If you spent more than $500 with a single online retailer during the past 10 months and didn’t pay state sales tax on the purchases, you may receive a mailing this month notifying you to cough it up.
A state law enacted last spring, HB 1193, applies to out-of-state online retailers with at least $100,000 of annual sales in Colorado that do not charge customers state sales tax. The law requires them to notify Colorado buyers of the sales tax they owe on purchases, if those purchases total more than $500 for the calendar year. The notification, which should include the dates, amounts and categories of each purchase made during 2010, must be sent via first-class mail by Jan. 31, or else the retailers can face fines.
Under the new law, Internet retailers are also required to submit a more general notice to the Colorado Department of Revenue by March 1, one that outlines the amount spent by each individual who bought more than $500 of goods online without paying state sales tax.
In what some say was a political statement, after the bill was signed into law, Amazon.com terminated the accounts of its Colorado-based “associates,” who until then had received a portion of sales to consumers who reached Amazon.com from the associates’ websites.
Department of Revenue spokesperson Mark Crouch acknowledges that some are concerned that the new law violates privacy rights, but he stresses that the notice to the state will not specify which products were bought. The notice will simply list the total amount spent, if in excess of $500, and it will be up to the consumer to decide what, if any, sales tax is owed on those purchases. For example, online purchases of things like food and prescription drugs are not subject to state sales tax. Tangible personal property, on the other hand, is subject to the tax unless it is specifically exempted. Crouch notes that if a consumer bought $500 of food and $500 of books online, he or she would just owe the 2.9 percent sales tax on the books, and the state would never see that breakdown.
“We don’t know whether it’s $500 of peanut butter and $500 of books,” he says. “We just know it’s $1,000.”
Still, critics claim that even providing the state with the name of an online retailer where goods have been purchased can be incriminating. The Direct Marketing Association, a national trade group, filed suit against the state — specifically the executive director of the Department of Revenue — on June 30, claiming that the new law violates consumers’ privacy, discriminates against out-of-state retailers, infiltrates proprietary customer lists, exposes security risks and chills free speech.
Asked how the state will crack down on those who don’t pay their online sales tax, Crouch says, “We expect to fully enforce the law.”
But he adds that in reality, the cases that will raise eyebrows are those in which the consumer pays little or no taxes even though the amount reported to the state by the retailer is significant. If $1,000 is reported by Amazon.com, and the purchaser pays nothing in taxes, “you will come to our attention,” he explains.
“If there is a big discrepancy, it would be a red flag,” Crouch says.
He adds that the department has no plans to add staff or resources to help enforce the new provisions.
Retailers will be fined $5 per customer for failing to provide notice of the tax requirement to consumers, and $10 per customer for failing to provide notice of the annual sales amount to the Department of Revenue. Since the bill went into effect on March 1 of last year, the new regulations apply only to purchases made in the last 10 months of 2010.
Rep. Claire Levy, D-Boulder, recently told Boulder Weekly that the new law is one she would consider repealing if it hasn’t raised much sales tax revenue.
According to Crouch, Colorado residents who receive a notice from an online retailer and believe they owe state sales tax must fill out a Consumer Use Tax Return, Form DR0252. It is available online at http://bit.ly/onlinesalestax.