United States

Colorado out-of-state seller use tax

TAX ALERT  | 

DMA to argue case against Colorado’s sales and use tax reporting laws before the US Supreme Court on Dec. 8, 2014

UPDATE: The U.S. Supreme Court has scheduled oral arguments in Direct Marketing Association v. Brohl for Dec. 8, 2014. Arguments before the Court will address whether the Tax Injunction Act bars federal courts from exercising jurisdiction where a state notice and reporting statute does not impose a tax but instead merely serves an administrative purpose for the state taxing authority.


Supreme Court agrees to review Colorado's remote sales and use tax notification requirements

UPDATE: On July 1, 2014, the U.S. Supreme Court granted the petition for a writ of certiorari filed by the Direct Marketing Association (DMA) in Direct Marketing Association v. Brohl. DMA is seeking review of the Tenth Circuit Court of Appeals ruling that the Tax Injunction Act bars federal court jurisdiction in DMA's challenge to Colorado's remote sales and use tax notification and reporting requirement under Colo. Rev. Stat. section 39-21-112 (3.5)(c) and (d).


DMA seeks appeal through US Supreme Court

UPDATE: On Feb. 25, 2014, the Direct Marketing Association (DMA) filed a petition for writ of certiorari with the U.S. Supreme Court seeking to appeal the Tenth Circuit Court of Appeals' decision in Direct Marketing Association v. Brohl, in which the Tenth Circuit Court of Appeals held that it lacked jurisdiction to hear the DMA's suit over Colorado's use tax notification law because the federal Tax Injunction Act bars federal court jurisdiction over state tax matters. This petition represents another avenue of approach to DMA's continuing challenge to Colorado's use tax comprehensive disclosure law.


Denver District Court preliminary ruling sides with DMA on remote sales and use tax notification

UPDATE:  On Feb. 18, 2014, Denver District Court Judge Morris Hoffman entered an order granting the Direct Marketing Association's motion for a preliminary injunction against the implementation of Colorado’s remote sales and use tax notification and reporting requirement under Colo. Rev. Stat. section 39-21-112 (3.5)(c) and (d). In Judge Hoffman’s 31-page decision, he found that a preliminary injunction was appropriate because the DMA had a reasonable probability of succeeding at trial in proving that the law discriminated against nonresident retailers and, if the law was allowed to go into effect, the DMA would suffer irreparable harm.

Judge Hoffman did note that his ruling is preliminary and that his final decision on the merits "may be very different."  More troubling, however, is that Judge Hoffman also noted that "requiring nonresident retailers to collect use taxes, and perhaps even penalizing them for failing to do so, might well be constitutional as long as the retailers do not thereby become liable for the taxes."  This distinction could suggest that Judge Hoffman believes that a collection and remittance responsibility can be imposed on a remote seller that does not have Colorado nexus as long as the remote seller cannot be held liable for the tax due in the event that the remote seller declines to collect and remit it. A telephone conference is scheduled for March 18 for the parties to discuss the next steps in this matter.


Colorado DOR provides guidance on sales tax collection for remote sellers

UPDATE:  On Dec. 19, 2013, the Colorado Department of Revenue issued Notice: Non-Collecting Retailer Reporting Requirements, providing guidance regarding Colo. Rev. Stat. section 39-21-112. The guidance outlines obligations of remote sellers that did not collect Colorado sales tax on taxable sales to Colorado purchasers between calendar years 2010 and 2013 following the Dec. 10, 2013 lifting of the injunction against enforcement of the statute’s comprehensive disclosure requirements. The department advised remote sellers that it would not assess any penalties for failure to comply with (1) the collection or disclosure requirements of Colo. Rev. Stat. section 39-21-112 during the period the injunction was in place, (2) the Jan. 31, 2014 deadline to provide annual purchase summaries to their customers, or (3) the March 1, 2014 deadline to provide the annual report to the department for 2013 purchases. The notice indicates that it is subject to revision, pending the outcome of litigation in state court challenging the law and requesting the issuance of a new injunction.


