Colorado is a step closer to being able to collect Internet sales taxes following a vote in the state Senate on May 6.
House Bill 1295 readies the state for the federal Marketplace Fairness Act, which would allow states to tax Internet sales, providing the legislation is approved by the federal government. Internet retailers like Amazon.com would pay taxes to a central collection point. Retailers would pay the taxes directly to the state, which would then funnel revenues to local governments.
Representatives for local businesses testified at legislative committee hearings that it’s unfair that online retailers are not required to collect sales taxes.
“This is about fairness to our tax system, making sure that the brick and mortar stores don’t have a disadvantage to the online remote sellers,” said House Speaker Mark Ferrandino, D-Denver, a bill sponsor.
Ferrandino noted that mega-retailers like Amazon.com and Walmart support the legislation. Sales tax revenue collected through the bill is expected to pump more than $73 million into the state’s general fund in its first year of implementation.
Congress needs to pass the Marketplace Fairness Act in order for states like Colorado to collect taxes from out-of-state retailers. The Supreme Court ruled states cannot force retailers to pay taxes if they do not have an actual physical presence in the state, unless Congress changes the law.
In Quill Corp. v. North Dakota, the Supreme Court ruled in 1992 that a business must have a physical presence in a state for that state to require it to collect sales taxes. However, the court explicitly stated that Congress can overrule the decision through legislation.
President Barack Obama has indicated he would support the legislation if passed by Congress.
Under the proposed legislation, out-of-state retailers with fewer than $1 million in annual sales would be exempt from the federal act.
The Colorado bill passed the Senate on a 21-14 vote, after having previously passed the House on a 37-23 vote.
Rep. Frank McNulty, R-Highlands Ranch, accidently voted for the bill when it was in the House last month. He said in a recent conversation that he meant to vote against the legislation.
“No consumer is going to pick up and move because their state taxes Internet sales,” McNulty said. “But you may see a shift in where businesses locate their businesses because of tax increases.”