Supreme Court to Consider Colorado’s Sales Tax Reporting Law

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The United States Supreme Court announced last week that it will hear a challenge brought by the Direct Marketing Association (DMA) regarding the constitutionality of a 2010 Colorado law requiring out-of-state retailers to either collect and remit sales tax for purchases made by Colorado residents or to inform their Colorado customers that they owe use tax on the purchases they have made.

Due to its reporting requirements, the Colorado law, signed into law by Gov. Bill Ritter in February 2010, was decidedly different from sales tax fairness legislation in other states, which addressed online retailers’ in-state business affiliates. The first of these “affiliate nexus laws” was passed by New York State in 2008. Affiliate nexus laws require remote retailers with a broad network of online affiliates acting as sales agents in the state to collect and remit sales tax. The New York affiliate law was challenged by Amazon and Overstock and two lower courts upheld the law. Ultimately, the companies asked the U.S. Supreme Court to consider the case but the court declined to hear the lawsuit.

The challenge to the Colorado law, however, has resulted in a seesaw legal battle that culminated in the Supreme Court granting a writ of certiorari to the case.
The DMA argues that the law “constitutes an unprecedented invasion of consumer privacy and unfairly discriminates against interstate commerce by targeting solely out-of-state merchants,” according to a recent DMA press release.

The state’s Revenue Department countered that the clause “was intended to foster an open national market, not ... to shield retailers doing substantial business within a state from reasonable state laws.”

In 2011, a judge granted DMA a temporary injunction staying enforcement of the law while the challenge is heard. In 2012, a U.S. District Court struck down the law as unconstitutional. However, in 2013, a federal appeals court ruled that the court had overstepped its jurisdiction and argued that a sales tax matter should be decided by a lower court, as reported by the Denver Post. In February 2014, the Denver Post reported that Denver District Court Judge Morris Hoffman had temporarily blocked the law.

Now, it will be up to the U.S. Supreme Court to decide the constitutionality of the reporting law.

In the meantime, Colorado has passed a revised sales tax law. In June, Gov. John Hickenlooper signed into law the Marketplace Fairness & Small Business Protection Act, a bill that requires remote retailers with nexus in the state to collect and remit sales tax on purchases made by Colorado residents. The law clarifies Colorado’s sales tax laws to stipulate that remote sellers that have an office, distribution facility, salesroom, warehouse or storage place in Colorado are required to collect and remit sales tax to the state, as reported by Deloitte’s Multi-State Tax Alert. The law went into effect on July 1, 2014.