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SCOTUS Lets Colo. 'Amazon Tax' Suit Proceed in Federal Court

By Mark Wilson, Esq. on March 03, 2015 | Last updated on March 21, 2019

In 2010, Colorado enacted legislation to try and collect some revenue from Internet retailers who have no physical presence in the state but nevertheless sell a lot of stuff to Colorado residents. Called the "Amazon tax" law, the statute requires retailers to tell buyers that they have to pay the state use tax. The retailers also have to send the state tax collector a list of customers who bought more than $500 worth of goods.

A trade group of non-brick-and-mortar retailers, the Direct Marketing Association, sued Colorado in federal court over several issues related to interstate commerce and the dormant commerce clause. But this case isn't even about that. Today, the U.S. Supreme Court determined whether the case could be brought in federal court at all.

Fun With the Dictionary

Writing for a unanimous Court, Justice Clarence Thomas said that a federal law called the Tax Injunction Act didn't prevent the plaintiffs from using federal, rather than state, court. The TIA prevents a federal district court from enjoining enforcement of a state tax law where a remedy in a state court would be just as available and effective.

The TIA doesn't forbid all injunctions against a taxation scheme, just those that "enjoin, suspended or restrain the assessment, levy, or collection of any tax." Resorting to reference books to find meaning is one of Thomas' favorite pastimes, and his skills were evident here as he walked us through the meanings of words like "assessment," "levy," and "collection."

The upshot of all this is that Colorado's law, as far as the Direct Marketing Association goes, doesn't collect or levy anything. It just requires them to inform buyers about their tax obligations and then to inform the state about big spenders. None of this actually involves levying or collecting any taxes -- that happens later, and the district court's order doesn't affect that. While the Tenth Circuit said the TIA applies to any order that would "suspend or restrain" tax collection, Thomas said those verbs applied to the collection of the tax itself, not anything that would make it more difficult to levy the taxes (which the district court's order would, given that the state wouldn't know who was purchasing a lot of stuff over the Internet).

Concurrence: The Internet Is Killing State Tax Coffers

Justice Kennedy concurred, but only to opine that the Internet has frustrated the ability of states to collect use taxes and urged reconsideration of a 1992 opinion in Quill Corp. v. North Dakota, in which the Court said only the customer, not the business, could pay use taxes. Citing evidence that a huge number of Americans shop online, and that California has been able to capture only about 4 percent of the use taxes it's entitled to, Kennedy urged the Court to reverse Quill: "A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier."

Concurrence: The Statute Means What It Says

Justice Ginsburg, along with Justices Breyer and Sotomayor, made two observations. First, the TIA was designed to prevent litigants from challenging state taxes without first paying them and then asking for a refund. Second (an observation Sotomayor didn't go along with), Ginsburg said the Court's opinion was consistent with Hibbs v. Winn, where the Court held that an action "further removed from the Act's 'state-revenue-protective moorings' ... remains outside the Act's scope."

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