Federal District Court dissolves injunction against enforcement of use tax notice law

Update: On Dec. 10, 2013, the Federal District Court of Colorado carried out the orders on remand of the U.S. Court of Appeals for the Tenth Circuit in Direct Marketing Association v. Brohl and dissolved an injunction barring the enforcement of Colo. Rev. Stat. section 39-21-112. Under this statute, the state requires retailers that do not collect Colorado sales tax and whose gross sales in Colorado exceed $100,000 to either (1) collect and remit sales tax voluntarily, or (2) provide transactional notices to Colorado purchasers informing them of their duty to pay use tax, send annual purchase summaries to Colorado customers, and annually report Colorado purchaser information to the Department of Revenue.

Further, the district court dismissed the Commerce Clause claims made by the Direct Marketing Association on the grounds that the law does not discriminate against interstate commerce. The Direct Marketing Association has filed a motion for a preliminary injunction against the law in Colorado State District Court in Denver, and oral arguments are scheduled to take place on Jan. 7, 2014. However, the timing of the state district court consideration of this motion is very tight, as the deadline is Jan. 31, 2014 for remote sellers to send annual notices mandated under the newly live law to customers who purchased at least $500 in goods from the retailers in 2013.


Colorado out-of-state seller use tax continues to evolve

Update:  On Oct. 1, 2013, the U.S. Court of Appeals for the Tenth Circuit denied Direct Marketing Association’s request for an en banc rehearing of its Aug. 20 decision in Direct Marketing Association v. Brohl.  Because the Court of Appeals’ decision to lift the injunction issued by the District Court was based on a federal question (the appropriate application of the Tax Injunction Act), Direct Marketing Association may petition for leave to appeal to the U.S. Supreme Court. 

If no such petition is made, the petition is denied, or the U.S. Supreme Court upholds the Tenth Circuit’s decision, the case will be remanded to the District Court to lift its injunction, after which the Colorado Department of Revenue may begin enforcing the provisions of Colo. Rev. Stat. section 39-21-112.  In this event, it is anticipated that the District Court will hold additional proceedings and issue a decision on the merits.


On Aug. 20, 2013, the U.S. Court of Appeals for the Tenth Circuit issued its decision in Direct Marketing Association v. Brohl, holding that the U.S. District Court for the District of Colorado lacked jurisdiction to enjoin Colorado from enforcing a state law applicable to retailers (1) that do not collect Colorado sales tax, and (2) whose gross sales in Colorado exceed $100,000. The law requires such retailers to either (1) collect and remit sales tax voluntarily, or (2) provide notices to Colorado purchasers informing them of their duty to pay use tax, send annual purchase summaries to Colorado customers, and annually report Colorado purchaser information to the Colorado Department of Revenue.

Because the Court of Appeals’ decision was made on jurisdictional grounds, it did not evaluate the merits of the case, leaving open the question of whether the requirements imposed by Colo. Rev. Stat. section 39-21-112 and associated administrative regulations violate the Commerce Clause of the U.S. Constitution. Direct Marketing Association may file a petition for rehearing with the Court of Appeals or a petition for certiorari with the U.S. Supreme Court to seek to vacate the Court of Appeals’ decision and obtain a decision on the merits.

Should a petition be filed, the Court of Appeals’ order for the District Court to vacate its decision and lift its permanent injunction will be held in abeyance until a final decision on the jurisdictional issue is obtained. Remote sellers that do not collect and remit Colorado sales tax and exceed the $100,000 threshold should pay close attention to this case, as the Colorado Department of Revenue is likely to begin enforcing the provisions of Colo. Rev. Stat. section 39-21-112 and associated administrative regulations as soon as the District Court’s injunction is lifted.

AUTHORS


How can we help you?

Contact us by phone 800.274.3978 or
submit your questions, comments, or proposal requests.



Events/Webcasts

LIVE WEBCAST

Government contracting tax webcast

  • January 05, 2017

LIVE WEBCAST

What's next for BEPS: The multilateral instrument

  • December 14, 2016