A federal court ruling that effectively reinstated a Colorado law collecting taxes on residents’ out-of-state online purchases is raising questions about an Internet sales tax bill now pending in Congress.
At issue is who should be in charge of collecting sales taxes when a resident in one state buys a product online from a business in another state.
Brick-and-mortar stores, which are always required to collect and remit sales taxes to the government, believe they are uniquely disadvantaged compared to an large online retailer like Amazon, which is only required to collect sales taxes when the buyer is in a state where Amazon has a physical presence.
But Amazon, which now has a physical presence in almost every state, supports a controversial federal bill, the Marketplace Fairness Act (MFA), which would force all online businesses to collect sales taxes anywhere the resident lives.
The bill handily passed the Senate but remains in a subcommittee in the House. A large number House Republicans are vocally opposed to the bill.
Florida Republican Rep. Ron DeSantis called the idea a “21st century version of taxation without representation,” because businesses will be subject to state governments where they don’t have a say.
But while Colorado has a slightly different solution to the Internet tax problem, it may still run afoul of the same criticisms. Instead of forcing businesses to remit sales taxes, they hoped to force businesses to report their customers.
Critics maintain that Colorado’s law doesn’t address the inherent problems in the MFA: Businesses in one state should not be subject to the laws of another.
Americans for Tax Reform federal affairs manager Katie McAuliffe told The Daily Caller News Foundation that Colorado’s version of the law remains “unenforceable.”
“If it’s a business in Colorado, then the state can go after them, but Colorado doesn’t have an ability to cross their borders and tell other businesses how to do their reporting,” McAuliffe said.
Colorado requires out-of-state businesses to file a report on any Centennial State customer listing purchases, names and addresses to help the state enforce its tax laws.
While the residents ultimately pay the tax, critics say Colorado’s law still requires it to govern out-of-state businesses.
While it’s the residents in charge of paying the tax, the law still allows Colorado to govern out-of-state businesses — the linchpin of criticism against the MFA.
The state’s bureaucrats would also compile annual reports on any resident that purchases businesses online.
McAuliffe also questioned the legality of that level of that policy. “It really amounts to a warrantless search,” she told TheDCNF.
The version of MFA that passed the Senate in May does not include annual reports on residents, but requires states looking to collect online sales taxes to simplify their tax code and provide free tax software to businesses to ease their responsibilities in the process.
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