Adjustment to Internet sales tax law doesn't threaten privacy

The hubbub over Amazon.com's firing of its Colorado-based affiliates has given rise to a number of myths, chiefly that the Legislature's action created a new tax (it doesn't) and that the firing the affiliates in some way lets Amazon off the hook (again, no). The Colorado Fiscal Policy Institute spelled out what the law actually does in great detail in a whitepaper issued last week.

One interesting side issue arose from a resident who e-mailed policy analyst Alec Harris. The question: "Does this mean that when I purchase anything from Amazon.com, the company is obligated to let the state know what I purchased and at what price so the state can tax me? That really feels big-brotherish and scary – and not OK."

Again, excellent question. Here's Harris' response:

"Well actually it doesn’t work quite like that. The law requires two year-end notices to be produced by remote retailers:

"The first notice goes to customers. This notice must include (1) the total amount paid to the retailer in the previous year, and (2) a statement informing the customer that tax is owed on this amount. The notice must also include, if available, (3) dates of purchases, (4) amounts of each purchase, and (5) if any purchases are tax-exempt.

"The second year-end notice goes to the Colorado Department of Revenue. This notice shall only include the total amount paid to the retailer for purchases made by the individual in the previous year (i.e. #1 from above). No purchase dates, amounts, or descriptions are in this report. Just a grand total for the year.

"This is very similar to the federal 1099-INT process. As you are probably aware, the IRS requires interest-granting institutions (e.g. banks) to report total interest gains in the past calendar year simultaneously to customers and the IRS. In other words, Wells Fargo sends you a notice at the end of every year letting you know how much your savings account earned in interest, and also sends that amount to the IRS. The CO internet sales law does the same thing, but sends a detailed account to customers and only a total to the DOR."

Still confused, on this or some other sales tax issue? Send me your question, and I'll pursue an answer.