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What Does the New Colorado “Amazon” Tax Mean for You?

July 19th, 2017 by Filed under: Tax Blog, Tax Law Changes, Tax News

Who doesn’t love Amazon? Except for a few holdouts that still don’t feel safe sharing their personal payment information online, and a few others that think the Internet is really just a big front for the government to spy on us (apologies if you’re in this category, but if you are then you won’t see this anyways), everyone shops online, which includes visits to the largest online retailer, Amazon. Amazon makes online shopping easy, in most cases, and yes you can find a lot of great deals. Another great thing about shopping with the many retailers on Amazon, and online in general, is avoiding sales tax.

Boon for Shoppers, Bust for Government

No one likes to pay sales tax, but unless you live in Oregon, New Hampshire, Montana, Delaware or Alaska you live with it. It’s part of life and you can’t really get around it. However, when you shop online many retailers don’t charge you sales tax, no matter where you live. This is a great way to save money for shoppers because sales tax can really add up. On the other hand, it’s also a sore spot for state governments that are missing out on millions of dollars in tax revenue from residents that shop online. That’s where the new “Amazon Tax” comes into play. Although the tax in this case only applies to residents of Colorado, it has already become somewhat of a model for other states around the country.

Closing a Loophole

The new law, which took seven years and a hearing in front of the U.S. Supreme Court to finally become official, went into effect this month. The law was originally designed to overcome a loophole first put in place in 1992 when the Supreme Court ruled that customers do owe sales tax for purchases made online, but states cannot force retailers to collect that money. Because of that loophole shoppers have saved millions and the state of Colorado has lost about $350 million every year in online sales tax.

More Work for Retailers

The new law closes the loophole by forcing retailers that don’t collect sales tax to report the amount that Colorado customers spend. They also have to advise those same customers that they might owe taxes. The law is not a welcome one for online retailers, as they now must choose between collecting sales tax from shoppers upfront or pass that obligation onto the shoppers. In other words, shoppers would be left to pay the sales tax at a later time. If retailers decide not to collect sales tax they will be “taxed” with the burden of notifying shoppers of the possible “use tax” every time they make a purchase.

Shoppers Will Have to Pay Use Taxes

So what does this mean for shoppers? Are the days of sales-tax-free shopping over? Amazon already charges shoppers in most states sales tax, so that won’t change. However, many other online retailers that sell via Amazon do not. Therefore, you will likely see some changes. First off, if you spend more than $500 with a large online retailer and they don’t collect sales tax, you will receive a notice at the end of the year. You will also get a notice after every purchase that you could owe taxes. Use taxes are due on April 15 just like income taxes.

Get Ready to Pay Up

In reality, Colorado residents who shop online have always been responsible for use taxes anytime a retailer doesn’t collect taxes. However, most never paid them and the state had no way to track it down. With the new law in place that will all change. So, if you shop online in Colorado you better be ready to pay sales tax, either at the moment of purchase or at the end of the year when the taxman comes calling. It remains to be seen if this law will be replicated in other states around the country, but it seems inevitable. So even if you don’t live in Colorado but you shop online it might not be long before you get hit with an online sales tax, as well. Consider this your fair warning. Online shopping might never be the same.

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