Colorado notice and reporting requirements declared unconstitutional.

• Author: Beavers, James A.

A district court held that a law, which imposed notice and reporting requirements on retailers that do not collect and remit sales tax on sales to Colorado customers, was unconstitutional because it violated the Commerce Clause.

Background

The Supreme Court held in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that under the Commerce Clause, a state cannot require retailers that have no physical presence in the state (out-of-state retailers) to collect and remit sales tax on sales made to residents of the state. The state of Colorado, frustrated by this prohibition on forcing out-of-state mail-order and internet retailers (in particular, internet retailing giant Amazon.com) to collect and remit sales tax on sales to Colorado residents, in 2010 passed a new notice and reporting statute (the Amazon law) designed to indirectly force out-of-state retailers to do so. The Amazon law and the regulations under it impose three requirements on retailers that sell products to Colorado customers but do not collect and remit sales tax. First, such retailers must notify their Colorado customers that they do not collect Colorado sales tax and, as a result, the purchaser is obligated to self-report and pay use tax to the Colorado Department of Revenue (DOR).

Second, retailers must provide each of their Colorado customers an annual report detailing that customer's purchases from the retailer in the previous calendar year, informing the customer that he or she is obligated to report and pay use tax on such purchases, and informing the customer that the retailer is required by law to report the customer's name and the total amount of the customer's purchases from that retailer to the DOR. However, a retailer is only required to provide the report to a customer if the customer makes purchases of more than $500 in a calendar year from the retailer.

Third, retailers must provide the DOR with an annual report concerning each of the retailer's Colorado customers, stating the name, billing address, shipping addresses, and the total amount of purchases from the retailer by each of the retailer's Colorado customers. The law exempts retailers with less than $100,000 in gross annual sales in Colorado from this requirement.

Challenge by the Direct Marketing Association

The Direct Marketing Association (DMA) is an association of businesses and organizations that market products directly to consumers via catalogs, magazine and newspaper advertisements, broadcast...