Colorado Tax Spat Will Go to Supreme Court

(CN) - The U.S. Supreme Court agreed Tuesday to weigh in on Colorado's notice-and-reporting obligations for e-retailers that do not collect sales tax from consumers.

Colorado imposes a 2.9 percent tax on the sale of tangible goods within the state, and state law imposes recordkeeping and other duties on Colorado retailers. The law also imposes penalties for deficient remittance of sales tax.

If purchasers have not paid a sales tax on tangible goods - as occurs when they make some online and mail-order purchases - they must pay a 2.9 percent use tax.

With the stated aim of increasing use-tax collection, the Colorado Legislature enacted statutory requirements in 2010 for noncollecting retailers.

The statute and its implementing regulations impose a series of obligations on noncollecting retailers, based on the retailers' gross sales.

These obligations include providing transactional notices and annual purchase summaries to Colorado customers, and to annually report Colorado purchaser information to the state Department of Revenue.

Retailers that do not collect sales tax and do not comply with any one of Colorado's notice-and-reporting obligations are subject to penalties. Alternatively, retailers may choose to collect and remit sales tax from Colorado purchasers to forgo the notice and reporting obligations.

The Direct Marketing Association, a group of business and organizations that market products via catalogs, advertisements, broadcast media and the Internet, sought to enjoin the implementation of the new regulations under the commerce clause of the U.S. Constitution.

A federal judge in Denver granted group summary judgment in 2012, finding the state's notice-and-reporting requirements facially discriminate against interstate commerce.

State official Barbara Brohl persuaded the 10th Circuit on appeal, however, that the federal Tax Injunction Act deprived the District Court of jurisdiction to enjoin the tax-collection effort.

"The TIA divests federal district courts of jurisdiction over actions that seek to 'enjoin, suspend or restrain the assessment, levy or collection of any tax under State law," Judge Scott Matheson Jr. wrote for the court in August 2013. "This broad language prohibits federal courts from interfering with state tax administration through injunctive relief, declaratory relief, or damages awards."

That same rationale also deprives the 10th Circuit of jurisdiction to reach the merits of this appeal, according to the ruling.

The Supreme Court granted Direct Marketing Association a writ of certiorari Tuesday. Per its custom, the court did not issue any comment on the case.

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