In a decision that will significantly impact Colorado taxpayers who buy goods from online retailers, on February 22, 2016, the U.S. Court of Appeals for the Tenth Circuit (“Appellate Court”) reversed the district court’s summary judgment, finding that the state of Colorado’s notice and reporting requirements did not unduly burden or discriminate against interstate commerce.
In 2010, the state of Colorado imposed notice and reporting obligations on out-of-state retailers, who are not obligated to collect sales tax. These obligations include:
- Sending a “transactional notice” to purchasers informing them that they may be subject to Colorado use tax;
- Sending purchasers who buy goods from the retailer totaling more than $500 an “annual purchase summary,” which includes the dates, categories, and purchase amounts and reminds purchasers of their obligation to pay use tax; and
- Sending the Colorado Department of Revenue (“Department”) an annual “customer information report” listing customers’ names, addresses, and total amounts spent.
Direct Marketing Association (DMA) challenged the law, arguing it was unconstitutional because it unduly burdened and discriminated against interstate commerce. The district court agreed with DMA and permanently enjoined the Department from enforcing the law. The Department appealed. This reversal by the appellate court removes the district court’s injunction and allows the Department to enforce the aforementioned notice and reporting requirements. Please see Direct Marketing Association v. Brohl, No. 12-1175 (10th Cir. 2016) for the full opinion.
When it comes to sales and use taxes, the e-commerce industry has proven to be a complex and challenging issue for states. As such, it is not surprising that states have taken steps to close the loop on tax collection and remittance. What is worth noting, however, is the uniqueness of Colorado’s approach. While other states have chosen to address this issue by passing “click-thru” or “affiliate” nexus laws, which impose tax collection obligations on remote sellers who enter into agreements through which customer traffic is directed to them via links on resident’s websites, Colorado has instead chosen to require remote sellers to provide the state with purchaser information on qualifying sales as set out above. The state has indicated it plans on enforcing this decision and will require retailers to send information to the state and, in turn, may use this information to send use tax notices to Colorado purchasers. Colorado’s law impacts both remote sellers and Colorado purchasers. It results in an additional administrative burden for remote sellers and possibly privacy implications to consumers. Ryan will continue to monitor this development to see if any other states choose this course of action in seeking sales or uses taxes on e-commerce sales.
TECHNICAL INFORMATION CONTACTS:
Jeremiah T. Lynch
Principal
Ryan
212.871.3901
jeremiah.lynch@ryan.com
Andrea Piersma
Manager
Ryan
425.440.2333
andrea.piersma@ryan.com
- Topics
- Transaction Tax
- Retail
- Colorado