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Colorado’s Marketplace Fairness and Small Business Protection Act

  • Apr 16, 2014 | Gail Cole

 Colorado: still seeking online sales tax revenue.

Update, 6.9.14: Governor John Hickenlooper (D) has signed the updated Amazon tax, the Marketplace Fairness and Small Business Protection Act, into law. It takes effect July 1, 2014.

The Colorado House has approved House Bill 1269, legislation that would “modify and expand the state’s sales and use tax nexus provisions.” Like many states, Colorado is seeking a way to collect tax revenue from remote sales of taxable goods not currently subject to sales tax.

In 2010, the state imposed a use tax notification requirement on out-of-state sellers not collecting tax on sales to Colorado residents. That requirement, called Colorado’s Amazon tax, has been hotly contested and is currently on hold. Before it was held up in the courts, however, its moniker Amazon.com severed ties to Colorado affiliates.

The new Marketplace Fairness and Small Business Protection Act seeks to level the playing field so that goods subject to sales tax when purchased at a store in Denver or Fort Collins would be subject to sales tax if purchased online. As currently written, the bill would:

  • Expand the types of activities that create nexus in Colorado for out-of-state retailers;
  • Clarify that the expanded nexus provisions create a rebuttable presumption that the specified activities create substantial nexus for the out-of-state retailer;
  • Require an out-of-state retailer to collect and remit sales and use taxes if the retailer contracts with the state for the sale of taxable personal property or services; and
  • Limit the effect of the expanded nexus provisions to sales and use tax (not income taxes, franchise taxes, or other taxes).

Supporters call it a tool of fairness and detractors call it “a tool to lead a witch hunt against small Internet-based businesses.” Many, like Democratic Representative Angela Williams, are hoping it will “give us a mechanism to collect taxes we should be collecting already.” Indeed it could. If it becomes law, the Marketplace Fairness and Small Business Protection Act could generate an additional $67 million in annual sales tax revenue.

The federal version

In name, Colorado’s Marketplace Fairness and Small Business Protection Act openly references the Marketplace Fairness Act of 2013 (MFA), federal legislation that would give states the right to impose a sales tax obligation on certain out-of-state sellers. MFA passed the United States Senate in May 2013 and the House Judiciary Committee discussed the bill in March 2014--focusing on the need to balance a fair market and a fair burden.  As yet, no further action has been taken.

Online sales tax is a divisive issue. Those in favor argue that it creates the level playing field necessary for brick-and-mortar stores to remain viable in an increasingly wired world. Those opposed argue that it creates an undue burden on online retailers selling into multiple states. Federal lawmakers have as yet been unable to reconcile the two sides; as a result, more and more states are taking matters into their own hands. The Colorado legislation is the latest.

Many watchdogs have predicted the need for a legal solution to this ongoing issue, and yet last winter, the United States Supreme Court refused to weigh in on New York’s Amazon tax law. The New York law stands, as do Amazon tax laws in Missouri, Minnesota and Maine. The high court has been asked to hear the Colorado Amazon tax law but has yet to determine whether or not it will take it on..

It’s worth noting that Amazon severed ties to affiliates in Maine, Minnesota and Missouri in order to avoid the tax obligation. It collects sales tax in New York, where it has a growing physical presence. Amazon has also cut off affiliates in Colorado and would not have to collect sales tax if the Colorado Marketplace Fairness and Small Business Protection Act were to become law.

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photo credit: alles-schlumpf via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.