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CO: Online affiliates fear revamped “Amazon tax” legislation

Raising concerns among many independent Internet entrepreneurs, a legislative bill to impose sales tax collection on many online retailers was sent back to the drawing board Wednesday.

Colorado’s House Finance Committee discussed and heard testimony concerning House Bill 1269, but laid over the legislation until next week for further amendment and a final vote.

The legislation was rewritten before the hearing to exempt independent online marketers, known as affiliates, from expanded requirements to collect Colorado sales tax.

“It is not a new tax,” said Rep. Lois Court (D-Denver), one of the bill sponsors. “It is to make things fairer for our local small businesses. And it will bring revenue to the state that we are owed.”

But many were unsatisfied by the explanation, or the changes.

“We honestly need the retailers more than they need us,” said longtime independent online marketer Jeannine Crooks. “Their businesses won’t suffer if they discontinue their relationships with Colorado affiliates. We however would be decimated.”

Large retail companies can cancel relationships with Colorado affiliates and work instead with their counterparts in other states without such laws. According to Crooks, the effects in states that have enacted similar laws have been swift and severe. “Where this legislation has passed on a Tuesday, by Thursday thousands of affiliates no longer have an income,” she said, noting that about 10,000 Coloradans make a living as an affiliate.

Crooks testified that she became intensely interested in the issue in 2010 when the General Assembly debated and adopted House Bill 1193, popularly known as the “Amazon tax.” After then-Gov. Bill Ritter signed the measure into law, Amazon discontinued its affiliate program in Colorado.

Denver Post editorialist Chuck Plunkett assailed then-candidate John Hickenlooper for remaining silent while his fellow partisans pushed HB 1193 past the finish line. The current governor has not weighed in on this year’s HB 1269.

Opponents of the 2010 measure twice challenged the law in court, winning injunctions in 2011 and as recently as this month. The judicial ruling has temporarily halted the “extensive reporting requirements on retailers that don’t charge Colorado customers the state’s 2.9 percent sales tax.”

Fiscal analysts suggested that the state could potentially rake in an extra $67.7 million a year in sales tax revenue, primarily through creating a “nexus” with online retailers based in other states. The estimated revenue boost was based on a University of Tennessee study of individual states.  That number does not appear to take into account lost income tax revenue from in-state affiliates who stand to lose their relationships with retailers.

Nevertheless, Crooks’ research led her to deep skepticism of the claims, saying the projections often inflate the actual intake by as much as 300 percent. “This has not been proven to be the cornucopia of revenue that a lot of people would like to believe,” she said.

The rewritten legislation’s presumption of a nexus would require a formal dispute to avoid paying unnecessary taxes, something that opponents like Rep. Brian DelGrosso (R-Loveland) say would create an immense and unreasonable burden on smaller enterprises.

Even so, backers offered up a double-edged claim on behalf of HB 1269. “We can no longer afford to keep in place a sales tax system that protects businesses that are not based here,” said Rep. Angela Williams (D-Denver), the legislation’s other sponsor. “This bill is good for small businesses, and it is good for Colorado.”

A number of witnesses expressed their confusion and concern about the extent of the bill’s impact on online businesses, prompting agreement to make additional changes.

“We will work very hard to try to make the bill work for everyone,” said Court.

A vote on House Bill 1269 is scheduled for Wednesday, March 5.

Ben DeGrow

Ben DeGrow is co-editor of Watchdog Wire - Colorado. Contact him at Colorado@WatchdogWire.com to learn how to get involved with citizen journalism in the Boulder State. Follow him on Twitter: @bendegrow

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