Supreme Court Won’t Hear Colorado Online Sales Tax Dispute

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By Tripp Baltz

Dec. 12 — A dispute over a Colorado law that imposes reporting and notification requirements on out-of-state retailers won’t get U.S. Supreme Court review.

The high court’s Dec. 12 decision to deny two petitions for review—one filed by the Direct Marketing Association and the other a conditional cross-petition filed by Colorado—means that any prospects for the court to reconsider its foundational physical presence standard for vendors to collect and remit state sales and use taxes are on hold, for now. The denial also means the Colorado reporting and notice requirement remains in full effect ( Direct Mktg. Ass’n v Brohl, U.S., No. 16-267, cert. denied 12/12/16 ; Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, cert. denied 12/12/16 ).

The court denied DMA’s appeal of a February ruling by the U.S. Court of Appeals for the Tenth Circuit that the 2010 Colorado law didn’t violate the dormant commerce clause of the U.S. Constitution. The law, approved by the Colorado General Assembly to spur payment of state sales and use taxes on e-commerce and other remote sales, requires out-of-state retailers that don’t collect and remit taxes to report sales over a certain threshold to the state and to notify consumers of their obligation to pay the tax.

The DMA in its petition said the state law discriminates against interstate commerce when it imposes burdens on out-of-state businesses that in-state businesses aren’t required to bear. Colorado in its petition said the appellate court correctly ruled the state law doesn’t discriminate, but said that if the Supreme Court should decide to take up the appeal, it should reframe the DMA’s question to revisit its own ruling in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

Physical Presence Standard Stands

In that ruling, the court held that a state may impose sales and use tax obligations on retailers only when the companies have a physical presence in the state, including offices, buildings, warehouses, a physical address or employees, among other things.

Several parties filed briefs supporting Colorado’s assertion that it was time, with the DMA v. Brohl case, for the court to reconsider Quill’s physical presence requirement. The court, with its denial of both petitions, turned back those requests in addition to declining to review the DMA appeal of the Tenth Circuit ruling.

Lynn Granger, spokeswoman for the Colorado DOR, told Bloomberg BNA that “we’re examining the decision and will determine what steps to take next.”

George Isaacson of Brann & Isaacson in Lewiston, Maine, the attorney for the DMA, told Bloomberg BNA his client was disappointed by the Supreme Court’s decision not to review the ruling.


He said the DMA agrees with the federal district court finding that the state law “discriminates against interstate commerce by treating out-of-state retailers differently from their in-state competitors.” Colorado was the first state to pass such a law, Isaacson said, “and the Supreme Court may be waiting to see how other state legislatures and lower courts deal with this type of controversial state legislation before addressing the constitutional issues.”

However, he said he was pleased the Supreme Court didn’t grant Colorado’s cross-petition asking it to reconsider its “long-standing ruling” in Quill.

The DMA issued a statement Dec. 12 saying it was disappointed by the denial of its petition but “proud to have led the multi-year charge against this Colorado statute that was purposely written to discriminate against out-of-state sellers.”

‘Will Encourage Others.’

Emmett O’Keefe, DMA’s senior vice president of advocacy, said the association is concerned the Supreme Court’s decision not to review the case “will only encourage other states to adopt similar laws and regulations that are designed to put arbitrary burdens on out-of-state sellers.”

“This is an issue Congress should address, as the Constitution explicitly gives the legislative branch the authority to regulate interstate commerce,” he said.

Tax policy organizations, law professors and practitioners have been eagerly anticipating the decision by the Supreme Court on the cert petitions.

Hamilton Davison, president and executive director of the American Catalog Mailers Association (ACMA), said in a Dec. 12 statement that absent congressional action, concerns over consumer privacy and trust will intensify as states follow Colorado’s lead.

“Consumers, particularly those who buy from catalogs and e-commerce merchants, put considerable trust in the businesses from which they make the most personal of purchases,” he said. “This decision undermines this trust by requiring remote sellers to report to state tax collectors on the buying habits of their customers, including health care products, apparel or other sensitive items.”

“By failing to take-up the DMA case, states will now be unrestrained in passing new ‘tattletale reporting’ laws that force online and catalog retailers to report personal information and purchase data to state tax collectors,” Steve DelBianco, executive director of NetChoice, said in a Dec. 12 statement. ACMA and NetChoice have partnered in litigation contesting South Dakota’s economic nexus regime that requires sales tax collection from select remote retailers.

“American voters and privacy advocates are not going to stand still while ‘tattletale reporting’ laws move in state capitals,” DelBianco added. “The Supreme Court is surely going to find this question right back on their doorstep next year.”

‘Win-Win for States.’

Richard Pomp, professor of law at the University of Connecticut, told Bloomberg BNA Dec. 12 the denial will inspire other states to adopt a Colorado-style reporting and notice requirement. “I understand that many corporations subject to the Colorado statute actually found it easier to collect the Colorado use tax than comply with the reporting statute,” he said. “If so, this may be a win-win for the states.”

“From our perspective we had looked at Colorado more as just a reporting requirement, as opposed to an actual sales tax collection requirement. Now the question is: how many retailers are going to start complying with Colorado and start sending this information voluntarily, or is Colorado going to have to pursue them?” said Craig Johnson, executive director, Streamlined Sales Tax Governing Board Inc.

“We’re satisfied that the Tenth Circuit got it right and that Colorado has won this fight,” said Helen Hecht, general counsel of the Multistate Tax Commission, the policy organization that adopts model regulations for the Multistate Tax Compact and works to achieve uniformity among state taxing systems. “That said, information reporting will not level the playing field for bricks-and-mortar entities, and states are still going to be in the frustrating position of having to come up with work-arounds to the Quill problem, which no one contends are fully adequate substitutes,” she told Bloomberg BNA Dec. 12.

“That’s why we had some hope the Court would finally use this opportunity to correct the mistake it made 24 years ago,” she said. “But it looks like we’ll have to wait another year or so.” The MTC was one of the supporting parties urging the Supreme Court to reconsider Quill.

Other State Challenges

Several states—including South Dakota, Wyoming, Alabama and Tennessee—have recently approved or proposed state statutes and agency rules directly challenging the physical presence standard in Quill. They say the standard results in discrimination against Main Street retailers and results in billions of lost tax revenue for states.

The National Conference of State Legislatures said in a statement that it has “long advocated for a solution to the remote sales tax collection problem.” The Supreme Court’s denial of cert “comes as the nation saw record online sales on Thanksgiving weekend,” it said.

Sales taxes account for, on average, over one-third of state revenue, the organization said. “Many states, especially those that do not levy personal or corporate income taxes, are particularly reliant on this revenue stream to fund important programs and services provided by the states.”

However, the NCSL said, although it believes the 1992 Quill decision is outdated given the technological advances of the past two decades and should therefore be re-examined, “we did not feel that DMA v. Brohl was the best case to reconsider Quill.”

The group said it “looks forward to the court hearing a case that addresses the outdated precedent established in Quill.”

To contact the reporter on this story: Tripp Baltz in Denver at

To contact the editor responsible for this story: Ryan C. Tuck at

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