Rocky Mountain Low: Colorado’s New “Track & Tax” Law Invades Consumer Privacy

by on March 12, 2010 · 6 comments

He climbed cathedral mountains, he saw silver clouds below

He saw everything as far as you can see

And they say that he got crazy once and he tried to touch the sun

And he lost a friend but kept his memory

-John Denver, Rocky Mountain High

We know that states are increasingly looking to tax anything and everything, including on the Internet. As Declan McCullagh reported earlier this week, Colorado and “fifteen other states have considered or are considering enacting laws targeting Amazon and other e-commerce companies that typically do not charge sales tax for shipments sent outside their home state.” These nexus taxes are #2 on the NetChoice iAWFUL list of bad legislation.

But Colorado’s recent “track and tax” law marks the most privacy-egregious Internet-related tax law we’ve seen.

Here’s the rub:  The Colorado state tax department will now have a listing of all purchases its citizens make from out-of-state companies. Why? So it can enforce its tax on purchases by way of the use tax that each of us owes to our government when sales tax isn’t collected.

HB 1193 was enacted last month as part of a package of revenue raising legislation. It originally started as an advertising nexus bill, but turned into a reporting bill when a lot of in-state companies that rely on affiliate advertising revenue complained that they would be harmed. Now it is consumer privacy that is harmed.

HB 1193 forces out-of-state retailers to track and report the purchases of Coloradans: (a) must file an annual statement with purchase data for each purchaser to the Department of Revenue; (b) must send buyers a summary statement of all their purchases so they know how much use tax to pay (like a 1099 form we receive on investments); and (c) on every invoice and receipt must notify Colorado purchasers of their need to file a sales and use tax return with the state;

The state revenue department just issued emergency regulations to resolve some but not all of the questions from retailers. Unfortunately, the department assumes that the legislature wanted notices shown on every single invoice — effective as of last week.  And the state hasn’t yet told online retailers how they would send snail mail reports to purchasers for whom they have no mailing address.

So that it can earn a few more bucks in sales tax, Colorado’s Department of Revenue will now know all the vendors where residents made online or catalog purchases from remote sellers. This would include sensitive items of a particular kind of merchandise — sex items, specialty books, items that reveal political views, etc.

When Colorado residents learn that this law makes them pay more taxes, they’re not going to be happy.  And they’ll be positively perturbed when they learn that the state is collecting information about their personal purchases. I would hope that other states will wait to see the blow-back from Colorado voters before copying Colorado’s law.

I see a new version of John Denver’s song:

He climbed the capitol dome, he saw silver dollars below

He saw every out-of-state purchase as far as you can see

And they say that he got crazy once and invaded consumer privacy

And he lost voter confidence but kept his memory—don’t do this again.

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