As most of Colorado knows, Amazon suspended its affiliate program in Colorado yesterday.  Monday morning, many of us (myself included) awoke to find the following in our inboxes:

Dear Colorado-based Amazon Associate:

We are writing from the Amazon Associates Program to inform you that the Colorado government recently enacted a law to impose sales tax regulations on online retailers. The regulations are burdensome and no other state has similar rules. The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to "voluntarily" collect Colorado sales tax -- a course we won't take.

We and many others strongly opposed this legislation, known as HB 10-1193, but it was enacted anyway. Regrettably, as a result of the new law, we have decided to stop advertising through Associates based in Colorado. We plan to continue to sell to Colorado residents, however, and will advertise through other channels, including through Associates based in other states.

There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way. As we repeatedly communicated to Colorado legislators, including those who sponsored and supported the new law, we are not opposed to collecting sales tax within a constitutionally-permissible system applied even-handedly. The US Supreme Court has defined what would be constitutional, and if Colorado would repeal the current law or follow the constitutional approach to collection, we would welcome the opportunity to reinstate Colorado-based Associates.

You may express your views of Colorado's new law to members of the General Assembly and to Governor Ritter , who signed the bill.

Your Associates account has been closed as of March 8, 2010, and we will no longer pay advertising fees for customers you refer to Amazon.com after that date. Please be assured that all qualifying advertising fees earned prior to March 8, 2010, will be processed and paid in accordance with our regular payment schedule. Based on your account closure date of March 8, any final payments will be paid by May 31, 2010.

We have enjoyed working with you and other Colorado-based participants in the Amazon Associates Program, and wish you all the best in your future.

Best Regards,

The Amazon Associates Team

The reaction to this has tended to fall along typically uninformed party lines.  The Democrats tend to accuse Amazon of trying to avoid the new Internet Tax.  The Republicans claim that this is just a natural response, pulling out of a suddenly burdensome situation.  In fact, neither is quite right.

The law, HB10-1193, was one of the Dirty Dozen tax increases, an imposition of the state sales tax on a hitherto exempted category.  Internet sales in fact have been taxed, if the seller has a physical presence in the state.  Therefore, if you buy a washing machine from Sears online, since Sears has stores and warehouses in Colorado, you would have paid sales tax on that purchase.  Companies with no physical presence in the state have been exempted from that sales tax here and in most states, because there was essentially no way to enforce the tax.

The Internet Tax supposedly sought to capture an estimated $5 million in revenue that was being missed, on the theory that affiliates based in Colorado provided a physical presence to the company.  In theory, this was revenue that had migrated from taxable in-store sales to non-taxable Internet sales.  However, this was wrong in both theory and practice, and Democrats in the House who voted for it (including HD-6's current rep Lois Court) were operating under mistaken assumptions.  First, there's no way of measuring how many sales were made online that otherwise would have been made in stores, and how many were additional sales of items that would not have been available in state, or were from sales that were only available online.  Secondly, good luck getting Amazon to turn over customer records.

Now, when Rep. Court was confronted with the fact that this tax was uncollectable, that companies out of state couldn't be forced to comply, and that people might well alter their buying habits to avoid the tax, her reply was a consistent, "find me another $5 million."  In other words, she voted to pretend to raise $5 million and to make the state look foolish in the process.

Clearly, this proposed tax, whose enforcement would have fallen on the affiliates, would have created a huge administrative nightmare for the thousands of small affiliates in the state, many of whom would have folded up.  It was also predictable under those circumstances that companies like Amazon might have folded up and terminated their affiliate contracts.  But a concerted lobbying effort, led by my friends Marc and Claudia Braunstein, who own ShopAtHome.com, a business based entirely on affiliate relationships, and by the PMA, forced the State Senate to amend the tax so that the responsibility for tracking and paying the tax falls on purchasers now, rather than sellers.   In other states, Rhode Island and North Carolina, that change wasn't made, and Amazon pulled out.  But it was expected that this would save the affiliate relationships here in the state.

So here's where both sides are wrong, and where it becomes clear that Amazon has made at least a tactical error here.  Their action is clearly not an attempt to evade paying the sales tax.  The administrative burden of that tax falls on buyers, not Amazon, and if Colorado attempts to force a company based in Washington State to disclose the purchases of their Colorado customers, it's going to find itself needing a supplemental appropriation to the Attorney General's office.  In fact, the predictable failure to raise revenue, combined with the black hole of legal expenses, might actually allow this change in tax policy to qualify under TABOR.

