Blow-Back to Colorado’s “Rat Your Customer Out” Remote Sales Tax Law

by Bill McClellan on Apr 12, 2017 10:11:00 AM Advocacy, Government Relations


Back in January I alerted you to how Colorado’s “Rat Your Customer Out” Law would affect marketers. The big picture view is that the U.S. Supreme Court recently declined the review of a case that would require marketers to either collect sales tax on customer purchases in Colorado or report details of the purchase to the state tax collector.

The industry has been fighting against this outcome for a while now. Back in 2011 the Direct Marketing Association sued on this issue in Direct Marketing Association v. Brohl. The Electronic Retailing Association engaged in support with the courts as well as through our longstanding True Simplification of Taxation (TruST) coalition. In collaboration with the National Federation of Independent Business Small Business Center, ERA filed an Amicus Brief in support as well.

However, now all of the appeals are finished and Colorado plans on implementation this summer. So what's next?

What You Need to Know Right Now

First, this is only required from marketers who have gross sales of $100,000 in Colorado. So that’s good news for small retailers and marketers.

For everyone else, we will need to wait to see what will happen next. Colorado wasn’t ready for the decision and hasn’t been able to provide the industry with much guidance on compliance. However, this will soon change with the Colorado Department of Revenue working on guidance and implementation.

Marketers should highlight these pending changes for internal compliance and outside legal counsel in preparation for the changes. After enforcement begins we expect Colorado to move quickly to identify compliance cases to test.

Here is a great in-depth article from Internet Retailer that has more information to assist you with your research.

A Strong Blow-Back

Bloomberg BNA reported on March 8, 2017 that Colorado legislators plan to introduce a bill that would kill the “tattle-tale” provision from the 2010 reporting and notice law imposed on out-of-state marketers. This development is interesting because its passage would give legislators an easy way to correct a flawed piece of legislation that will be extremely difficult to implement.

In addition, prognosticators believe political pressure will soon grow in the state as Inc. and Colony Brands Inc. have both publically stated that they would not collect Colorado tax. Instead both will report to the state and give notice. Effectively, these retailers have called the state’s bluff and will test the new reporting requirement regime. This will shift the related privacy and confidentiality concerns of constituents back into the lap of state politicians who first passed the measure.

The Rest of the Story

Testing this “tattle-tale” language in Colorado is important. It will serve as a litmus test for other states who have begun to follow the state’s lead. So far, Alabama, Kansas, Nebraska and Utah have mirror proposals that could soon become law. This is just the first wave of these state laws if the efforts in Colorado are not contained. So keep an eye out for more to come on this front soon.

It is also essential to understand that Colorado is not alone in stepping up its nuisance efforts to challenge remote sales tax status quo. In South Dakota three out-of-state retailers are defendants in South Dakota v. Wayfair Inc. et al. In that case, the courts ruled on March 6 that state efforts to require remote tax collection where unconstitutional. Now state officials plan to appeal to the U.S. Supreme Court as a vehicle to overturn the 1992 Quill V. North Dakota decision. Similarly, in Alabama, Newegg is suing the state in Newegg Inc. v Dep’t of Revenue over its rule to try and establish economic nexus for remote retailers.

It appears 2017 will be the year of state activity on the Remote Sales Tax issue in tax collector’s publicly stated goal of forcing Congress to act to implement a national solution.


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