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Colorado DMA “Amazon Tax ” Case Moves Forward

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Direct Marketing Association has continued its fight for consumer privacy with Colorado. Specifically, DMA filed its opening brief in the Supreme Court of the United States on September 9, 2014. The Supreme Court will hear the case during its upcoming term on or around December 8, 2014. In the state and local tax community the case has broad and interesting constitutional application.

For those who are not as consumed with the case as I have been, Colorado enacted a law that affected “non-collecting retailer.” Under Colorado’s law if a company made sales in Colorado over $100,000 and it did not have nexus then it had to provide notices to Colorado purchasers, send annual purchase summaries to the customers and send the report to Colorado. DMA challenged the Colorado law in federal court. DMA is a group of businesses and organizations that markets products using advertisements, the internet and catalogs. At trial, the DMA convinced the trial court that this law was impermissible. Specifically, DMA successfully argued that Colorado’s law discriminated against, and placed an undue burden on interstate commerce.

Colorado was unhappy, to say the least, with this decision and appealed the ruling to the 10th Circuit Court of Appeals. Colorado aggressively estimates that its residents do not remit some $172.7 million of use tax on e-commerce purchases. In play is the Tax Injunction Act (“TIA”) which is a federal law that says a federal court must defer to a state court in a state tax case. As such, the appellate court lacked the power (also called “jurisdiction”) to hear the case to begin with. Therefore, the 10th Circuit Court of Appeals reversed the ruling and did not discuss the merits of the case.

On July 1st, 2014, the Supreme Court of the United States announced it would hear DMA’s appeal. Specifically, the Supreme Court will look to whether a federal court can hear a constitutional challenge to a state tax.

The brief, which can be found here, can be most simply be broken into three arguments. First, DMA argues that the Tax Injunction Act does not apply to non-taxpayers who are not contesting state tax liabilities. Next, DMA appears to also argue that the 10th circuit erroneously interpreting Colorado’s law as a “collection method.” However, DMA correctly points out that the out-of-state sellers are not required to collect, report, or pay tax to Colorado. The final argument presented appears to allege while state courts have the jurisdiction to protect federal rights of state citizens, access to courts by non-state citizens is limited. This case seeks to reduce the burden and the barrier to entry for cases to be held in federal court.

DMA continues to maintain its position that “[t]he outcome of this case is critically important to DMA members and every business that operates across state lines.” It is such an important case, that DMA expect the U.S. Chamber of Commerce, the National Federation of Independent Business, COST, others to file briefs in DMA’s support. In response, Colorado is expected to file its brief around October 17, 2014

The SALT community will diligently monitor DMA’s progress in the coming months. If successfully, it may give companies a federal path to challenge the constitutionality of state tax laws. Often times, businesses believe a state court will show bias to a state law, and a federal court may take a more neutral approach. Hopefully if successful, DMA will level the playing field.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog .

Questions? If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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