States have adopted different approaches to attempting to require remote vendors such as Amazon to collect sales or use tax. Two of these approaches suffered a blow recently after a federal court in Colorado and a state court in Illinois ruled that newly enacted laws aimed at imposing sales and use tax collection or reporting obligations on remote vendors violated the U.S. Constitution's Commerce Clause.
While the rationale and result of these opinions were generally the same, the laws at issue were different. The recent court rulings highlight how the term "Amazon law" has come to signify more than one approach to enforcing sales or use tax requirements against remote vendors.
In The Direct Marketing Association v. Huber, No. 10-cv-01546-REB-CBS (D. Colo. 2012), the court permanently enjoined Colorado from enforcing a law it adopted in 2010, requiring vendors that lacked nexus with the state to notify their customers of their obligation to pay use tax. The state also required these vendors to mail annual reports to each customer and to the state that detailed the customer's purchases.
Other states, such as Oklahoma and South Dakota, have adopted "notification" statutes requiring online vendors to inform purchasers that they may be obligated to pay use tax on their purchases. However, neither of these states has imposed the mailing requirement adopted by Colorado.
In Illinois, a trial court judge in Performance Marketing Association Inc. v. Hamer, No. 2011 CH 26333 (Ill. Cir. Ct. April 25, 2012) found unconstitutional a state law that created a presumption of nexus for remote vendors with sales associates located in the state. This type of law is sometimes referred to as an affiliate or "click-through" nexus law.
Several have adopted affiliate or "click-through" nexus laws, requiring remote vendors to collect sales tax based on the physical presence of "associates" in the state.
These states include: Arkansas, Connecticut, Georgia, Illinois, New York, North Carolina, and Rhode Island. Vermont's law will take effect if 15 other states enact similar legislation. California's law will take effect Sept. 15, 2012 if no federal legislation is enacted before then.
Some states have focused on a remote vendor's connection with a distribution facility located within their borders as a means of requiring sales tax collection. Virginia recently enacted legislation requiring a taxpayer to collect sales tax if it is a member of a controlled group that maintains a warehouse or distribution facility in the state.
An increasing number of states have negotiated their own deals with Amazon in a bid to encourage the company to keep its distribution centers in their state. These states include Indiana, Nevada, South Carolina, Tennessee, and Texas. In Indiana and Tennessee, Amazon will not be required to collect sales tax until 2014 in exchange for locating facilities there. In Texas, Amazon will collect future taxes but will be relieved from paying back taxes assessed from 2005 through 2009.
By Steven Roll
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