivated in this way, but I am. So much for the folks there.
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.
Court Suspends ‘Amazon Tax’ For Now
I haven’t seen this break on the big media sites yet, so I’ll reproduce a media release I just received as-is. I have not had time to check out the claims or the decision. For background, see my post from last year.
Majority Leader Stephens Praises Amazon Tax Court Ruling
Plans to Introduce Legislation to Repeal Online Retailer Tax
State House Majority Leader Amy Stephens, R-Monument, today is praising a court ruling by the U.S. District Court of Colorado that has granted a preliminary injunction against enforcing, House Bill 10-1193, the controversial tax on online retailers, such as Amazon.com, and on Colorado consumers.
In a decision issued late yesterday afternoon, the court ruled that the law shall not be enforced due to violations of the Commerce Clause of the United States Constitution while litigation continues.
“House Republicans have questioned the constitutionality, and the rationale, of this online tax since it was introduced,” Stephens said. “We knew from the beginning that this tax placed an undue burden on businesses and consumers across Colorado, and the nation.”
The law is being challenged by the Direct Marketing Association as unconstitutional. In addition to Commerce Clause concerns, the DMA has repeatedly cited privacy issues arising from the requirement that companies turn over confidential purchasing history information to the Colorado Department of Revenue.
“The decision by the court should be applauded,” Stephens said. “Unfortunately, this tax proposal was rushed through the legislature, causing concern for consumers and leading to the immediate loss of Colorado jobs.”
The law mandated online retailers to start collecting use tax, or to provide information about online purchases made in Colorado in order for the state to collect taxes on the transactions. Passage of the law led to an Amazon.com decision to end their association with 4200 Colorado marketing associates.
Majority Leader Stephens still plans on introducing legislation to repeal the entire online retailer tax.
“A full repeal of the Amazon tax is still necessary,” Stephens said. “This court ruling is just one step in the long process of repealing this unconstitutional tax. I am hopeful that with this most recent decision, along with a full repeal by the legislature, we will see these jobs return to Colorado.”
The court decision is available to read online here.
Business Group Challenges ‘Amazon Tax’
Earlier this year, the Democrat-led Colorado legislature foolishly passed the “Amazon Tax” in an attempt to collect sales taxes on goods purchased from out of state. The measure caused Amazon and other businesses to end their affiliates programs in Colorado and threatened Coloradans’ privacy rights. See RepealTheAmazonTax.com for more information and argument.
Today I received the following media release announcing a legal challenge to the tax bill:
Rep. Stephens Applauds Challenge to Internet Tax
Complaint Based on Consumer Privacy Concerns, Loss of Colorado Jobs
State Rep. Amy Stephens, R-Monument, today applauded the legal challenge filed against Colorado’s new Internet sales tax policy, recently authorized by House Bill 1193.
“We have said from the beginning that this proposal jeopardizes consumer privacy and gives the government a frightening amount of access to information about personal purchases and services,” said Stephens. “The bottom line is, it’s none of the government’s business what someone wants to buy online.”
Stephens helped lead the fight against HB 1193, a Democrat-sponsored budget balancing proposal that mandates sales tax collection for online purchases.
It was announced yesterday that the Direct Marketing Association filed a lawsuit in Federal District Court in Colorado challenging the new law as unconstitutional. The DMA cited privacy violations because the new law requires companies to turn over confidential purchasing history information to the Colorado Department of Revenue. The DMA also claims the law unfairly discriminates against interstate commerce.
“I wholeheartedly agree with the concerns raised by the legal challenge,” Stephens said. “These are problems even the sponsors of the bill recognized. Unfortunately, the tax proposal was still rushed through the legislature, causing concern for consumers and leading to the immediate loss of Colorado jobs.”
Immediately following passage of the bill, it was announced that Amazon would no longer be working with its 4,200 affiliates in Colorado.
Prior to filing the lawsuit, the DMA, along with several other entities, registered their concerns about HB1193 with the legislature, with the governor, and with the Department of Revenue during its rulemaking process.