But precisely because of that, the action makes no sense to the affiliates.  Without warning, thousands of Amazon's sales partners found their incomes eliminated, despite their efforts. This looks an awful lot like friendly fire.  These are business partners that the company has alienated and insulted.  These are your allies, Amazon.  What, have you been making a detailed study of the Obama Administration's approach to Britain?

Now maybe Amazon is trying to get their affiliates to put pressure on the state to repeal the damn thing altogether, and Greg Brophy, chief among the Senators Who Get It, is already talking about that.  But maybe Amazon is really ticked off at its affiliates.  After all, they only lobbied to shift the administrative burden, and onto their customers, at that, rather than to stop the tax altogether.  This is, at least, poor customer relations.  It's also possible that Amazon sees it as cowardly, since the affiliates were counting on Amazon to foot the legal bill to fight this thing.   Never mind that Amazon could have passed some of this cost along to its Colorado affiliates in the form of reduced referral fees.  But regardless of what Amazon thinks it's trying to accomplish here, it's awful PR.

In short, both the Republicans and Democrats are wrong.  Doing this doesn't make it any easier to fight the tax, and as a result, it's hard to see why it's a natural outcome of this otherwise horrible idea for a tax.  But in the end, Amazon's misfire is going to cost it a lot of the goodwill that it brought into this fight.

I'm here at the Tavern in Denver's Tech Center, live-blogging the SOTU with Liberty on the Rocks.  Both my reactions and that of this admittedly skeptical crowd.  Times are MST.

UPDATE: So he's proven that he's read the Constitution as far as the part about his speaking.

UPDATE: The Civil Rights movement was a tremendous thing.  I'm not sure that Bloody Sunday threatened the existence of the country the same way that, say, Gettysburg did.

UPDATE: Booing of Tim Geithner.

UPDATE: Elkhart, Indiana.  No, not a shout out to Evan Bayh.  Obama seems to give a speech there every other week.

7:15 - I wonder if the call for bipartisanship is actually going to carry much weight.  Sure, lose a few elections, and now you want to talk.

7:17 - Joe Biden looks like he's in love.  And not with Nancy Pelosi.  "It's time we got a government that reflects our decency."  Er, didn't we already elect you for that?

7:18 - "We all hated the bank bailout." Sure, and we all voted for Gulf War I, too.

7:19 - "To recover the rest, I proposed a fee on the biggest banks."  Uh-huh.  The class warfare isn't playing well here.

7:21 - Apparently, subsidies are exactly the same thing as cutting taxes.

7:23 - 2 million jobs created or saved.  Does anybody really believe this stuff?

7:24 - Did Harry Reid just yawn?

7:25 - Actual booing at the thought of another jobs bill. And by the way, nobody thinks the economy is actually growing again.

7:27 - People do like all this small business promotion.  I think they're wondering how he's going to pay for it.

7:29 - We want an $80 billion jobs bill, because the last one worked so well.

7:31 - Well, China's version of clean energy is nuclear.  Someone, I don't think that's on his docket.  And yes, he did forget to mention India.

7:32 - "I'm not interested in punishing banks"  Cut to picture of Chris Dodd. 

7:33 - Yes, we can see the results of investments in clean energy here in Colorado.  Where Vesta just shut down.

7:34 - Whoa! Nuclear? Off-shore drilling?  Can this be for real?

7:35 - Er, no.  Cap 'n' trade, under which electricity costs would "necessarily skyrocket."

7:37 - Seriously, isn't cost savings its own financial incentive?

7:39 - South Korea.  Good.  Panama.  Good.  Colombia.  Good.  Again, where's India?

7:40 - The final takeover by the "public option" for student loans.  Lots of booing at the 10-year forgiveness of student loads for careers in "public service."  And does anything think that the $10,000 tax credit is going to do anything other than raise tuition?

7:44 - "And by now it should be clear that I didn't take on health care because it was good politics."  Well, it didn't turn out that way, did it?

7:46 - "The process left Americans wondering, 'what's in it for me?'"  No, I think it left them wondering, what's in it for the next Senator to announce his support?

7:49 - I know he thinks it's a rousing battle-call to focus on health care reform, but I really can't imagine this is going to do any good.

7:53 - After proposing a freeze that would cut about 0.6% of spending, he's opposed to gimmicks.  Like, you know, Paygo.  Whoops!

