Sales Tax Slice: Following DMA v. Brohl, More States Require Out-of-State Sellers to Report Customers’ Purchases


Informant

In 2010, Colorado enacted a first-of-its-kind law requiring out-of-state retailers that do not collect Colorado sales tax to do the following:

  • notify their Colorado customers of their filing and payment obligations;
  • annually furnish their Colorado customers with information regarding their prior-year purchases; and
  • annually file with the Colorado Department of Revenue a detailed statement of each customer’s purchases.

Because the state purported to impose these requirements on retailers with no physical presence in the state, a dormant Commerce Clause challenge was soon brought aginst the law in the case of Direct Marketing Association v. Brohl. That case was settled earlier this year with the parties agreeing that Colorado would begin enforcing its reporting and notification law on July 1 and not impose penalties for sellers’ previous noncompliance. 

Colorado has adopted emergency regulations providing further detail on these requirements and creating a de minimis exception for sellers making less than $100,000 in gross sales into the state. 

Louisiana, Vermont, and Washington all recently followed in Colorado’s footsteps. These states enacted new notice and reporting requirements, similar to Colorado’s, which became effective on July 1 (Louisina and Vermont) and July 7 (Washington). While three other states—Kentucky, Oklahoma, and South Dakota—require that non-collecting retailers notify their customers of their use tax payment obligations, only Colorado, Louisiana, Vermont, and Washington require that non-collecting retailers report information on their customers to the state.

As fellow blogger Emilie Burnette recently pointed out, these reporting requirements may raise consumer privacy concerns. In any case, it seems likely that at least some customers will not appreciate having their tax-free online purchases followed by a use tax bill from their state’s department of revenue. It may be that some customers will respond by taking their business elsewhere. Nonetheless, at least some major retailers have announced that they will comply with Colorado’s law by reporting their customers’ purchases rather than collecting and remitting tax.

From a customer relations standpoint, are retailers better off collecting and remitting tax or instead reporting their customers to the state? Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn.

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