Supreme Court to Hear DMA Privacy Suit, Review Colorado Web Tax Sales Statute

By Alexander Ripps  

July 1 — The U.S. Supreme Court July 1 agreed to hear a case challenging a Colorado law requiring out-of-state retailers to report to the state the names, addresses and total annual purchases of their Colorado customers.

The court July 1 said it will review a case brought by the Direct Marketing Association (DMA), which seeks to overturn a ruling by the U.S. Court of Appeals for the Tenth Circuit that held that the Tax Injunction Act (TIA) barred federal court jurisdiction to enjoin the enforcement of the Colorado law.

“We are pleased that the Supreme Court has agree to hear this important case,” Peggy Hudson, the DMA's senior vice president of government affairs, said in a July 1 DMA statement. “DMA began this fight four years ago with the goal of protecting consumer privacy by safeguarding businesses from being forced to divulge their customers' purchase history to the state of Colorado. Along the way, the fight has broadened to encompass not only issues of privacy, but also fundamental constitutional questions about access to federal courts.”

The DMA's lead attorney, George S. Isaacson of Brann & Isaacson in Lewiston, Maine, told Bloomberg BNA July 1 that “the DMA is pleased the Supreme Court has decided to address the scope of the TIA.” He said the case involves constitutional questions that are important to retailers who offer their products in multiple states.

Disputes over the release of customer purchase information from online retailers, such as Amazon.com, haven't been limited to Colorado. North Carolina's Department of Tax Revenue was one of the first state tax agencies to face legal challenges over demands for Web customer data.

Court Challenges

The DMA initially brought its lawsuit in the U.S. District Court for the District of Colorado, challenging a reporting requirement imposed on out-of-state vendors that don't collect and remit state sales and use taxes. The law requires those vendors to provide their customers' purchase history information to the state, the DMA explained in its statement.

“In the lawsuit, DMA contends that the Colorado law constitutes an unprecedented invasion of consumer privacy and unfairly discriminates against interstate commerce by targeting solely out-of-state merchants,” the DMA said.

In 2012, that court ruled in favor of the DMA, calling the “Amazon law” unconstitutional for violating the dormant Commerce Clause of the U.S. Constitution. The court imposed a permanent injunction preventing the state from executing the law.

The U.S. Court of Appeals for the Tenth Circuit reversed the decision and dismissed the case, citing the lack of federal jurisdiction due to the TIA, 28 U.S.C. § 1341. An attempt by the DMA to have the case reconsidered en banc was denied.

After failing to get a full review from the Tenth Circuit, the case was removed to Colorado state court where the DMA won a preliminary injunction. Briefs for summary judgment in that case are due the week of July 7, Isaacson and Christopher Oswald, the DMA's vice president of state affairs, told Bloomberg BNA July 1.

Notice, Reporting Requirements

Oswald said the main issues in the case are the notice and reporting aspects of the Colorado law. “Those requirements are separate and apart from the taxation element,” he said.

Oswald noted that the Supreme Court's decision could have implications beyond Colorado, particularly in states considering similar schemes such as Michigan and Colorado.

Should the Supreme Court rule in the DMA's favor, Oswald said he feels confident about the DMA's chances of succeeding on the merits of the case.

“The underlying question of whether the notice and reporting requirements are constitutional or not is something we won on in federal district court. We also won a preliminary injunction in state court. So we feel pretty confident,” he said.

George S. Isaacson and Matthew P. Schaefer of Brann & Isaacson, in Lewiston, Maine, represented the DMA. John Suthers, Daniel D. Domenico, Melanie J. Snyder and Grant to Sullivan of the Colorado State Attorney General's Office, in Denver, represented the director of the Colorado Department of Revenue.

To contact the reporter on this story: Alexander Ripps in Washington at aripps@bna.com

To contact the editor responsible for this story: Katie W. Johnson at kjohnson@bna.com

Full text of the Tenth Circuit's opinion is available at http://www.bloomberglaw.com/public/document/Direct_Mktg_Assn_v_Brohl_735_F3d_904_2013_ILRC_2501_10th_Cir_2013/1.