7:56 - "A deficit of trust about how Washington works..."  Wonder where that came from?

7:57 - Waxman and Rangel applauding earmark reform?  OK, publishing the earmarks online is a good idea.  Just like, you know, putting bills online before they're voted on.

8:01 - OK, it's easy to cry, "hypocrisy" about blocking nominations, but this stuff needs to calm down.

8:03 - I'm not sure reminding everyone who's been in charge for the last few years is a good strategy.  And again, suddenly, without the 60-vote majority in the Senate, he's going to start talking to Repubicans.

8:04 - Who's idea of a joke was it to seat Al Franken behind the Joint Chiefs?

8:08 - We all like veterans.  We thank them for their service, and we owe them a lot.  But God forbid he should mention all the private efforts to support families.

8:10 - "Islamic Republic of Iran is more isolated."  Pardon me for being less-than-whelmed about these efforts.

8:12 - "America must always stand on the side of liberty and human dignity."  What was that about Iran, again?

8:16 - Right.  Our loss of faith in big media is because of sounds bites.

8:18 - And back to the soaring rhetoric for the big finish.  When he does that, he really does make you proud to be American.

Via the Wall Street Journal:

President Hugo Chavez ordered Sunday the seizure of a French-owned retail chain on accusations that it raised prices after Venezuela devalued the currency by half.

"Until when are we going to allow this to happen?" Mr. Chavez asked during his Sunday television program in reference to the alleged price hike by Almacenes Exito SA, headquartered in Colombia and controlled by French retailer Casino Guichard-Perrachon S.A.

The Venezuelan leader said that new law may need to be approved to carry out the nationalization. "I'm waiting for the new law to begin the expropriation process," he said. "There's no going back," he added.

Almacenes Exito saw some of its stores closed this week by government authorities on accusations that it was increasing prices regardless of Mr. Chavez's orders that retailers were not to adjust prices after he devalued the currency to 4.3 bolivars per dollar from the previous rate of 2.15 bolivars.

When inflation kicks in here, no doubt we'll be hearing about Ford's morally unacceptable price-gouging, too.  Not to mention blaming the banks for high interest rates.

The Denver Post is reporting that negotiators are nearing a deal on PERA, the generous defined-benefit plan that most state workers have benefited from over the years:

The major changes to the Public Employees' Retirement Association include increasing employee and employer contributions by 2 percent and reducing cost-of-living increases for current retirees from 3.5 percent this year, capping them at 2 percent....

Several issues remain to be resolved, most revolving around age of retirement and years of service needed to get full benefits, but both men said those issues could be resolved by the time lawmakers convene for their 120-day session next week....

So let's assume that accounting for the government worked the same as accounting for a private pension.  In fact, in this case, there's no good reason why it shouldn't.   Basically, the plan has assets and obligations, but both of those change over time.   So the inputs to the model are 1) Actuarial Assessments, and 2) Interest Rate Assessments. 

Actuarial assessments include things like Years of Service, Age of Retirement, Years of Benefits, Salary Increases (due to seniority), Benefit Increases (due to age).   Interest rate assessments include benefit inflation, health care inflation, discount rate, and return on plan assets.

The things that can be adjusted generally fall into Actuarial Assessments, and that's where the article focuses.  Retirement age and years of service all fall into this category.  What's critical is the stuff that's left out.  We have no idea what the plan's assumed rate of inflation, discount rate, rate of benefit inflation or health care inflation are, or what the assumed return on investment is.  We don't know what they've assumed them to be in the past.  If those numbers are unrealistic, or even aggressive, we'll likely find ourselves right back in the same place a few years from now.

Consider a simple scenario, where the plan assumes a constant 8% real return on plan assets.  Historically, this might be reasonable.  But if the bulk of the return is in the out years, the plan will have depleted its assets before those returns can catch up, and will run out of money.  (Cool graphs on this topic here.)  If you could forecast how returns would change over time, you'd have a more accurate model, but the fact is, as we've seen time and again, it's impossible to make those sorts of predicts 5 years out, never mind 25 years out.  Which means that the solvency of any defined-benefit plan is mostly guesswork.  Promises of long-term solvency are simply mirages.

Maintaining a defined-benefit for incoming and even current employees  is not realistic (promises made to those already retired must be honored).  The only fair way to move forward is to transition to a defined-contribution plan, which has only assets, and by definitions, no liabilities.  Unfortunately, the political will for this move doesn't seem to exist.

