The latest development in the fight over the Internet sales tax is a weird and unsettling one, to put it mildly.
This week, the Supreme Court declined to review a circuit court case, Direct Marketing Association v. Brohl, which has big implications for tax policy and consumer privacy alike. The basic gist of it is that some states want to tax online purchases made with out-of-state retailers, and to do so, they want to know in detail who bought what:
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.
And it’s not just Colorado that will be affected:
Colorado is not the only state pushing the requirement. Vermont will also make the same requirement three months after Colorado starts imposing the law. And other states including Alabama, South Dakota, Tennessee and Wyoming have approved similar rules.
The law upheld by this ruling has been dubbed the “tattletale” tax law because it requires reporting not merely on the amount spent on out-of-state purchases but on their content. This means in Colorado and these other states — and perhaps even more states soon — there will be a database documenting millions of online purchases, even when people buy embarrassing or controversial items (think “personal health products and politically-themed books and movies”) they wouldn’t want others to know about.
Beyond the grave privacy implications, it isn’t difficult to see how these rules make life difficult for businesses and consumers alike. It means extra work for retailers, who must file these reports, and it means shoppers will get an extra tax bill, apparently at the end of the year, which in some cases would be months after the purchase in question. That could be a nasty surprise for those who didn’t realize while shopping they’d have to pay taxes that aren’t shown at checkout.
Until now, Colorado’s Department of Revenue has not been permitted to enforce this rule, but if the court case is settled and the law upheld, it will presumably begin to do so next year. If this model becomes widespread in other states, I have to say the more traditional Internet sales tax — which is similarly onerous for businesses (especially small ones) but comparatively friendly to consumer privacy — begins to look like the lesser of two evils.