On July 1, 2014, the United States Supreme Court granted the petition for writ of certiorari filed by Petitioner Direct Marketing Association (DMA) in a case involving Colorado’s controversial notification law. [Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt. 13-1032, petition for certiorari granted July 1, 2014] This case stems from Colorado’s affiliate nexus and notification law codified at Colorado Code Section 39-21-112(3.5) and related regulations, which required out-of-state retailers with no physical presence or sales/use tax compliance obligations in Colorado to notify its Colorado customers of their obligation to self-report and pay use tax; provide their Colorado customers with an annual report detailing the customer’s purchases from the out-of-state retailer in the previous year; and provide the Colorado Department of Revenue with an annual report that includes the name, address, and total amount of purchases of each of the seller’s Colorado customers, under threat of substantial penalties for non-compliance.
U.S. Supreme Court Grants Review of Jurisdictional Decision Regarding Colorado Notification Law
The issue presented before the U.S. Supreme Court is “whether the TIA [Tax Injunction Act] bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, not requires the collection of a tax, but serves only as a secondary aspect of state tax administration?”
The constitutionality of the Colorado notification law is not at issue, rather the DMA seeks review of the decision of the U.S. District Court of Appeals for the 10th Circuit, in Direct Marketing Association v. Brohl, which held that the federal Tax Injunction Act (28 USC §1341), barred federal court jurisdiction over a suit brought by a DMA challenging the constitutionality of the Colorado law in Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, Dkt. 10-cv-01546-REB-CBS, March 30, 2012; Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, No. 10-cv-01546-REB-CBS, January 28, 2011. In Direct Marketing Association v. Huber, the U.S. District Court declared unconstitutional, and issued a permanent injunction against enforcement of the Colorado notification law.
The matter was appealed to the U.S. District Court of Appeals for the 10th Circuit in Direct Marketing Association v. Brohl, 735 F.3d 904, (U.S.Ct. App., Tenth Cir., August 20, 2013). There, the U.S. Court of Appeals determined that the lower federal district court lacked jurisdiction over the matter and remanded the case back to the federal district court to dismiss the plaintiff’s claims and to lift the permanent injunction. In the decision, the Court cited the Tax Injunction Act, which it interpreted as providing that federal courts shouldn’t enjoin, suspend or restrain any state tax assessments or collections if the disputed matter can be resolved by lower courts. The Direct Marketing Association secured an injunction in the Colorado state courts and then filed its Petition for Writ of Certiorari with the United States Supreme Court in February of 2014. A copy of the Direct Marketing Association’s Petition for Writ of Certiorari may be found here.
The issue presented before the U.S. Supreme Court is “whether the TIA [Tax Injunction Act] bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, not requires the collection of a tax, but serves only as a secondary aspect of state tax administration?” Several other states, including Oklahoma, South Carolina, South Dakota and Vermont, have enacted similar notification and reporting requirements for out-of-state retailers.