OUR THOUGHTS ON:

Colorado Reporting Requirements for Remote Sellers Declared Unconstitutional

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In round two, the Direct Marketing Association (“DMA”) persevered through the U.S. District Court of the District of Colorado (“Court”), which issued a permanent injunction against enforcement of a statute and regulations that required out-of-state retailers to perform notice and reporting obligations.

Under the respective Colorado statute and regulations, out-of-state retailers not obligated to collect Colorado sales tax are required to gather, maintain and report information, and to provide notices to their Colorado customers and to the Department of Revenue, which the DMA argued were improper and burdensome on interstate commerce. The state argued that such administrative burdens were not discriminatory, since out-of-state retailers could simply choose to comply with the law or voluntarily collect and remit sales and use tax. However, the Court rejected the state’s argument since the requirement to choose either compliance or voluntary collection was imposed only on out-of-state retailers, not in-state retailers.

In conclusion, the Court agreed that enforcement of such a reporting requirement on out-of-state retailers would, “by definition, discriminate against the out-of-state retailers by imposing unique burdens on those retailers.” Therefore, the Court concluded that the provisions directly regulated and discriminated against out-of-state retailers and, therefore, interstate commerce.

In addition, the Court found that the statute and regulations improperly burdened interstate commerce because they imposed a use tax collection burden on retailers with no physical presence in the state, in a direct violation of the bright line rule established by the U.S. Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298, 1992.

Accordingly, the Court found that the statute and regulations violated the Commerce Clause, and therefore, were unconstitutional.

Direct Marketing Association v. Huber, U.S. District Court. D. Colorado, Dkt. 10-cv-01546-REB-CBS, March 30, 2012.

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