News and Insights

U.S. Supreme Court Asked to Review Controversial Colorado Sales Tax Law

Tax Development Sep 07, 2016

In an effort to overturn a Colorado law that Direct Marketing Association (DMA) says places undue burden on out-of-state retailers, on August 29, 2016, the U.S. Supreme Court was asked to review the Tenth Circuit Court of Appeals’ (10th Circuit’s) Direct Marketing Association vs. Brohl decision that upholds Colorado’s notification and reporting requirements. Under Colorado’s notice and reporting law, out-of-state retailers that do not collect sales tax on their sales to Colorado customers must:

  • Notify their Colorado customers of their sales and use tax filing and payment obligations;
  • Annually furnish to Colorado customers, in a form prescribed by the Department of Revenue (“Department”), information regarding the customers’ purchases from the retailer during the prior year; and
  • With respect to each Colorado customer, annually file with the Department a detailed statement of sales made to such customer during the prior year.

In 2010, Colorado enacted the requirements listed above. DMA filed suit in U.S. District Court challenging the constitutionality of the law. The U.S. District Court issued a permanent injunction against the Department’s enforcement of the law, finding that it was discriminatory and placed undue burden on interstate commerce. The Department appealed, and the 10th Circuit lifted the U.S. District Court’s injunction, finding the federal district court lacked jurisdiction under the Tax Injunction Act (TIA) to impose the injunction. Following that decision, DMA filed suit in Colorado District Court, who issued a preliminary injunction against the Department’s enforcement of the law in February 2014. Around the same time, DMA also petitioned the U.S. Supreme Court (“Supreme Court”) to issue a writ of certiorari on the TIA jurisdiction issue. Its request was granted, at which point the Colorado District Court case was put on hold pending the Supreme Court’s decision. In March 2015, the Supreme Court reversed the 10th Circuit’s decision, holding that because DMA’s lawsuit did not block the application, assessment, or collection of Colorado sales and use tax, it was not prohibited by TIA. Consequently, they remanded the case back to the 10th Circuit. The 10th Circuit still ultimately reversed the U.S. District Court’s decision and removed the permanent injunction, but they did so based on the finding that Colorado’s notification and reporting law was not unconstitutional and was therefore enforceable, rather than prohibited by TIA, which brings us to the present request by DMA. 

It remains to be seen whether the U.S. Supreme Court will hear the case. If the Supreme Court does not take the case, this will be the law of the land in Colorado.