Appeals court upholds Colorado use tax reporting law.

• Author: Beavers, James A.

The Tenth Circuit held that Colorado's sales and use tax notice and reporting law, designed to force noncollecting out-of-state retailers to report sales to Colorado customers and the state, does not violate the dormant Commerce Clause because it does not discriminate against or unduly burden interstate commerce.

The Facts

Colorado, like many other states with an unslakable thirst for tax revenue, was dissatisfied with its citizens' unwillingness to comply with its use tax laws and decided to try something new. In 2010, it passed a new notice and reporting law designed to dragoon retailers into its use tax enforcement efforts.

Colorado's notice and reporting law (Colo. Rev. Stat. [section] 39-21-112.3.5) was designed to improve the collection of use taxes when out-of-state sellers with no physical presence in the state sell to customers located in Colorado. The law requires retailers selling to Colorado customers that do not collect sales tax on the sales to (1) send a "transactional notice" to purchasers informing them that they may be subject to Colorado use tax; (2) send an "annual purchase summary" to customers who purchase more than $500 worth of goods in a year, with dates, amounts, and categories and another reminder that they may be subject to use tax; and (3) file an annual customer information report with the Colorado Department of Revenue. The law exempts from the reporting requirement retailers that made less than $100,000 of gross sales to Colorado customers in the previous year and that reasonably expect to make less than that amount in the current year.

Quite expectedly, out-of-state retailers were not thrilled with the new law, which they thought was unreasonable, burdensome, and unconstitutional. Thus, the Direct Marketing Association (DMA), a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the internet, challenged the law in federal court, arguing, among other things, that the law violated the dormant Commerce Clause because it discriminated against and imposed an undue burden on interstate commerce. In 2012, the district court permanently enjoined the law, finding it unconstitutional (Direct Marketing Ass'n v. Huber, No. 1:10-CV-01546-REB-CBS (D. Colo. 3/30/12)).

The Tenth Circuit then reversed that decision on the basis that the lower court lacked jurisdiction to decide the case because of the Tax Injunction Act (28 U.S.C. [section]1341), which requires that...