The General Assembly is close to finding a way to collect hundreds of millions of dollars in sales tax that Colorado consumers don’t pay when they buy from certain online retailers.
In the past week, the House and Senate have worked on three bills that would put Colorado in a position to simplify its tax structure and make it part of a federal solution to the online sales tax dilemma.
The House Finance Committee last week approved two bills to begin that process: House Bill 13-1295, which puts Colorado into position to participate in the federal Marketplace Fairness Act; and HB 1288, a bill designed to streamline the sales tax process.
The third bill: HB 1312, which was to begin immediate collection of online sales taxes, was killed by that same committee when its sponsors couldn’t promise that Colorado wouldn’t wind up in court again.
The Democrat-controlled General Assembly in 2010 passed HB 10-1193, to require online retailers to report to the state how much Colorado citizens owed in sales taxes for those online purchases. However, that law was challenged in court by the Direct Marketing Association. A Denver District Court judge issued a permanent injunction against the bill, and the case is now awaiting appeal with the 10th Circuit Court of Appeals.
During an April 24 finance committee hearing, Rep. Daniel Kagan, D-Cherry Hills, questioned whether the 2013 legislation would put Colorado right back in court. He noted that HB 1312 not only required online retailers to report their Colorado sales, but required them to collect and remit sales taxes as well. “This bill is a risk,” said committee Chair Rep. Lois Court, D-Denver, but “our brick and mortar companies are risking their futures every day, and I want to take the risk (on voting for the bill) on their behalf.”
But the committee voted 8-5 to kill the bill, with Kagan and Rep. Jenise May, D-Aurora, joining the committee’s six Republicans in opposition.
The other two bills fared much better, although not without substantial changes.
HB 1295 would allow Colorado to participate in a federal National Marketplace Fairness Act, which grants states the authority to compel online retailers with $1 million or more in annual sales to collect sales and use taxes at the time of transaction. The federal Act also requires states to simplify their sales tax laws as a condition for inclusion in the Act. The U.S. Senate has now voted twice on the measure, including a 75-22 vote on April 23. It is scheduled to take a final vote on the act on May 6, according to Senate sponsor Sen. Rollie Heath, D-Boulder.
Under the bill, the Department of Revenue is required to provide online retailers with a database of local taxing jurisdiction boundaries and sales tax rates, and to act as a central collection point for those taxes. Rep. Amy Stephens, R-Monument, told The Colorado Statesman recently that the federal Act allows for the use of several federally-certified software products which hold retailers harmless if the software makes errors.
That’s now part of HB 1295; Ferrandino asked the finance committee to amend the bill to swap out the Department of Revenue database for the federally-certified software.
HB 1295 was endorsed by Richard Kaufman of Greenwood Village-based ShopAtHome.com. If the company’s name is familiar, it should be: owner Marc Braunstein was one of the most ardent opponents of the 2010 legislation. This time, however, Kaufman sang a very different tune on behalf of the company.
“This is exactly the way to go,” Kaufman told the committee. “These taxes are owed now” but because of a 1992 Supreme Court decision, states have been unable to collect them, he explained. But if Congress passes the Marketplace Fairness Act, Colorado will be able to collect those taxes and he urged the committee’s support.
While almost every major online retailer, including Amazon, has lined up to support the federal law, that wasn’t enough to persuade House Republicans to support Ferrandino’s bill. The only Republican vote the bill got on the House floor on April 26 was from Rep. Frank McNulty, R-Highlands Ranch. Stephens spoke in favor of many aspects of HB 1295 during second reading debate on April 25. But she also attempted to amend the bill to turn it into an interim committee study, to allow for full discussion by business interests and the Department of Revenue. Stephens was excused on April 26 and did not vote on the bill. She later told The Statesman she would not have voted for the bill because she wanted the interim study, and she also had concerns about language on a home rule cities opt-in. “Right idea, but more to do,” she said.
HB 1295 got approval from the Senate finance and appropriations committees this week, along party lines. It got a quick second reading approval Friday night. Senate Republicans were no more supportive than their House colleagues, arguing that the bill raises taxes on Coloradans. It is expected to get final approval from the Senate on May 6.
The last bill, HB 1288, to simplify the home-rule sales tax structure, saw the most change in its trip through the House. The bill is not specifically designed to address the online sales tax issue but it does address a common complaint made by online retailers about the complexity of Colorado’s sales and use tax system. As introduced, HB 1288 requires the Department of Revenue to convene a group that would develop a uniform list of taxable and non-taxable goods and services. The bill applies to the state’s 68 home-rule cities, each which have their own tax bases, collection and audit policies.
The House Finance Committee, which dealt with HB 1288 during its lengthy April 24 hearing, approved a strike-below amendment to ask the Department of Revenue to make recommendations on a unified sales and use tax base that is revenue-neutral. The amendment requires the Department to consult with the Colorado Municipal League and Colorado Counties, Inc., in developing those recommendations. While CML was neutral on the bill when it was introduced, CML General Counsel Geoff Wilson told the finance committee the group now supports it as amended. At one time, the state sales tax base was broader than Denver’s, but over time the state has granted 172 tax exemptions, he explained. This is a proposal to study a uniform sales tax base for both the state and local municipalities, he said.
HB 1288 passed the House on a bipartisan vote of 50 to 15 on Monday, April 29. It was approved by the Senate Finance Committee on May 2 and the appropriations committee the following day. The bill is currently awaiting action from the full Senate, where it is sponsored by Sen. Pat Steadman, D-Denver.