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Colorado's "Amazon Law" Still in Effect, Perm Injunction Dissolved

By Gabriella Khorasanee, JD on August 23, 2013 4:01 PM

Colorado has a sales tax of 2.9% for products purchased in the state, and a use tax of 2.9% for products purchased outside the state, but used in the state. Because of the Supreme Court's 1992 decision in Quill Corp v. North Dakota, a state may not collect taxes from "retailers with no in-state physical presence," and Colorado does not collect use taxes from out-of-state (i.e., catalog and online) retailers.

Instead, Colorado puts the onus on the taxpayers to pay their use tax.

The Colorado "Amazon Law"

Since many Colorado residents don't pay the use tax for their online purchases, Colorado enacted what's been dubbed the "Amazon Law." The Amazon Law requires that non-collecting retailers who gross over $100,000 in sales follow reporting requirements designed to make taxpayers more likely to pay their use taxes, such as the mailing of notices to taxpayers.

The Direct Marketing Agency, a group representing non-collecting retailers filed a suit claiming the Amazon Law violated the Commerce Clause. The district court agreed, and permanently enjoined the enforcement of the Amazon Law.

Tax Injunction Act

The Tenth Circuit, declined to decide the issue on the merits -- that is, whether the Amazon Law violated the Commerce Clause. Instead, the court found that the district court lacked jurisdiction under the Tax Injunction Act, which ...

prohibits [federal] jurisdiction if (1) DMA's action seeks to 'enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,' 28 U.S.C. § 1341, and (2) 'a plain, speedy and efficient remedy may be had in the courts of such State.'

Finding that both prongs were met, the 10th Circuit dissolved the permanent injunction and remanded for the district court to dismiss DMA's claim for lack of jurisdiction.

Moving Forward

In all likelihood, this is a temporary victory because DMA has the option of raising its claims in state court. Or, it could be a permanent victory if Congress passes the Marketplace Fairness Act, "which would allow states to collect sales taxes from online retailers regardless of whether they have a physical presence in the state," reports The Denver Post.

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