Governor Bill Ritter will not seek re-election.  The steady drip - drip - drip of bad news seems to have driven him from the race.

It seems as though at least two of these stories are connected, with the possibility that Ritter was using his personal cellphone for state business, and then shielding that usage from public scrutiny in order to hide his affair.  Of course, it could also be that he's not enjoying the job, isn't very good at it, and has had enough.  We'll know more tomorrow.

From the Republican side, the assumption is that CoDA has already named his successor in the race, and that it will be either for House Speaker Andrew Romanoff or Denver Mayor John Hickenlooper, both of whom have fairly high positives and a campaign base to draw from in heavily-Democrat Denver.  Ross Kaminsky analyzes the options here.  It's a good piece, but I think he gives Romanoff too little credit, and Hickenlooper too much.

Romanoff is already a statewide figure, with connections on the western slope and down south that Hickenlooper doesn't really have.  He was in the process of running a statewide race, and now won't have the sitgma of attacking a sitting Democrat.  On the other hand, he's been running to Bennet's left in this race, and now owns those positions, which might undermine his reputation as a moderate consensus-builder.  And he was the father of the failed Amendment 59, which would have gutted the Taxpayer Bill of Rights to fund the Teachers Unions.

Hickenlooper, on the other hand, has a Denver handicap that Romanoff has already overcome.  Denver doesn't scale well to the rest of the state.  It bears roughly the same relationship to the eastern plains, the high country, and the western slope that NYC has to upstate and Long Island - people don't much trust Denver.  They may well vote against a Denver mayor more quickly.  There's a reason that Colorado governors come from the legislature, and not from the Denver mayor's office.

Denver mayors have more power than Colorado governors when it comes to budgeting, which might actually strengthen the argument for a fiscally conservative Republican legislature, in a year when there are any number of already-vulnerable Dems.  Denver isn't a basket-case, to be sure.  But it has benefitted greatly from the Democrats' car tax in order to stay sane.  If Hickenlooper is the nominee, Republican City Councilman Jeanne Fatz will probably become veyr popular very quickly as a speaker on hidden lunacy in Denver's budget.  And Denver's share of the Stimulus Money will also come under closer scrutiny.

There's an assumption that either Romanoff or Hickenlooper would make things harder on a Denver Republican party struggling to recover from years of decline.  But if Hickenlooper is the nominee, the focus on his record from the McInnis campaign may actually end up helping us out.

So my money's on CoDA nominating their old bag man, Romanoff.

Since this possibility has been raised, I think maybe some ideas from outside might be helpful to avoid groupthink.

In my opinion, this move carries significant political risk, and will not likely achieve its intended objective.

Josh Penry as Lt. Gov won't placate the Tea Party people. It may well infuriate them even more. It won't raise McInnis's standing any, and they might well label Penry as a sell-out, based on a fairly pedestrian career move.  He'll be passing up staying in the state Senate where he could have held McInnis to his promises, for an opportunity to run interference for him. And it will totally freeze out Dan Maes, who at this point is their only opportunity cast a vote before everything's decided.

Ironically, Jane Norton's candidacy probably hurts this decision's effectiveness, as one of her main liabilities is her tie to Referendum C & D. If she had no choice but to support them, then Penry will have no choice but to support McInnis, who hasn't yet proven anything about himself to the Tea Partiers.

From Penry's point of view (and the party's, I think) it's a waste of his talents. Go back and look at a list of lieutenant governors. Yes, Gail Schoettler came within a thousand votes or so of making something from the office. But other than that, you have to go back to McNichols and 1956, 52 years, to find anyone who got elected to high office from being #2. McInnis ought to know that better than anyone, since Mike Callihan failed against him for Congress after being Lt. Governor.

In fact, Lt. Governor has been pretty much an unmitigated stepping-stone to obscurity.  Nancy Dick lost to Bill Armstrong for Senate.  Mike Callihan lost to McInnis.  Schoettler lost to Bill Owens, and Joe Rogers placed out of the money in the Republican primary in the 7th Congressional District's inaugural run. So if Penry just sacrificed a gubernatorial run in order to preserve that bright career, he may be on the verge of tossing that away, too.

I realize it's easy to carp from the outside.  But it's also sometimes easier to see that what looks like a really good idea based on traditional politics probably isn't as hot as it sounds.