State Internet Use Taxes: Amazon v. Colorado

SRS’ Paul Koenig wrote a post on peHub about a week ago regarding recent Colorado legislation that requires companies selling into Colorado to file paperwork with the State to assist with collecting use taxes. In that post, we questioned the steps Amazon took in reaction to the legislation. We didn’t question the reaction. We know why Amazon objected. We just questioned what it did to express that displeasure.

Later that day, Paul attended a meeting at Appian Venture’s office where John Morse, the Colorado State Senate Majority Leader, spoke about the new law. He told us about the difficult budget issues Colorado is facing with the downturn in the economy and the increase in state expenses. The obvious bottom line was that Colorado is looking at Internet use taxes as a fast and easy way to raise some badly-needed revenue. It has a lot of company in looking through that particular candy store window, including the State of California.

The problem with this particularly temptation for Colorado is that the maximum estimated increase in revenues from this controversial law is around $5M. Colorado is facing a $1B per year budget problem. Even if the new law works as planned, which is highly questionable, it doesn’t move the needle on solving the problem. And the downside that comes with the law is that it is taking up a lot of the legislature’s time and energy with all the effort that has been put into supporting it against the fights from Amazon and others, and it arguably gives Colorado a reputation of not being a business-friendly environment.

If Colorado and other states want to solve their budget issues, they need to spend their efforts on initiatives that have the potential for bigger impact. That’s the way entrepreneurs run their businesses. The good ones think about the best use of their time and their company’s resources, and then focus all their efforts on those projects. They tend to ignore anything that’s not going to be material to the company’s results, even if it could add some amount of revenue, because it would not be the best allocation of limited resources.

Colorado needs to take a lesson from this playbook.