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Colorado’s Use Tax Notification Requirements Are Legal


 Internet sellers may soon have to comply with Colorado's use tax notification requirements.

Update 4.12.2016: The Tenth Circuit Court of Appeals has denied a request by the Direct Marketing Association to reconsider the Colorado case.

Colorado’s use tax information reporting requirements for non-collecting retailers are legal, according to the Tenth Circuit Court of Appeals.

The law

Under a law created in 2010, non-collecting retailers (retailers without nexus, or a physical connection to Colorado) are required to:

  • Send a transactional notice to Colorado purchasers informing them that they may be subject to Colorado use tax
  • Send Colorado residents who purchase more than $500 in taxable goods from the retailer an “annual purchase summary” with the following information:
    • Amounts of purchases
    • Categories of purchases
    • Dates of purchases
    • A reminder of their obligation to pay Colorado use tax on those purchases
  • Send the Colorado Department of Revenue an annual customer information report listing the names, addresses and total purchases of their Colorado customers

“Non-collecting retailer” is defined as a retailer that sells goods to Colorado purchasers but does not collect Colorado sales and use tax. The requirement does not apply to retailers whose total gross sales in Colorado during the previous calendar year were less than $100,000, provided the expected gross sales for the current calendar year are also less than $100,000.

The controversy

The Direct Marketing Association (DMA) contested Colorado’s use tax notification requirement on behalf of remote (primarily Internet) retailers; the legal battle lasted 5 years.

An injunction against the law was granted at the start of 2012 and dissolved in December of that year. Another injunction against the requirement was granted in February 2014, whereupon the Colorado Department of Revenue (DOR) announced, “At this time, retailers are not required to comply with these reporting requirements.” That policy has remained in effect.

The determination

Last week, the United States Court of Appeals for the Tenth Circuit issued its opinion on Direct Marketing Association v. Brohl (Case 12-1175). It reversed the ruling by the district court based on the following:

  • The Colorado law does not discriminate against interstate commerce
  • The Colorado law does not unduly burden interstate commerce

The opinion concludes by acknowledging that Congress may be best suited to resolve the issue of remote sales and use taxes:

We conclude by noting the Supreme Court’s observation in Quill that Congress holds the “ultimate power” and is “better qualified to resolve” the issue of “whether, when, and to what extent the States may burden interstate [retailers] with a duty to collect [sales and] use taxes.” 504 U.S. at 318.25

A concurring opinion penned by Judge Gorsuch points to the eventual demise of Quill and Bellas Hess, the Supreme Court rulings often cited to prevent states from imposing sales and use tax obligations on out-of-state sellers. He writes:

Quill might be said to have attached a sort of expiration date for mail order and internet vendors’ reliance interests on Bellas Hess’s rule by perpetuating its rule for the time being while also encouraging states over time to find ways of achieving comparable results through different means…. And Quill’s very reasoning ... seems deliberately designed to ensure that Bellas Hess’s precedential island would never expand but would, if anything, wash away with the tides of time.

Read the opinion in full here.

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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.