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10th Circ. Upholds CO’s Internet Sales Tax Law

DENVER (CN) - Online retailers selling goods in Colorado from out of state must comply with Colorado's tax-reporting laws, a unanimous 10th Circuit on Monday.

The 10th Circuit held that Colorado's Amazon Tax Law, adopted in 2010, was entirely within its jurisdiction to require trade group Direct Marketing Association to follow certain Colorado reporting obligations if they did not collect sales tax.

The trade group had argued such an expectation was discriminatory against out-of-state retailers.

Colorado lost an estimated $170 million in tax revenue in 2012 because few online shoppers pay taxes for their online purchases. The Amazon-inspired tax law requires companies to report their sales to Colorado tax authorities as part of an effort to push online shoppers to report their transactions and pay taxes on their purchases.

The trade group had originally presented its case to the 10th Circuit in 2013, after a federal judge found Colorado's law violated the Commerce Clause by discriminating against and unduly burdening interstate commerce. U.S. District Judge Robert Blackburn cited the 1992 Supreme Court case Quill Cor.p v. North Dakota, in which the high court determined that states couldn't collect taxes from retailers that did not have a brick-and-mortar presence within said state.

But the 10th Circuit panel found the judge lacked jurisdiction to hear the trade group's challenge and remanded the case, ordering a dismissal of the group's case and a reinstatement of Colorado's law.

The trade group then appealed to the Supreme Court, which held in 2015 that the federal Tax Injunction Act did not strip the federal court of jurisdiction to hear the case and tossed the case back to the 10th Circuit.

But in Monday's opinion, Circuit Judge Scott Matheson Jr. said the panel's perspective - that Quill only "applied narrowly" to tax collections, not tax reporting - and that it wasn't fair to allow online retailers to receive tax breaks that brick-and-mortar stores in Colorado don't enjoy.

"If anything, by asking us to strike down Colorado's law, out-of-state mail order and internet retailers don't seek comparable treatment to their in-state brick-and-mortar rivals, they seek more favorable treatment, a competitive advantage, a sort of judicially sponsored arbitrage opportunity or 'tax shelter,'" Matheson wrote for the panel.

Matheson and Circuit Judges Mary Briscoe and Neil Gorsuch agreed with the defendant - Colorado Department of Revenue executive director Barbara Brohl - that any company doing business in Colorado had to abide by its tax laws. They dismissed the trade group's argument that the law discriminated against businesses involved in interstate commerce by causing an unconstitutional bias that could hinder them from selling goods online outside of their home state.

"The plaintiffs haven't come close to showing that the notice and reporting burdens Colorado places on out-of-state mail order and Internet retailers compare unfavorably to the administrative burdens the state imposes on in-state brick-and-mortar retailers who must collect sales and use taxes," the 44-page opinion concluded.

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