Most Colorado Residents Oppose Reporting Law: NetChoice

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By Tripp Baltz

Coloradans are concerned their privacy will be invaded by a state law requiring remote vendors to report consumers’ purchases to the state if they don’t collect sales and use taxes on those purchases, according to a new poll of some 500 state residents.

The results of a NetChoice survey released Feb. 2 show a majority of those polled say the state shouldn’t be collecting personal information on their shopping habits. NetChoice, who is suing South Dakota over its new online sales tax law, is a trade association representing leading e-commerce businesses working to protect free enterprise and free expression on the Internet.

Some 78 percent of Coloradans said the state shouldn’t force companies to turn over information on their online purchases, including the customer’s name, billing and shipping addresses, and the amount spent on purchases.

According to the poll, 67 percent said the Colorado law violates their expectation of privacy from government intrusion into their online and catalog purchases, NetChoice said. Eighty-four percent said that when making online purchases, their privacy is “very important” and another 14 percent said it is “somewhat important.” Two percent of those polled indicated privacy wasn’t an important factor.

The General Assembly passed the reporting law in 2010 to cover out-of-state vendors that don’t collect and remit sales taxes to the state. A February 2016 ruling by the U.S. Court of Appeals for the Tenth Circuit upheld the law as constitutional. The U.S. Supreme Court declined to hear an appeal challenging the law late last year ( Direct Mktg. Ass’n v Brohl, U.S., No. 16-267, cert. denied 12/12/16 ; Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, cert. denied 12/12/16 ).

An injunction against the law in a state court case is expected to be lifted soon, allowing Colorado to begin enforcing the reporting requirement.

Similar notice and reporting bills have been introduced this year in state legislatures in Arkansas, Hawaii, Nebraska and Utah amid a surge of interest among lawmakers in capturing lost revenue from untaxed remote sales. Alabama already has announced plans to introduce a similar bill.

‘Rude Privacy Shock.’

“Colorado consumers are in for a rude privacy shock when this law goes into full effect,” Steve DelBianco, NetChoice Executive Director, said in a statement. “In many cases, linking a particular retailer to a specific customer will give the state information on that individual’s health concerns, political leanings, sexual orientation, personal tastes, and financial circumstances.”

By collecting and reporting shipping addresses, the state will learn when Colorado consumers have their purchases delivered to a different address than where they live, “potentially revealing personal and very private relationships,” DelBianco said.

The poll demonstrated that residents also view the law as a misguided way to spur out-of-state retailers to collect and remit sales taxes, DelBianco said. Sixty percent said they consider the law to be equivalent to a statewide tax increase, he said.

The law was an attempt to get Colorado around the U.S. Supreme Court’s foundational physical presence standard affirmed in the 1992 Quill Corp. v. North Dakota ruling. That ruling, which the South Dakota law and a frenzy of other new state regimes is designed to challenge, prohibited states from requiring companies to collect and remit sales taxes if they have no physical presence in the state.

Idea Backfiring

“Clever but untested ideas have a way of backfiring,” DelBianco told Bloomberg BNA. “The Colorado ‘tattle-tale’ law is one such idea that other states should be wary about copying.”

At least five states—Arkansas, Hawaii, Kansas, Nebraska and Utah—have proposed 2017 legislation to enact some form of reporting and notice requirement on out-of-state sellers that don’t collect in-state sales taxes. Not all are as stringent as Colorado’s, which provides for fines on retailers that fail to report.

Also, many of them impose only the notice requirement—meaning companies must inform customers of their obligation to pay sales taxes—but not the requirements for reporting purchases to the state, DelBianco said.

Still, the overwhelming rejection of the law by Colorado residents “should give other states pause,” DelBianco said.

Deeply Concerned About Privacy

The polling shows the majority of the citizens in Colorado are deeply concerned about their online purchases and privacy,” Rep. Chris Holbert (R), Senate Majority Leader in the Colorado General Assembly, said in a statement. “The online purchases from Colorado citizens should be protected information—which our current online purchase law does not protect.”

The department, as the state taxing authority, routinely receives sensitive and private taxpayer information, which it has been entrusted to compile, secure, and maintain, Lynn Granger, spokeswoman for the department, told Bloomberg BNA.

The department, like the Internal Revenue Service, receives sensitive information from taxpayers concerning their social security number, dependents, medical expenses, investments, assets, gambling debts and gains, and charitable contributions to religious organizations, she said. State law requires the department to keep this information strictly confidential.

“Any CDOR employee who violates this duty of confidentiality faces mandatory dismissal and would be subject to criminal prosecution,” she said, citing the state statute.

‘Limited in Scope’

Additionally, the report retailers provide is limited in scope, Granger said, “It encompasses only the name, billing and shipping addresses and total annual dollar amount of each customer’s purchases.” The law prohibits the identification of particular items purchased from retailers.

Amy Stephens, former state representative and the House Majority Leader during the debate on the bill (H.B. 10-1193), said consumer privacy was always a chief concern. “Today, after numerous court battles, this issue is a reality at our doorstep for Colorado citizens, and we must protect them from this intrusion,” she said.

The survey was conducted by Morar Consulting and has a margin of error of 4 percent.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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