State Court Grants Injunction Against Colorado’s Sales And Use Tax Notice And Reporting Requirements

Colorado's remote sales notification and reporting requirements have once again been suspended by a court injunction. The Denver District Court granted the preliminary injunction based on an initial determination that the Colorado sales and use tax notice and reporting requirements unlawfully discriminated against nonresident retailers.1

Procedural Background

The Direct Marketing Association (DMA), which consists of businesses and organizations that market products directly to consumers via catalogs, print advertisements, broadcast media and the Internet, filed a lawsuit against the Colorado Department of Revenue in U.S. District Court. In its lawsuit, the DMA challenged the constitutionality of Colorado's sales and use tax notice and reporting requirements for remote retailers enacted on February 24, 2010 (the "Act")2 by asserting violations of the Commerce Clause.3

The District Court granted the DMA's motion for a preliminary injunction against the Department that prevented enforcement of the notice and reporting requirements on remote retailers pending a final determination in the case.4 Both the DMA and the Department subsequently filed cross motions for summary judgment.

On March 30, 2012, the District Court granted a motion for summary judgment in favor of the DMA and issued a permanent injunction against the Department that enjoined the enforcement of the notice and reporting requirements.5 The District Court concluded that Colorado's notice and reporting requirements discriminated against and placed undue burdens on interstate commerce, in violation of the Commerce Clause. The Department appealed the District Court's decision.

On August 20, 2013, the Tenth Circuit of the U.S. Court of Appeals ordered the District Court to dismiss the case.6 After determining that the federal Tax Injunction Act (TIA)7 deprived the U.S. District Court of jurisdiction to enjoin Colorado's tax collection effort, the Tenth Circuit remanded the case to the District Court to dissolve the permanent injunction and to dismiss the Commerce Clause claims raised by the remote retailers. In remanding the case, the Tenth Circuit did not consider the merit of the constitutional arguments. Upon dismissal of the federal case, the DMA commenced a similar challenge in Colorado state court.

Notice and Reporting Requirements

Under the Act and the associated regulations promulgated by the Department, remote retailers that did not collect Colorado sales and use taxes are required to notify customers that they are obligated to self-report and remit use tax on their purchases.8 Remote retailers that did not collect tax are also required to provide Colorado customers with an annual report by January 31 of each year, via first-class mail, detailing a customer's purchases in the previous year and notifying the customer that the retailer was required to report the customer's name and amount of purchases to the Department.9 Finally, remote retailers that did not collect tax are also required to report to the Department, the name, billing address, shipping address and total amount of purchases made by Colorado customers by March 1 of each year.10 Under the state's regulations, however, certain de minimis retailers, or retailers with de minimis purchasers, are not subject to these requirements.11

Preliminary Injunctive Relief Granted by Denver District Court

Based on the conclusion that each of the three Colorado notice and reporting...