On August 20, 2013 the Tenth Circuit of the U.S. Court of Appeals ordered a U.S. District Court to dismiss the case of Direct Marketing Association v. Huber (U.S. District Court, D. Colorado, No. 10-cv-01546-REB-CBS, March 30, 2012). In that case the District Court had issued a permanent injunction against the Colorado Department of Revenue which prevented the Department from enforcing the state’s sales and use tax notice and reporting requirements for out-of-state retailers (also referred to as remote sellers).
The Court of Appeals determined that under the federal Tax Injunction Act (TIA – 28 U.S.C. § 1341) the District Court did not have jurisdiction to prevent Colorado from collecting its sales and use taxes, and remanded the case to the District Court to reverse the permanent injunction. In DMA v. Huber the District court had ruled that Colorado’s notice and reporting requirements violated the Commerce Clause of the U.S. Constitution. The Appeals Court did not consider the merit of the constitutional argument.
The Notice and Reporting Requirements
On February 24, 2010, the Colorado legislature passed HB10-1193, which requires that remote sellers which do not collect Colorado sales taxes, and have sales of $100,000 or more to “Colorado purchasers”:
- notify customers that they are obligated to self-report and remit use taxes on their purchases,
- provide customers with an annual report via first class mail by January 31 which details the customers purchases, and notifies them that the seller is required to report the customer’s name and amount of purchases to the Department of Revenue, and
- provide a report to the Department listing the name, billing address, shipping address and total amount of purchases made by Colorado customers by March 1 of each year.
A “Colorado Purchaser” is one who makes a purchase and requests that it be shipped to, or delivered electronically (based on the “bill to” address) to an address in Colorado. Downloaded software is not taxable and need not be reported.
This case is significant in several respects. First, it appears to restrict a taxpayer’s ability to challenge state tax issues in Federal court. That is an issue which is beyond the scope of this article.
More importantly, the Court of Appeals ordered that the permanent injunction be reversed, and did not consider the constitutional argument raised by the Direct Marketing Association that Colorado’s statute violates the Commerce Clause. Therefore, that remains an unanswered question.
No enforcement for 2010 through 2013
On December 19, 2013 the Department of Revenue issued a Notice stating that it will not assess penalties for a non-collecting retailer’s failure to comply with the regulations for the calendar years 2010 through 2013. It also will not assess penalties for failing to provide annual purchase summaries to customers by January 31, 2014 or to provide the annual report to the Department by March 1, 2014 for purchases made during 2013.
Do you have any comments or questions? If so – please feel free to submit using the "Comment" feature near bottom of page.
Other recent “Local Sales Tax / Home Rule Issues” posts by Keith Crichton, CPA:
- Colorado Statute of Limitations: Watch Dates in Home Rule Cities
- Colorado Redefines Nexus: The Law of Unintended Consequences
- Tenth Circuit Reverses Colorado Permanent Injunction
- Colorado Taxation of Cloud Computing or “SAAS”
- Colorado Home Rule Creates Nation’s Most Complicated Tax Rules
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