Supreme Court Holds Trade Association Can Challenge Colorado’s Amazon Law

The federal Tax Injunction Act, 28 U.S.C. Section 1341, does not prevent the Direct Marketing Association from challenging a Colorado law requiring out-of-state retailers to notify Colorado customers of Colorado’s sales and use tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue (DOR) the U.S. Supreme Court held on Tuesday ( Direct Marketing Ass’n v. Brohl, No. 13-1032 (U.S. 3/3/15)). The unanimous decision remands the case to the Tenth Circuit.

In 2010, Colorado passed a law (Colo. Rev. Stat. §39-21-112.3.5(d)) that requires retailers who do not collect Colorado sales and use tax to:

  • Inform Colorado purchasers at the time of the purchase that use tax may be due and that Colorado requires purchasers to file returns and pay use tax directly to the state;
  • Provide each Colorado purchaser who bought more than $500 worth of goods from the retailer in the previous year with a statement by Jan. 31 of each year showing the general types and volume of purchases made during the prior year on which tax was not collected and stating that the purchaser may owe use tax on those purchases; and
  • File an annual report with the DOR by March 1 each year identifying the name and address of each Colorado purchaser and the general type and volume of purchases made by the purchaser.

The Direct Marketing Association (DMA) sued in federal district court in Colorado for an injunction to prevent enforcement of the reporting requirement. The DMA is a trade association for businesses that market products via catalogs, advertisements, broadcast media, and the internet. Attempts by states to impose sales or use tax collection obligations on out-of-state retailers are informally called “Amazon laws” after New York’s 2008 legislation imposing nexus on out-of-state online retailers such as

The district court held that the Colorado law was unconstitutional for placing an undue burden on interstate commerce and granted a permanent injunction preventing enforcement of the law’s reporting requirements. However, on appeal, the Tenth Circuit held that the Tax Injunction Act deprived the federal district court of jurisdiction because it provides that “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State” and the proper venue for the lawsuit was Colorado state courts.

The Supreme Court, in an opinion written by Justice Clarence Thomas, disagreed.

The Court held that in seeking an injunction, the DMA did not seek to “enjoin, suspend or restrain the assessment, levy or collection” of Colorado’s sales and use tax because “assessment, levy or collection” does not encompass Colorado’s enforcement of its notice and reporting requirements. The Court held that these terms refer to “discrete phases of the taxation process that do not include informational notices or private reports of information relevant to tax liability” (slip op. at 5–6). Rather, the Court said, information gathering is a phase of tax administration that precedes assessment, levy, and collection.

The Court also held that the DMA’s suit does not “restrain” the assessment, levy, or collection of Colorado sales and use tax. The Court favored a narrower definition of “restrain” than the Tenth Circuit and held that in the context of the Tax Injunction Act, it refers only to orders that stop acts of assessment, levy, or collection.

The Supreme Court did not rule on the DMA’s substantive arguments, which, in the district court, were that imposing Colorado reporting requirements on out-of-state retailers violates the Commerce Clause because they impermissibly discriminate against interstate commerce and impose undue burdens on interstate commerce. The Court remanded the case to the Tenth Circuit for consideration of the DMA’s claims.

The Multistate Tax Commission has proposed a draft model statute on sales and use tax reporting requirements, based on the Colorado statute, for which the AICPA testified at a hearing and provided detailed comments.

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