End of an era: Colorado moves to tax online purchases

DENVER– Colorado joined Virginia this week in edging closer to charging out-of-state internet sales tax following a final vote on HB 1193 in the Senate Wednesday. The bill, sponsored by Rep. Jack Pommer, D-Boulder, and Sen. Rollie Heath, D-Boulder, would require retailers to either collect the tax or send notices to Colorado customers informing them that they need to pay the taxes.

internet sales

The bill passed 19 to 16 votes along partisan lines and spurred heated objection by Republican lawmakers, who questioned the law’s constitutionality and railed against the potential invasions of privacy that might ensue.

Calling it the “most dangerous piece of legislature to became law,” Sen. Shawn Mitchell, R-Broomfield, argued that, even as amended, the law failed to fully guard purchaser privacy. An amendment proposed by Denver Sen. Michael Johnston restricted the IRS access to itemized lists of purchases but still requires that each online retailer submit tallies of amounts spent by individual Colorado consumers.

“This is the worst, most intrusive bill in the package. Good grief… If the federal government is fighting terrorism, it’s an outrageous invasion of privacy, but if the Colorado General Assembly wants to increase sales taxes, it’s okay,” Mitchell said, comparing the bill to the controversial anti-terror Patriot Act.

“If anyone of you ever said the Patriot Act shreds the Constitution, then you should be voting no (to this bill),” Mitchell told the chamber.

He offered specific hypothetical examples of how the bill might infringe on first amendment rights.

“Would you want a government bureaucrat to know that a Sen. John Morse spent money for products from Pfizer pharmaceuticals or from lingerie retailer Fredrick’s of Hollywood? he asked, chiding the Democratic Majority Leader in one of his numerous trips to the microphone. Later he asked whether they would like the state to know how much they spent at Hugh Hefner Enterprises. Mitchell said it was one thing to open up your bookstore spending to the state, but spending on drugs, for example, or “domestic pleasure appliances” would be something else.

“This is a fight over whether the government should know whom you are buying from and what you are buying,” he said.

Supporters of measure said it wasn’t designed to infringe on civil liberties, it was about helping “Main Street America”– the small Colorado businesses struggling to compete with a fast growing online market.

“Small businesses are having to shut down because you can buy the same product online with no sales tax and pay no shipping,” Sen. Joyce Foster, D-Denver, said in response to Republican criticism. “What are these small retailers in Colorado? Are they chopped liver? I can order chopped liver from Zabar’s in NYC and have it shipped here, and I have, so don’t pull the privacy stuff on me. Practice what you preach. I don’t support freeloaders. Internet companies [not charging state sales tax] are freeloading on our local economy. This is an important bill to protect our retailers, whether they are large or small. Freeloaders beware.”

Currently, when Coloradans make purchases on the internet from out-of-state companies, they are supposed to voluntarily submit sales taxes to the state. Few people do. Under the new law, the companies selling the product will be required to either charge state sales tax with the initial purchase or inform Colorado customers by mail – both at the time of the sale and at the end of the year – that they owe the state taxes on their purchases. It also requires out-of-state-companies, as a safeguard, to give the state a list of their Colorado customers and total purchases at the end of each year do the state Department of Revenue can collect taxes from those who haven’t paid.

The bill was part of a package of tax measures aimed at businesses that could generate as much as $140 million to help fill a budget shortfall next year of at least $1.3 billion. The online-sales-tax bill alone is expected to generate an extra $2.9 million in sales tax revenues this year, Democrats say, with that number predicted to jump to $4.6 million by 2012. The bill will apply to companies that don’t have a physical presence in Colorado and don’t already charge sales tax to online customers.

Republican lawmakers said the bill would be nearly impossible to enforce and will also encourage lawsuits.

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