A United States District Court (“Court”) has granted a preliminary injunction requested by the Direct Marketing Association (“DMA”) blocking the enforcement of a Colorado law requiring out-of-state retailers that do not have nexus or a collection responsibility for Colorado sales and use tax to perform burdensome administrative duties.
The Court agreed with DMA allegations that the reporting requirements of the law likely violate the Commerce Clause due to the fact that the law would discriminate against out-of-state retailers that do not collect Colorado sales tax by imposing on those retailers notice and reporting obligations that are not imposed on Colorado retailers.
In addition, the DMA claimed that the law imposes improper and burdensome regulation of interstate commerce for vendors whose only connection with customers in the taxing state is by common carrier or the United States mail. The Court agreed, and therefore, the preliminary injunction specifically limits enforcement of the law against those retailers that sell to Colorado residents but whose only connection to Colorado is through common carrier or U.S. mail.
The preliminary injunction shall remain in effect until modified or rescinded by further order of the Court. As a result, the Colorado Department of Revenue is not requiring taxpayers to comply with the reporting requirements, pending further court action.
Information regarding the original legislation enacted on March 1, 2010 was included in our Spring 2010 issue of our newsletter and in an on-line “Insight” article titled Nexus Presumption and Burdensome Reporting Requirements.
For further information, please contact Cathy Condrac, State and Local Tax Advisory Services.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.