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March 12, 2010 06:12 PM UTC

An Amazon loss would be very bad for Colorado

  • 28 Comments
  • by: DavidThi808

Remember the old adage be careful what you wish for – it may come to pass. If the state prevails over Amazon we are facing a significant hit on new business startups and job growth. This bill is a business and job killer – in the middle of a recession.

First off, I am not an opponent of adequate taxation. Nor am I opponent of taxes that hit me. In fact, I was one of those that was vocally upset when Jared Polis threatened health care over a tax increase on small business owners – like me.

Second, I agree it is unfair that Amazon does not have to pay sales tax while Target does. Clearly an unfair advantage (although many people, like me, buy from Amazon for convenience – not price).

Third, the state needs the money. We need it bad. And this is one of the few places we can go without a TABOR election (which our legislature is too chickenshit to ask for).

Ok, so why is this bad news? It’s bad news for two reasons. The first hits all online businesses and the second hits those selling digital goods. (This is discussed in the context of what the state is trying to accomplish, for Amazon to collect sales tax.)

First the hammer of doom for everyone.

Determining the taxes owed by an address – pretty simple. There are services you can buy that do this and your system can calculate that just as it calculates shipping. That part’s easy.

Now comes paying the taxes. Who do you pay? There are a gigantic number of taxing authorities in Colorado. Each has it’s own system for tax payment, each has it’s own rules. So we have to find out what is required for each area – what fees have to be paid, what forms have to be filled out, when they have to be filed.

Now multiply this by 47 states (3 have no sales tax). A company could be looking at 500+ entities it has to file with. This is not that big a deal for Amazon because it can be spread across so many sales. But for a small company just getting started, where they make 1 sale into a state, and suddenly get pulled into this mess for that state – that is a business killer.

For some it will mean the difference between success and failure. For the rest it means slower growth due to the significant effort on this rather than on growing the company. And both cases mean fewer jobs. A lot fewer because it’s the small companies that provide the vast majority of job growth in this country.

Second is the anvil for companies that sell digital goods.

I asked both the City of Boulder and the State of Colorado who gets the taxes under the specific scenarios of most of our sales. These were not hypothetical, these were existing scenarios.

First off, I still don’t have answers to half of them from the state Department of Revenue (motto – “we’re not doing anything”). Second, about half the ones I did get answers on, the state answers differ from the City of Boulder answers (Boulder has been very responsive – if Bill Ritter wants a competent director for the Department of Revenue – hire Boulder’s).

So companies selling digital goods now face getting guidance from 500 taxing authorities. And those authorities will conflict where 2 or 3 will all claim they get the tax on a given sale. We can’t collect it 3 times, and if we wait for them to work it out, the sale will go elsewhere.

Sales tax was designed around a physical good being sold at a physical location. Two people set up a coffee shop and they have a total of 2 taxing authorities. The nexus where they sell is very clear cut as the product is delivered there.

If Internet sales pay sales tax, then opening 1 coffee shop has the tax filing overhead of opening 500 – but it still has the profits of just 1.

I look back to when my company started about 5 years ago. If each new sale required discovering and then filing with the relevant taxing authorities. And many of them had been held up as we got a determination as to who got what part of the sale, we would not be in business today.

We can afford it now. But it will cost. And that cost is probably a couple of new jobs each year. Now a couple of jobs isn’t much – unless you’re one of those new hires and you now have a job.

I understand that the state is desperate for tax revenue. But killing all new online businesses, harming existing online businesses, and forcing software companies out of state – that’s not worth the small amount of money this generates.

The determination, collection, and payment of taxes should have as little impact upon people, businesses, and job growth as possible – not the most. Kill this and put a measure on the ballot to raise income taxes on the rich – I’ll fight for that. Because even if you collect twice as much from me in additional income taxes as you would get from the sales tax – it’s still less money out of my pocket.

And for all of you looking for a job, or looking for a better job – cross your fingers that Amazon wins.

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28 thoughts on “An Amazon loss would be very bad for Colorado”

    1. I’m sure you make some excellent points in this, but it’s very hard to take you seriously when you’re repeating Scott McInnis talking points verbatim in bold.

      1. I swear to god – no idea there was a match. I guess McInnis can be right once in awhile.

        And part of this will play to the Republican’s strength – if you’re against all new taxes then that means you will be against stupid new taxes.

    1. My concern is if my company has to report to 500 tax jurisdictions. That will be a tremendous hit on our growth. And that matters because that means fewer new jobs.

      Multiple that across every small company that sells on the Internet, and you’re talking a noticeable slowdown in jobs coming back. That I think is a big deal to you.

        1. But they can’t answer the questions we have. For example, we charge yearly for “support & updates.” Single fee that covers a service (tech support) and a product (new versions). So is that taxed as a product or no tax as a service?

          Neither the City of Boulder nor the State of Colorado has an answer – they don’t know. It’s sort of difficult to put “don’t know” as the tax amount.

