Things don’t look so good for Amazon laws. The laws, which are the efforts of states to extend nexus to cover sales from remote vendors, have suffered several setbacks in recent weeks.

Both Colorado and Illinois laws were found to be unconstitutional. In Illinois, a state court held that the Illinois Amazon statute violated both the Commerce Clause of the Constitution and the Internet Tax Freedom Act. In Colorado, a federal court upheld an injunction and found that the Colorado law was unconstitutional.

The Illinois law, as with the laws in a number of states, requires out-of-state and Internet vendors to collect taxes on purchases made by in state residents even though the vendors have no physical presence in the state. Nexus, the required relationship between the out-of-state business and the state that allows the state to require collection of the tax, is based on two clauses in the Constitution: the Commerce Clause, which prohibits states from unduly burdening interstate commerce, and the Due Process Clause, which requires a minimum connection between a state and an entity it wishes to tax.

The Colorado law, basically an attempt at an end run around the nexus issue, required notification by remote vendors to in-state purchasers of their obligation to pay use tax. The vendor was also required to report total sales of each purchaser at the end of the year both to the purchaser and the state.

“The Illinois case is the first victory against any of the Amazon laws,” said Steven Roll, assistant managing editor for state tax at Bloomberg BNA. “The only other case was in New York. The law was upheld there at the trial court and the appellate level, but that litigation is still pending.”

“A month ago, the Amazon laws were looking really strong, then these two rulings changed everything,” he said.

“In a couple of weeks there have been two landmark cases that have shown that the states are overreaching in their attempt to regulate interstate commerce,” agreed Rebecca Madigan, executive director of the Performance Marketing Association, the organization that brought the Illinois suit.

“The Colorado decision presented a privacy problem,” noted Madigan. “It’s one thing to order a gardening book, but if you order, for example, AIDS drugs online, that information goes to the person’s home and to the government. That is an egregious violation of someone’s privacy.”

“This is fuel for the federal solution,” she added. “These cases are further proof that Congress needs to step in and act. There are two bills in Congress that we believe would be a solution, and have a good chance at passing.”

The bills, one in the Senate and one in the House, are essentially the same, according to Madigan.

“Both say that a business does not need physical presence to be obligated to collect,” she said. “All retailers must collect all sales taxes for all states. So no change is required for state sales tax policies, and that’s important for a number of reasons. It’s easy to implement, Republicans like it because it preserves states’ power, and Democrats like it because it allows states to generate more revenue.”

Amazon, the big-box retailers and all the retail associations support these bills, she observed. “There’s tremendous industry support and political support. We just have to worry that bipartisanship is not popular in Washington right now.”

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