SCOTUS Hears Challenge to Colorado Law Regulating E-Commerce Transactions

By Craig Henson

The U.S. Supreme Court recently heard argument in a case that could have far-reaching implications for online retailers and their customers.

On December 8, 2014, the Court heard oral argument in Direct Marketing Association v. Brohl. Plaintiff Direct Marketing Association (DMA)—a trade organization composed of businesses that market products via catalogs, advertisements, broadcast media, and the Internet—sued the Colorado Department of Revenue (Department) in federal district court, seeking to enjoin enforcement of Colorado’s reporting and information regulations related to the state’s use tax.

Colorado requires its residents to pay a use tax on purchases of tangible goods from retailers with no physical in-state presence. This use tax primarily targets purchases from out-of-state online retailers that do not collect Colorado sales tax. The state requires its taxpayers to self-report any transactions with such non-collecting retailers on their tax returns. The state requires taxpayer self-reporting because the Supreme Court held, in Quill Corp. v. North Dakota, that the “negative” or “dormant” Commerce Clause prohibits a state from requiring an out-of-state retailer with no physical in-state presence to collect the state’s sales or use tax. Continue reading