U.S. Supreme Court lets Colorado sales tax law stand

Erik Wallin
December 14, 2016

Final Disposition of DMA v. Brohl Litigation Could Pave the Way for Vendor Notice Rules. On December 12, 2016 the United States Supreme Court denied certiorari to review the Tenth Circuit’s holding in Direct Marketing Association v. Brohl, No. 12-1175 (10th Cir. Feb. 22, 2016). By denying cert the Court essentially let stand the lower court decision that upheld a Colorado law requiring the reporting and notice of out of state sales made to Colorado residents by retailers outside the state. The Court also denied certiorari to review a cross-petition filed by the State of Colorado which sought to directly address whether Quill’s physical presence standard should be overruled.

The background

The Colorado rule at issue requires businesses that sell to Colorado customers but have no sales tax and collection responsibilities to:

  1. Notify purchasers that even though no tax is being collected, use tax may be due and payable by the purchaser to the Department of Revenue.
  2. Provide all Colorado customers who purchased more than $500 worth of goods in a given year, an annual report showing their purchases broken down by date, category and amount.
  3. Provide the Department of Revenue an annual report showing the names of all Colorado customers, their address, and the total dollar amount of purchases in the prior calendar year.

Penalties apply for failure to meet any of these requirements.

What does this mean for remote sellers into Colorado?

While the DMA v. Brohl case has been in litigation, Colorado has not moved to either enforce this requirement or provide regulatory guidance on how to best meet either the taxpayer or DOR notice provisions. As of the moment, Colorado is reviewing the implications of the Supreme Court’s decision. However, it is important to note that a state court injunction remains in place which continues to restrict enforcement of the law. This state court action must be resolved before the Colorado Department of Revenue will move forward on any enforcement action or issue any guidance. However, Colorado sellers should understand that this requirement is highly likely to come into effect in the near term.

What does this mean for the rest of the U.S.?

Colorado is not the only state to have enacted these types of notice requirements. Oklahoma, South Carolina, South Dakota and Kentucky all have notice laws on the books, but the rules do not apply any penalties for non-compliance. In the course of the last few months, Louisiana, Oklahoma, and Vermont have all enacted notice rules, each with their own unique flavor: Louisiana: The Louisiana law, like Colorado, imposes penalties for non-compliance and becomes effective on July 1, 2017. Oklahoma: The Oklahoma rule comes into effect on November 1, 2017. Vermont: The legislation provides that this rule comes into effect on July 1, 2017 but contains an express language that it will come into effect earlier than 7/1 if Colorado officially implements their rule.

With the legality of notice provisions finally settled, we fully expect to see additional states move to impose these requirements and to apply penalties for non-compliance.

Over the last few years, there has been a clear national trend towards states stretching (and sometimes outright breaking) the existing legal constraints on the taxation of remote commerce. With the legality of notice provisions finally settled, we fully expect to see additional states move to impose these requirements and to apply penalties for non-compliance. Sovos Compliance will continue to monitor any further developments relating to this decision and update our readers accordingly.

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Erik Wallin

Erik Wallin is a Senior Tax Counsel on the Tax Research Team at Sovos Compliance. Erik has been with Sovos Compliance since 2011, and his main areas of focus are on U.S. Transaction Tax Law which includes special expertise in the taxation of technology and the taxation mechanisms that apply throughout the Colorado home rule jurisdictions. Erik is a member of the Massachusetts Bar, has a B.A. from York College of Pennsylvania, a J.D. from New England School of Law, and an LL.M. in Taxation from Boston University.
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