In a blow to the Direct Marketing Association, a federal appeals court has revived Colorado's so-called Amazon Tax.
The 10th Circuit Court of Appeals' decision -- which lifts a ban on the tax imposed by a trial judge -- rests on purely procedural grounds: The three-judge appellate panel that heard the case said the DMA should have challenged the tax law in state court, not federal court. Jerry Cerasale, senior vice president of government affairs for the DMA, says the organization disagrees with that interpretation and intends to ask the entire 10th Circuit to reconsider the ruling.
The 2010 Colorado law applies to out-of-state companies, including e-commerce companies, that don't collect sales tax from consumers. The measure requires them to send detailed lists of consumers' purchases to the tax authorities and to send consumers annual reports notifying them about their obligations to pay state sales tax.
Colorado state residents are required to pay tax on merchandise even when retailers don't collect it. But state officials say that many residents don't do so; Colorado officials estimated that state and local governments stood to lose around $173 million in tax revenue in 2012 due to non-payment of tax on online purchases.
The DMA argued that the law imposed an unconstitutional burden on interstate commerce. The marketing group drew on
a 1992 U.S. Supreme Court ruling that state governments can't require retailers to collect sales tax unless they have a physical presence in the state, like a brick-and-mortar store. The DMA argued
that state governments also shouldn't be able to require out-of-state retailers to notify consumers about state sales tax laws.
U.S. District Court Judge Robert Blackburn agreed with the Direct Marketing Association and entered an injunction prohibiting Colorado from enforcing the law. But a 10th Circuit panel ruled that Blackburn lacked jurisdiction to consider the matter, due to the federal Tax Injunction Act, which prohibits federal courts from suspending state tax laws.
Colorado isn't the only state to try to pass new laws aimed at collecting sales tax from online stores. Vermont, Oklahoma and South Dakota all enacted laws requiring online retailers to inform consumers about their duty to pay sales tax -- although none of those states require e-commerce companies to disclose consumers' purchases to the tax authorities.
New York also now requires online retailers to collect sales tax from consumers if the retailers use in-state affiliates. Amazon and Overstock unsuccessfully challenged New York's law in court. The companies now are trying to convince the U.S. Supreme Court to hear the case.