Comments on Free Colorado: The Amazon Tax and the Affiliates Amendment

Stephen, My point all along has been that the stat...

2010-03-26T09:48:18.476-06:00

Stephen, My point all along has been that the state cannot unilaterally impose its rules on out-of-state businesses. The state needs federal approval. That's largely what you're saying as well. However, you're wrongly assuming that "minimum contacts" justifies any and all state controls on an out-of-state business.

You also continue to downplay the fact that Amazon is *at this moment* embroiled in a legal suit with New York over just this matter.

The critical point in this Amazon did not just arbitrarily cut off its Colorado Associates. Rather, Amazon did so with the reasonable expectation that it is the Associates program -- if anything -- that gives Colorado jurisdiction to saddle Amazon with Colorado tax rules.

-Ari

Ari-- Sorry I didn't see your response earlier, b...

2010-03-25T19:16:51.939-06:00

Ari--

Sorry I didn't see your response earlier, but Jason L was correct that I was referring to the minimum contacts test under the Due Process Clause. In addition to numerous court cases, there are entire chapters of law case books (indeed, entire books) written on this topic, so I'm not going to worry about a lack of evidence. You can start with Int'l Shoe Co. v. Washington, 326 U.S. 310 (1945) and work forward.

Under the current due process analysis, a state can exercise jurisdiction if the defendant has sufficient minimum contacts in the state, but this doesn't require any physical presence. Generally, solicitation of business within a state is sufficient. But much less activity can suffice. I would refer you to McGee v. Int'l. Life Ins. Co., 355 U.S. 220 (1957), where the US Supreme Court held that a California court could properly exert jurisdiction over a foreign insurer "which, except for the policy in question, had never solicited or done any insurance business in [California]." See 20 Am. Law Rep. 1201, Sec. 5. The court's reasoning was that "it appeared that the [insurance] contract was delivered in the state, the premiums were mailed form there, and the insured was a resident of the state when he died." Id. Additionally, merely designing and manufacturing a piece of equipment with the knowledge that it will be used in a certain state, is enough to subject one to jurisdiction of that state's courts. E.g., Gillins v. Trotwood Corp, 682 So.2d 693 (Fla.Dist.Ct.App. 1996). See the cited A.L.R. article for numerous other examples in the same vein.

Here's what I'm NOT saying: I'm not saying these cases are correctly decided (or that today's Supreme Court would reach the same conclusion). I'm also not saying there's a clear-cut constitutional answer to the Amazon issue ("sufficient minimum contacts" is a vague enough standard that it's frustrated lower courts since the day it was announced).

I'm certainly not saying that there's a clear answer in the specific area of sales and use taxation. Jason's reference to Quill is right on point. But I think the Colorado legislature is trying to be clever (never a good idea), by emphasizing that the tax is imposed on the Colorado purchaser, not the out-of-state corporation.

What I AM saying is that this present bill (regardless of its flaws) is not an obvious violation of the Interstate Commerce Clause. It may offend your interpretation of the ICC, and I always give your interpretations serious considerations. There may even be Supreme Court justices who would agree with you. But striking down this bill on constitutional grounds would at the least be a very close legal question; at most it would be a marked departure from current jurisprudence.

I believe that Stephen is thinking of the "minimum...

2010-03-16T10:55:18.508-06:00

I believe that Stephen is thinking of the "minimum contacts" analysis under the Due Process Clause (usu. having to do with personal jurisdiction - whether one may be made to answer to a state court). Under that analysis there may be jurisdiction without physical presence in a state.

The out-of-state imposition of sales and use tax, however, must both comport with due process and pass a "substantial nexus" analysis under the Commerce Clause, which does require some physical presence. See Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

Stephen, You're totally wrong when you claim that ...

2010-03-12T18:33:23.813-07:00

Stephen, You're totally wrong when you claim that "it's well settled constitutional law" that out-of-state businesses with no physical presence are already subject to state jurisdiction. (Why do you think Amazon is currently involved in a legal suit regarding its Associates "presence?") If you doubt this, go ahead and try to find some evidence for your assertion, and feel free to write back when you're prepared to present that evidence. Thanks, -Ari

Ari, I think this is an excellent analysis. Howe...

2010-03-12T18:21:20.896-07:00

Ari,

I think this is an excellent analysis.

However, as the person who "exasperated" you with my comments about the bill, I have to say you are wrong in your assumption about my beliefs. I was speaking (I thought clearly; I guess not) about what the bill says (or doesn't say) about affiliate programs.

Simply stating what the bill says is not an expression of my opinion, which most definitely is not that "Colorado Legislators are above the constitution."

My argument all along has been that the words of the law do not target affiliates, and I think from your assessment above, we agree on that point. The only point of disagreement seems to be whether affiliates would matter in a court challenge, thereby justifying Amazon's actions. I think Amazon's actions are not justified, you think they are.

I am not a lawyer; if you are, I'll accept your interpretation. If not, let's just agree to disagree.

Thanks for the stimulating discussion; I've found it very interesting.

Best Regards,
Richard

Ari--I agree that the Amazon tax is a bad policy i...

2010-03-12T17:40:18.767-07:00

Ari--I agree that the Amazon tax is a bad policy idea, but I have to differ with you a bit on your legal analysis. First, it's well settled constitutional law that a person or entity with no physical presence in a state can still be subject to that state's jurisdiction if they have sufficient contacts in the state (e.g., by selling goods to people within the state). Given this well-developed area of law, I don't think the Amazon law does anything too earth shattering in that area.

Second, sales taxes are paid by buyers, not sellers. This isn't often appreciated when people buy things in stores because the state is able to commandeer the merchant into acting as a collection agent (something that proponents of a national sales tax should think about). If the seller happens to not be located in the state's boundaries then the state will have a hard time arguing that it can force the seller to collect the tax. I haven't read the actual Amazon tax bill, but based on your excerpts & descriptions it looks like the law acknowledges this twist, because it "only" requires the merchant to inform the buyer that it's his responsibility to remit the sales tax to the state. I gather there may be penalties if the merchant doesn't provide this notice, but this certainly isn't the first Colorado law that has been imposed on a company like Amazon--it's just one that Amazon has made a big deal out of publicly.

All that said, I still think it's a bad idea. Although, at the same time I think the tax would ultimately end up hurting those who support higher taxes, because people are going to be more outraged by having to fork over sales tax separately, in a lump sum (months after making the purchase) than they would be under the pay-as-you-go system under which most sales tax is collected now. Just like how more people would be upset by high income tax rates if they had to pay at the end of the year, rather than through wage withholding.

Exactly. Thank you, Ari.

2010-03-12T15:55:51.165-07:00

Exactly. Thank you, Ari.