Amazon Battles Back on Sales Tax

It's Amazon vs. Colorado, bloggers vs. lawmakers, local retailers vs. behemoths and, of course, Democrats vs. Republicans.

A week after Colorado enacted sales taxes for retailers with affiliates in the state, Amazon fired back Monday, eliminating thousands of "associates." Those associates are typically retailers or bloggers who include Amazon advertising on their pages in exchange for a cut of the revenue when a Web surfer clicks and buys.

The 2.9 percent online sales tax is one of nine tax measures signed by Colorado Gov. Bill Ritter to help close the state's huge budget shortfall but it's expected to raise only $4.7 million next year.

Colorado's law doesn't require online companies to collect sales taxes. Instead, it requires them to notify buyers and the state of the amount that should have been taxed, says Neal Osten, director of the Washington office for the National Conference of State Legislatures.


"We understand that they have budgetary issues," says Fred Nicely, tax counsel with the Council on State Taxation. "We think the approach Colorado is taking is the wrong approach."

So does Amazon. The company's shot at Colorado illustrates the struggle states and online retailers are having over sales taxes. Here's how Amazon described its beef with the state in an e-mail to its affiliates:

"The regulations are burdensome and no other state has similar rules. The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to 'voluntarily' collect Colorado sales tax - a course we won't take"

Actually, other states do have similar rules, says Osten. Amazon is suing the state of New York over its 2008 law while continuing to collect sales tax on purchases from that state. Rhode Island and North Carolina enacted laws similar to Colorado's.

"Everyone ended their affiliate relationships with everyone in those states," Osten said. "The amount of revenue that's come in has been negligible."

Amazon does collect sales taxes on sales in Kansas, Kentucky, North Dakota and Washington where the retailing giant has business operations. Retailers such as Apple or Target, which have stores in Colorado, already charge sales tax on their Web sales in the state.

Nicely of the Council on State Taxation and the National Conference of State Legislatures are hoping to create a standardized approach to sales taxes among states. Osten said he expects legislation on the streamlined sales tax to be introduced in Congress in the next few weeks. Already, 23 of the 45 states that impose sales taxes (Colorado is not among them) have signed on to the concept, which aims to clarify definitions and simplify collection of sales taxes among the states.

Meanwhile, a war of words played out in Colorado after Amazon threw down its gauntlet.

"Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process," Ritter, a Democrat, said in a news release.

Republican Senate leaders used the opportunity to blast Democrats, who control the Colorado House and Senate.

"The day that Economics 101 was being taught, the Democrats must have been absent," said Senate Minority Leader Josh Penry, R-Grand Junction, in a news release. "When government raises taxes in a recession, it kills jobs."

Brad Feld, a Boulder venture capitalist and Amazon associate, took aim at the new sales tax on his blog, siding with Amazon. He noted he'd supported Ritter in the past and worked quietly against the tax.

"Colorado just got a big black eye in their historical effort to be a place that is friendly to business, especially high growth technology companies," Feld wrote.

But Kathy Langer sees it differently. She's on the board of the American Booksellers Association and is lead buyer for Denver's independent Tattered Cover Book Store, which also has an affiliate program.

"Amazon has a competitive advantage because they're not collecting sales tax," Langer says. "They're just flexing their muscles."

The American Booksellers Association supports efforts to collect sales taxes from online retailers, Langer says.

"It levels the playing field with the bricks and mortar independent businesses in the states."

Nicely predicts Colorado could end up in the same situation as New York -- in court.

"I think it's highly likely there will be a challenge," he says.