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Colorado and DMA Prepare for Battle

  • Dec 1, 2014 | Gail Cole

 The fate of Colorado's use tax notification law could be in its hands.

Colorado and the Direct Marketing Association are making their cases for and against the Colorado 2010 use tax notification law, which the United States Supreme Court has agreed to hear.

The law requires non-collecting out-of-state sellers to share consumers’ purchase history with both the consumers themselves and the Colorado Department of Revenue. The purpose of the law is to facilitate the state’s enforcement of its consumer use tax, which is levied upon the storage, use or consumption of tangible personal property subject to sales tax when no sales tax was collected at the time of purchase. This most often occurs when the seller is an out-of state vendor not required to collect sales tax, as is the case with many internet retailers.

The Colorado use tax notification requirement is a work-around, as federal law prohibits states from compelling out-of-state vendors to collect sales tax unless nexus is established (nexus is a connection—usually physical—between a tax authority and business). Some states have stretched the definition of nexus to include a connection via affiliates. Colorado has taken a different approach.


On October 17, Barbara Brohl, Executive Director of the Colorado Department of Revenue, filed a respondent’s brief with the Supreme Court. Its argument for affirming the Colorado Tenth Circuit Court of Appeals decision revolves around the following:

  • The Tax Injunction Act (TIA) bars the DMA’s lawsuit because it seeks to enjoin and restrain the methods Colorado uses to assess and collect its sales and use taxes.
  • Applying the Tax Injunction Act here does not unduly expand its scope but rather furthers Congress’ purpose of protecting the primacy of state court review.
  • Although the TIA provides the smoothest path to dismissal, this Court may also affirm based on comity principles.


The Direct Marketing Association (DMA) filed its reply to the respondent’s brief with the Supreme Court on November 17. Its argument for reversing the Colorado Tenth Circuit Court of Appeals decision and remanding the case for further proceedings focuses on the following:

  • The respondent provides no support of the text of the Tax Injunction Act for the Tenth Circuit’s ruling.
  • The DMA’s claims fall outside of the TIA’s jurisdictional bar.
  • Cases interpreting the AIA do not dictate dismissal of the DMA’s suit.
  • The respondent fails to distinguish conflicting circuit court authority.
  • The Doctrine of Comity does not apply.


Now we wait.

The Supreme Court’s eventual decision could reverberate through the world of online sales tax. Yet the court has largely sidestepped this topic since Quill Corp. v North Dakota, the pivotal 1992 remote sales tax case. That decision stated, “The underlying issue here is one that Congress may be better qualified to resolve.”

Qualified or not, Congress has not resolved the issue. There was hope it would be addressed—finally—during the 2014 lame duck session. House Speaker John Boehner quashed those hopes on November 11.

Be prepared

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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.