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Supreme Court to Rule on Colorado’s Use Tax Reporting Requirements

  • Oct 29, 2014 | Gail Cole

 This could be big.

The Supreme Court has been asked to determine the fate of Colorado’s use tax notice and reporting requirements, which has been challenged by the Direct Marketing Association (DMA). In essence, the high court will decide if a federal court has jurisdiction over such a case, or if that is prohibited under the Tax Injunction Act.

Under the Colorado law, out-of-state retailers without nexus in Colorado are not required to collect and remit Colorado sales tax. However, if they choose not to collect it, they must both:

  • Provide customers with a year-end summary of their purchases, AND
  • Provide the Colorado Department of Revenue with an annual report of the total dollar amount of all purchases made by Colorado residents.

The theory behind the law is simple: it will help the Colorado Department of Revenue increase use tax compliance. Consumer use tax is a shy, often overlooked sister to sales tax, and is owed to the state by buyers who did not pay sales tax at the time of purchase. DMA has challenged the law, arguing that it is burdensome to businesses and violates the Tax Injunction Act.

The heat is on

In recent years numerous states have been taken to court over online sales tax laws, and more than once the Supreme Court has been asked to intervene. To date, it has declined to get involved. In its last ruling on remote sales (1992 Quill Corp. v. North Dakota), the court stated that the underlying issue is one that “Congress may be better qualified …[and] has the ultimate power to resolve.”

Congress has had ample opportunity to take up that gauntlet. Thus far, it has not. Since the Senate passed the Marketplace Fairness Act in May 2013 (MFA), a Congressional Committee has been holding it hostage. MFA would grant states the right to impose a sales tax obligation on certain remote businesses, provided the states simplify sales tax compliance.

The Tax Foundation and several other organizations have filed amicus curiae briefs asking the court to reverse the state ruling. The National Governors Association, the National Conference of State Legislatures, and other state organizations have come together to file a brief asking the court to affirm the state ruling. The Supreme Court is set to open the hearing on December 8, 2014. Additional information.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.