On­line shops need to col­lect

With the sales tax law now in ef­fect, here is a primer on what it means.

The Denver Post - - DENVER & THE WEST - By Brian Ea­son

Seven years and one U.S. Supreme Court de­ci­sion later, Colorado’s law aimed at prod­ding on­line re­tail­ers to col­lect sales taxes took ef­fect this month.

Bet­ter known as the “Ama­zon tax” law, it ac­tu­ally doesn’t change a thing for the dot-com be­he­moth, be­cause Ama­zon has been col­lect­ing sales taxes in the state since Fe­bru­ary 2016.

But it gave other large on­line re­tail­ers an un­com­fort­able choice: Start col­lect­ing sales taxes now, or pass that re­spon­si­bil­ity on, leav­ing their cus­tomers with a tax bur­den later.

Here is a primer on the law’s ori­gins and how it could af­fect you. What is this law, and why was it cre­ated?

The law is de­signed to close a tax loop­hole cre­ated by the boom in on­line re­tail. In Quill vs. North Dakota, the U.S. Supreme Court in 1992 ruled that cus­tomers do owe state sales taxes for on­line pur­chases, but states can’t force com­pa­nies to col­lect it.

That’s been a boon to on­line shoppers, be­cause states typ­i­cally don’t pros­e­cute res­i­dents for fail­ing to file their own taxes on on­line goods. It’s also given on­line re­tail­ers a com­pet­i­tive ad­van­tage over busi­nesses with a brick-and-mor­tar store in Colorado. And, it’s cut deeply into state and lo­cal gov­ern­ment rev­enues. In 2012 — be­fore Ama­zon started col­lect­ing sales taxes — Colorado was los­ing an es­ti­mated $350 million a year in taxes on on­line sales.

To fix it, the Colorado leg­is­la­ture came up with a “work-around” that’s be­come some­thing of a na­tional model: Force re­tail­ers that don’t col­lect sales taxes to file re­ports on how much their Colorado cus­tomers are spend­ing and warn cus­tomers that they may owe taxes. What it means for on­line re­tail­ers

Chiefly, more pa­per­work — as­sum­ing re­tail­ers don’t sim­ply give in and col­lect sales taxes, in­stead.

Large on­line sell­ers that don’t col­lect are now re­quired to send cus­tomers a no­tice ev­ery time they buy some­thing ex­plain­ing that they may owe what’s called a use tax — essen­tially, sales tax that wasn’t col­lected at the time of pur­chase.

If a cus­tomer spends more than $500

in a year, the re­tailer has to send the cus­tomer an an­nual sum­mary of their pur­chases so shoppers have the in­for­ma­tion when fil­ing their tax re­turns.

Fi­nally, com­pa­nies will have to file an an­nual re­port with the state de­tail­ing the fol­low­ing in­for­ma­tion for each of their cus­tomers: their name, billing and ship­ping ad­dresses, and the to­tal amount each per­son spent with the store that year. What it won’t say is what ex­actly the cus­tomer bought — state law ex­plic­itly pro­hibits re­tail­ers from re­port­ing item­ized pur­chases.

These new reg­u­la­tions ap­ply to any com­pany that sells more than $100,000 worth of mer­chan­dise a year to Coloradans but doesn’t col­lect sales taxes from its cus­tomers.

What it means for on­line shoppers

If you spend more than $500 with a large on­line re­tailer that doesn’t col­lect sales taxes, you’re sup­posed to re­ceive the afore­men­tioned no­tice at the end of the year de­tail­ing what you spent.

And if you buy any­thing at all, you will get the ini­tial re­minder that you may owe the state money.

As for the taxes you may owe, noth­ing tech­ni­cally changes there — the state will just have records de­tail­ing what you owe. On­line shoppers in Colorado have al­ways owed use taxes when re­tail­ers refuse to col­lect sales tax.

But few peo­ple ac­tu­ally paid it, ac­cord­ing to state fi­nance of­fi­cials. A Colorado Leg­isla­tive Coun­cil fis­cal anal­y­sis found that, in 2015, just 79,000 of the state’s 2.5 million in­come tax fil­ers paid such taxes, even though as many as eight in 10 peo­ple shop on­line.

Use tax is due an­nu­ally on April 15, much like in­come tax re­turns. Con­tact your tax pre­parer or visit the De­part­ment of Rev­enue web­site for the proper form.

All of the pur­chase in­for­ma­tion the state col­lects — much like your tax re­turns — is con­fi­den­tial un­der state law.

What it means for brickand-mor­tar shops

Noth­ing — the law doesn’t ap­ply to re­tail­ers with a phys­i­cal pres­ence in the state, be­cause they’re al­ready re­quired to col­lect sales taxes.

But pro­po­nents of the law hope it will nudge more on­line com­peti­tors to start charg­ing sales taxes, putting them on a more level play­ing field with more tra­di­tional stores.

What it means for the gov­ern­ment

The leg­isla­tive fis­cal anal­y­sis es­ti­mated the state of Colorado could col­lect $5.9 million in ad­di­tional sales taxes this year with the law in place.

Lo­cal gov­ern­ments, too, are likely to see sales tax rev­enues grow.

Paul Sakuma, As­so­ci­ated Press file

Ama­zon has been col­lect­ing sales tax in Colorado since Fe­bru­ary 2016.

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