It’s In The Mail (Update)

Update: It appears that the claim that Colorado’s regs require disclosure of the item purchased is not accurate, and that I’ve fallen victim to, and am perpetuating by repeating, false information. If so (and I believe now it is), I apologize to every person I made stupider. Mea culpa.

Remember when you used to actually have to go to a store (pronounced, “/stôr/”) to buy stuff before you had the internet? Good times, right? But with the shift to online buying came the bane of a bureaucrat’s existence, loss of sales tax revenue. Without funds, they have no fiefdom can’t make your world wonderful.

And despite sales tax being terribly regressive, it’s beloved by governments everywhere, as it’s collected when your wallet is already out by someone else, who suffers your ire even though they only collect, not charge, it. But the shift to online shopping, combined with the Supreme Court’s Quill decision, stood to choke the life out of state and local governments. All that money changing hands, and they couldn’t get any of it.

Sure, they could pass laws requiring residents to keep track of their own purchases, calculate the sales tax and pay it as a “use tax,” but there was a problem: nobody would do it.*

Colorado, not satisfied with having a Rocky Mountain high, sought to make an end run around Quill. While the Court held that states could not compel out-of-state sellers with no in-state presence to collect and remit sales taxes, it didn’t hold that the state couldn’t require sellers to tell them stuff so they could find out which of their citizens were cheating the state out of its loot.

Online retailers in America will soon be required by law to disclose to state governments what purchases their customers – meaning, you – have made.

That extraordinary situation is the result of a long-running legal case that the US Supreme Court this week refused to hear. This means a decision by the Tenth Circuit [PDF] requiring out-of-state retailers to report to the Colorado state government the details of all purchases – including what that purchase was and who bought it – stands.

So if you bought a dildo in Denver, some bureaucrat is going to be informed about it.

It’s not just that Colorado passed a law requiring out-of-state sellers to inform them of the sale, but the details of the sale as well. The sordid details. The details you might prefer remain between you and your computer.

The 10th Circuit’s opinion wasn’t a deep dive into propriety, but rather a fairly obvious end-run around Quill, accepting the premise that it was a controversial decision and limiting it to its most narrow interpretation. The Supremes won’t force** sellers to collect taxes? That means anything other than taxes was fair game.

The circuit feigned application of scrutiny under the dormant Commerce Clause, but it was a slam dunk analysis. States need money. Brick and mortar stores have to pay, so it doesn’t discriminate against online retailers and interstate commerce. The court ignored the cost of compliance, putatively for every state and local government that wants in on the deal,

Even if we limit our comparative analysis to the regulatory requirements imposed on in-state retailers and out-of-state retailers, DMA has not demonstrated the Colorado Law unconstitutionally discriminates against interstate commerce.

In addition to collecting sales taxes, holding them in trust, and remaining liable for any sales and use tax due on a transaction, see Colo. Rev. Stat. §§ 39-26-105, -118(1), instate retailers must comply with numerous requirements, including obtaining a license; calculating the state and local tax due while accounting for any tax exemptions; filing a return; remitting the tax to the State; and maintaining various records. See Colo. Rev. Stat. §§ 39-26-101 to -129.

So because states can indiscriminately burden businesses over which they have power, they can burden businesses over which they have none. Interesting how downward spirals are used to justify their continued downward spiral. Save your pennies, kids, because there’s going to be a huge (read, yuuuge) tax bill coming when you least expect it.

The obvious problem with the circuit’s approval of Colorado’s law is that it eliminates any privacy one might have in online purchases.

The executive director of NetChoice – a trade association of e-commerce businesses that includes eBay, PayPal, Google and Facebook as members – Steve DelBianco, said the decision “set the stage for a rude privacy shock to American consumers.”

“State governments will receive data about residents’ purchases, including personal health products and politically-themed books and movies,” DelBianco noted.

The exec director of the American Catalog Mailers Association (ACMA), Hamilton Davison, is also extremely concerned. “Consumers, particularly those who buy from catalogs and e-commerce merchants, put considerable trust in the businesses from which they make the most personal of purchases,” he noted. “This decision undermines this trust by requiring remote sellers to report to state tax collectors on the buying habits of their customers, including health care products, apparel or other sensitive items.”

Your personal peccadilloes are no longer between you and analbeads.com, and somewhere in the bowels of a government boiler room there will be bureaucrats chuckling over your preference between Viagra and Cialis. That’s bad enough, since local retailers may have to collect taxes, but don’t have to tell the government what you bought in the process.

But there are levels of privacy that remain to be plumbed. With a database of your purchases, not only will the government enjoy your preferences and needs, but will know how much money you spent, when you spent it, where you spent it, when it comes time to prosecute a defendant. They claim you’re a drug dealer? They can prove you bought a bunch of cool stuff that your Dairy Queen salary can’t justify. So what if grandma left you an inheritance. It’s your problem to disprove their evidence, and now they have the evidence.

The virtue of being taxed a hundred different ways is that you never know how deep into your pocket the government hand goes. The virtue of requiring reporting of online shopping is that it becomes part of the massive database the government will have on you, on all of us, about every aspect of our lives.

