Court ruling might reboot Colorado “Amazon tax”

by Esther van Mourik

A panel of the U.S. 10th Circuit Court of Appeals in Denver recently ruled on the so-called “Amazon tax” in the DMA v. Barbara Brohl case.  The ruling was a blow to out-of-state retailers seeking to avoid meeting certain reporting requirements or having to collect state sales tax from its Colorado customers on their purchases.

The case was filed in 2010 by the Direct Marketing Association (DMA), a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the internet, against the Colorado Department of Revenue (DOR) in response to House Bill 10-1193. The bill was intended to increase the collection of state sales and use taxes by offering out-of-state retailers selling goods to Coloradans the choice of either:

(1) Voluntarily collecting sales taxes from its Colorado customers; or

(2) Notifying each Colorado purchaser of the purchaser’s obligation to pay use taxes, providing an annual purchase summary to the purchaser, and providing an annual customer information report of the total dollar amount of purchases made from the retailer to the DOR.

The law, in essence, leans on large out-of-state retailers such as to collect the millions of dollars in state sales taxes owed on purchases made by Colorado customers from out-of-state retailers, such as internet-based sales. That’s why it’s referred to as the “Amazon Tax.”

The DMA claimed the law violated:

  • The Interstate Commerce Clause of the U.S. Constitution by forcing out-of-state retailers to incur compliance costs that Colorado retailers will not incur;
  • Colorado consumers’ constitutional rights to privacy;
  • Both out-of-state retailers’ and Colorado consumers’ rights to free speech; and
  • Out-of-state retailers’ right to not be deprived of property without due process of law by requiring the retailers to provide consumer information to the DOR.  The DMA alleges that the DOR has a track record of failing to adequately protect the privacy of this kind of information.

On March 30, 2012, the federal district court concluded that House Bill 10-1193 and the implementing regulations issued by the DOR violate the Commerce Clause of the U.S. Constitution by directly regulating and discriminating against out-of-state retailers and interstate commerce and, accordingly, is unconstitutional. The federal district court entered an order permanently stopping the DOR from enforcing specific provisions of the Act and regulations that are unconstitutional.

But that’s not all! In June 2012, the DOR filed an appeal in the 10th Circuit.

On August 20, 2013, the 10th Circuit panel decided this case on jurisdictional grounds, not substantive law. That means they did not opine on the merits of the case. The 10th Circuit panel ordered the federal district court to dismiss the DMA’s Commerce Clause claims for lack of jurisdiction, and dissolve the permanent injunction entered against the DOR.

The jurisdictional decision was based on a federal law, the Tax Injunction Act, 28 U.S.C. sec. 1341, that provides federal “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” The 10th Circuit panel explained that “this broad language prohibits federal courts from interfering with state tax administration through injunctive relief, declaratory relief, or damages awards.” (

Yesterday, September 18, the DMA petitioned the 10th Circuit for an en banc rehearing, a rehearing in front of all 10th Circuit judges, arguing that the panel’s ruling conflicts with recent decisions of the 10th Circuit and with Supreme Court authority regarding the scope of the Tax Injunction Act. While petitions for en banc review are rarely granted, this petition will delay the DOR’s ability to enforce the notice and reporting requirements against out-of-state retailers because the permanent injunction remains in place until the 10th Circuit decides whether to hear the case. Please stay tuned.