Federal Court Upholds Constitutionality of Colorado Use Tax Law

On Monday, February 22, a federal appeals court overturned a lower court ruling that blocked Colorado from enforcing a law requiring out-of-state retailers to report use tax information to consumers and the Colorado Department of Revenue, according to media reports. In the case Direct Marketing Association v. Brohl, the U.S. Court of Appeals for the 10th Circuit upheld the constitutionality of the law, which requires out-of-state retailers to collect and remit sales tax for purchases made by Colorado residents or to inform their Colorado customers that they owe use tax on the purchases they have made.

Colorado Attorney General Cynthia Coffman called the decision an “important victory,” which will make tax collection easier and help “level the economic playing field” for in-state businesses, as reported by Reuters. The state of Colorado reported that consumers’ failure to pay use tax cost more than $170 million in tax revenue in 2012, and law professors told Reuters the nationwide shortfall might top $11 billion.

The Retail Industry Leaders Association, which filed an amicus brief in support of the use tax law, hailed the decision as a victory for retailers and states seeking to boost revenue by ensuring that online shoppers pay taxes. “Retailers welcome the court’s decision and its alignment with the arguments laid out in our brief,” said RILA General Counsel and President of the Retail Litigation Center Deborah White, adding, “In the absence of final congressional action, it’s no surprise that states are moving independently to ensure fair competition for local businesses and to collect taxes rightfully owed.”

In March 2015, the U.S. Supreme Court issued a ruling that had sent the DMA’s challenge to the Colorado use tax law back to the 10th Circuit on what was termed a technical ruling. However, it was a concurring decision in that ruling by Justice Anthony Kennedy that became the headline, as reported by Bookselling This Week.

In his opinion, Justice Kennedy wrote that it was time to reconsider the 1992 Quill vs. North Dakota Supreme Court decision, which opponents of e-fairness usually cite when arguing that states have no right to require remote sellers to collect and remit sales tax unless those sellers have a physical presence in the state. “Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill,” Kennedy wrote. “A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”