On July 1, 2014, the U.S. Supreme Court granted certiorari to Direct Marketing Association v. Brohl. This case arrives at the U.S. Supreme Court after the 10th Circuit Court declined to rule on the constitutionality of a 2010 Colorado use tax reporting law (Direct Marketing Ass'n v. Brohl, 735 F.3d 904 (10th Cir. 2013)).
The 2010 Colorado law (Colo. Rev. Stat. 39–21–112(3.5)(c) & (d)) requires out-of-state retailers that do not collect Colorado sales taxes on sales to Colorado purchasers and whose gross sales in Colorado exceed $100,000 to:
- Provide transactional notices to Colorado purchasers, notifying them that use taxes are due and to file a return;
- Send annual purchase summaries to Colorado purchasers and inform such purchasers of their use tax obligations; and
- Annually report Colorado purchaser information to the Colorado Department of Revenue.
Businesses and the general public have largely opposed this law. Businesses are averse to taking on such administrative burdens, as well as the associated costs relating to complying, especially the burden of informing the government that its customers owe use tax (hence, the “tattletale” moniker). Similarly, customers are skeptical of the government’s desire to collect information on their purchases, citing privacy concerns, and are apprehensive about potential government action against them if they are not reporting and paying their use tax.
Conversely, as 10th Circuit Court recognized, “use tax collection is elusive. Most Colorado residents do not report or remit use tax despite the legal obligation to do so.” This disregard of state tax law by state residents and the loss of tax dollars was the impetus for state lawmakers to enact the 2010 changes to the use tax law.
The U.S. Supreme Court agreeing to hear this case adds yet another case of national interest to the potential impending (and acute) changes forthcoming to state taxation in the coming year. The Court has had an influx of state tax-related petitions lately. The Court denied certiorari to a case concerning New York’s affiliate nexus law. However, the Court recently granted certiorari to Comptroller v. Wynne, a case which will address the following question:
Does the United States Constitution prohibit a state from taxing all income of its residents—wherever earned—by mandating a credit for taxes paid on income earned in other states?
The Multistate Tax Update will continue following developments of significance to state taxation in the U.S. Supreme Court.