            1. But I figured I should concentrate on closing sales, creating new versions of our software, and those other little details key to staying in business.

              This is the problem with the government response to all of this – hey why don’t you read all the applicable law and become an expert on tax law. I don’t and other business owners don’t because a) we’re not lawyers and so we aren’t going to be able to figure it out anyways, and b) we don’t have the time.

              Not to mention if every state does this, then you’ll be asking me why don’t I become an expert on all 50 states tax law…

              1. is learning what laws apply to you, and it’s not that difficult.

                In general, tax authorities will answer only the most general questions posed to them, unless you submit a written request for a letter ruling (which may require paying a user fee).

                You only need to know the law in the jurisdictions in which you have nexus.  If you have nexus in all 50 states, you have a pretty big operation…

                1. even though they don’t have nexus. By the same argument, we could have every jurisdiction across the country require we also file who bought what. That’s why this law succeeding would be so bad.

                  As to learning the laws that apply, yes we do need to. But if Colorado makes that onerous, then they kill companies (and jobs). Because companies have limited resources.

                  Again, this is a big problem with the viewpoint coming from the government – put all this extra work on companies. And in putting in the effort to comply, less effort is available to make a company successful.

                  The end result of this approach remains a business and job killer.

                    1. But the point remains, the reporting required of Amazon, when pushed to small businesses, hits all the same large problems we would face with sales tax. When do we report what to who? That’s the hard part. Collecting & remitting the tax – that’s easy.

                      Talk to people that own small businesses that sell on the net. Make sure you talk to a couple that sell digital products. You guys think it is so easy because you don’t understand what’s involved (and yes I sound like Steve Harvey when I say that).

                    3. The Colorado rules are quite clear as they apply to software (as such rules go).  If you had read them you would know that.

                      Since you don’t seem to have nexus anywhere but Colorado, I don’t understand why you are so concerned about what other states do.

                      Having run a multistate business for years, I can tell you that sending a letter (or an information return) is a lot easier than collecting and remitting tax.  That’s a simple fact.

                      Nobody likes paying taxes or making reports, but you’ve completely overblown the effect of sales taxes on small businesses.  

                    4. If David were smart, this sounds like an opportunity to design and market reporting software to handle just these kinds of problems for small businesses, since Internet taxation is only moving in one direction.

                    5. Then the Amazon law would not have been passed. That’s what is so dangerous about the Amazon law – if it holds up then all the other states can require reporting of us even though we have no nexus. That’s the crux of the law.

                      As to “software” – we’re still trying to get answers from DoR on some of our standard cases determining if that counts as software. And on some of the answers we have received from DoR and City of Boulder – they disagree. So something that needs to be taxed as “software” in one is not “software” in the other.

                    6. Likely that a business would have to have minimum contacts to be required to report, as well as some sort of nexus short of physical presence.  In any event, reporting is a light burden, unless your business is selling trinkets so your claim that is a software job killer is hyperventilating.

                      Colorado has a fairly unique system in that its home-rule cities can make their own sales tax rules.  Without changing the Colorado Constitution, I think that little can be done about that.

                    7. Where we have a customer in Colorado buying software where the developers are mostly in China and the server will be in Georgia, but will be initially configured in a virtual machine in Colorado – but the software will first be run in Georgia?

                      Does that get reported to Colorado, Georgia, or China?

                      As to the mess we have here with home rule cities, what makes you think other states aren’t equally messed up?

          2. A tax professional would be able to provide expert advice based on best practices of other similar organizations, bootstrapping your knowledge on the topic.  

            Granted, you might need to repackage your products and services to better fit the categories provided for in the statutes.  Private enterprise is (usually) rewarded for creativity.  Bureaucrats never are.

            But a few hours of professional guidance is worth it’s weight in gold.  The point of using or outsourcing your tax accounting is that they either already have the knowledge, or have the resources to get the answers.  If they don’t, then call the next vendor.

            If there is a gray area, then you can also demonstrate “best effort” to comply with the law.

            I don’t mean to sound glib, but David, you’ve really spent way too much time on this topic because I agree, you’re better off spending it on making money.

            I would no more try to do my own (complicated) taxes without professional guidance, as I would try to fix my way too complicated automobile by my self.

            1. Next step is the accountant. Part of why I’ve done this is because of the political angle. It boggles the mind that no thought was given to the cost of companies to comply with this. Nor to figure out what constitutes software and when it’s a sale.

              But there are a couple of good diaries coming out of this.

              1. Ironic as this may sound, the one good thing that lobbyists can do is to provide the techical expertise to help the legislators understand the implications of their proposed laws, thus making implementation that much more efficient.

                However, since there are very few true “gift horses” that come without strings, too much of the time, the lobbyist is either looking for a sweetheart law, or is threatening mayhem if it passes.

  3. Maybe you should spend your time working with a tax professional instead of composing diatribes on how oppressive the man is.

    And thanks for hiring cheap foreign labor.

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