Privacy for its own sake should be a sufficient reason to challenge the government knowing everything you do. But privacy for the sake of reconstructing a narrative to be used against you, to connecting dots that put together a story that they can sell to a jury, adds injury to insult.

*The compliance rate for payment of “use tax” was noted to be 4% by Justice Anthony Kennedy, which would seem shockingly high.

**While states can’t “force” sellers to collect taxes, the decision doesn’t prevent sellers from voluntarily collecting taxes. See how that works?

20 thoughts on “It’s In The Mail (Update)

  1. Grock

    I can’t say I’m surprised at this development. And dismayed that I’m not surprised. [Ed. Note: Balance of comment deleted.]

      1. Grock

        Ooops my apologies not what I meant to do. My intent was to describe ways to maintain purchasing privacy not meant as a how to in order to circumvent tax law. Thanks for the correction.

        1. SHG Post author

          I sincerely appreciated your intentions, but this being a law blog and all, there are places we can’t go here. Sorry.

  2. Shannon Severance

    I bet most of that 4% compliance is big ticket items that have to be registered or licensed with the state. In other words vehicles, planes, boats, motor homes, cars, etc.

      1. Syme

        Does anyone buy yachts? In the General Aviation world, the aircraft is owned by a Delaware corp, and the stock of same is what is bought/sold.

  3. PVanderwaart

    My wife (who is responsible for our household being in the 4%) tells me that the Obama Administration would not nominate anyone for office who didn’t pay their use tax. Or nanny tax, I suppose.

    I’ve long thought that the states should get together and form a compact as to what “use taxes” on out-of-state purchases should be, all have the same rules, and set up a clearing house to facilitate collection and compliance. At any rate, I don’t see that the state needs to know what the exact item is. They only need to know if it’s taxable in the particular state in question.

    1. SHG Post author

      Since states tax different items at different rates, there’s a plausible reason to know what the item is. Not that it alters the impact. But that still accepts the premise that a hundred different taxing methods obscuring what we really pay in taxes is a good idea, especially when sale/use taxes are the most regressive possible.

      1. Derek Ramsey

        It will not stop at knowing what the item is, but include how an item is used. For example, in some states an auto repair shop can buy paint and materials tax-free if they are consumed in the repair. Or they can choose to pay the tax and then not charge their customers tax.

      2. Syme

        Not just states, not just counties, but also transit areas, school districts, etc. Think Venn diagrams with limited intersections. I saw a mention of one and only one house that had a given “tax rate” — I suspect there are likely lots of those out there.

        May you live in interesting times….

  4. Skeptical

    This story that apparently started in “The Register”, and was picked up and repeated widely, is a perfect example of the “fake news” phenomenon. It’s outrageous, but plausible, evokes strong emotions, but is completely false. Note specifically 4(a)(iv)

    Quoting from the Colorado Code of Regulations: REGULATION 39-21-112.3.5

    4) Obligation to give the Department notice of purchases made by Colorado purchasers
    a) Any non-collecting retailer who is required to provide a notice described in paragraph 3) must file a report with the Department containing the following information:
    i) The name of each Colorado purchaser;
    ii) The billing address of each Colorado purchaser, if the information was provided to the non-collecting retailer;
    iii) The shipping address of each Colorado purchaser, if the information was provided to the non-collecting retailer;
    iv) The total dollar amount of Colorado purchases made by each Colorado purchaser during the prior calendar year. No other information about the purchase shall be provided.

    Quoted from page 24 of Colorado Rules.

      1. Dick Taylor

        And this is why we keep reading. Because you care as much as anyone about whether it’s accurate, and correct it if it’s not. Thanks!

        BTW, the fact that you get snitched out to your state of residence still sucks. And despite the fact that analbeads.com doesn’t have to say what exactly you bought for $119.95, well …

        1. SHG Post author

          When someone tells me I’ve made a substantive error, I take it seriously and check because the last thing I want to do is perpetuate misinformation. If the info is correct, then I blew it and have to eat my mistake. I take all comments like this seriously. I may not always agree, which pisses people off, but it’s not because of knee-jerk refusal to admit I’m wrong. If I am, I am.

          1. st

            The Register is usually a decent source. My BS filter was triggered and I found the article on my own, but stopped there.

            My mistake.

            It appears that The Register got their misinformation from a spokesperson for NetChoice, whose language does suggest the reporting of items purchased. It’s possible that early drafts of the bill contained such language, but I didn’t follow the rabbit hole there. I’ve believed one impossible thing before breakfast, only 5 to go.

            The implications are still terrible, and the 10th’s finding of “no undue burden” will hammer millions of small businesses. This decision demonstrates once again the complete disconnect between the judiciary and economic reality in the trenches.

            1. SHG Post author

              The circuit decision was a punt. Had that been my limited focus, I would have been fine, but I bought the line. I didn’t dig deep enough before writing about it, and deserve to take my licks. But yeah, the 10th Circuit’s “no undue burden” decision is total, unmitigated crap.

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