Thursday, July 15, 2010

What Did You Buy Online?

At the beginning of this month the Direct Marketing Association (DMA) filed suit against the State of Colorado over HB 1193, which requires online retailers from other states to notify customers in Colorado of their obligation to pay sales and/or use tax on the items they've purchased. The law took effect this past March.  

The law additionally requires these retailers to remind their Colorado customers - by first class mail - of what they've purchased, and how much they may owe in sales taxes. They're additionally required to provide this same information to the Colorado Department of Revenue. 
This week I received a postcard from Newsweek's circulation department advising me of this very thing. 

Early versions of the bill, subsequently amended before eventually being signed by Gov. Ritter, targeted the in-state affiliates of large online retailers like Amazon, treating those online affiliates as if Amazon had a physical presence, like a store, in the state. Despite the changes, Amazon responded by ending their relationship with all Colorado affiliates within a week of the law taking effect.

The most comprehensive analysis of this suit, and what lies beneath it, appeared this week in The Colorado Statesman. The Statesman's Marianne Goodland explored the issue from several different perspectives and through the eyes of some varied sources, and came up with a picture that suggested some duplicity in the DMA's motives for filing this suit, citing consumer privacy, when they oppose proposed regulations protecting consumer privacy being debated at the federal level.

Still, the potential for the violation of consumer privacy concerning online purchases warrants further examination by the courts. Several other states are considering laws based on the Colorado model, so getting this settled from both a privacy and revenue standpoint seems like a good idea.

The consumer privacy arguments that appear to drive much of the DMA's case reminded me of a case that the ACLU of Colorado fought and won in 2002. In that case, Denver's Tattered Cover Bookstore successfully defended itself against a subpoena from the North Metro Drug Task Force requesting book purchase records for a certain individual.

There are obvious differences here; the subject of a criminal investigation vs. every Colorado taxpayer, for one. Since the world's largest online merchant, and one of the world's largest booksellers, is a key player here, one can see the potential concerns regarding what the Colorado Department of Revenue gets from them about the books you buy from Amazon or any other online retailer.

Amazon has gone as far as to litigate over this in other states. The ACLU of North Carolina joined them in a suit against that state, which is demanding the names and addresses of customers and what books they purchased. The ACLU chapter there believes that the state is going too far, and I'm inclined to agree.

To try to understand this better, and perhaps elicit a more informed comparison between this suit and the Tattered Cover case, I contacted the ACLU of Colorado requesting comment. Communications Director Erik Maulbetsch replied via e-mail that "i
t just isn’t a priority for the legal (department) to get into now."

Not a great response or approach by our state chapter at this point, but at least I got a reply. Ms. Goodland at the Statesman couldn't even get a phone call returned.

The free ride that consumers who purchase online have largely enjoyed with regard to sales tax may be coming to an end, as states that levy sales tax are seeing budgetary problems. The legal maneuvering required to accomplish this can be daunting, due to constitutional issues regarding interstate commerce and other things.

Some states, Colorado included, are treading a slippery slope between a citizen's right to privacy and their budgetary needs. The upcoming court battle in Colorado will likely prove interesting, and I'll try to follow it as I can.

Have a good rest of the week.

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