Supreme Court Won't Hear DMA Challenge To Colorado Web Tax Law

The U.S. Supreme Court on Monday refused to hear the Data and Marketing Association's challenge to a Colorado law that requires some online retailers to disclose information about customers' purchases to state tax authorities.

“We are disappointed the Supreme Court did not take the case and are concerned it will only encourage other states to adopt similar laws and regulations that are designed to put arbitrary burdens on out-of-state sellers," DMA Senior Vice President Emmett O’Keefe said in a statement.

As is customary, the Supreme Court didn't give a reason for its decision. The DMA had argued that the law is unconstitutional because it only applies to out-of-state companies, including e-commerce companies, that don't collect sales tax from consumers.

The measure, which was passed by Colorado lawmakers in 2010, requires some out-of-state businesses, including e-commerce companies, to send detailed lists of consumers' purchases to the tax authorities. Consumers in Colorado currently are required to report their online purchases and pay a 2.9% sales tax on them unless the tax is collected by the retailer. This February, Amazon went further than the law appears to require and began collecting the tax in Colorado.

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Soon after the law was passed, the DMA challenged it in federal court, arguing that the tax law unduly burdened interstate commerce. The marketing group relied on a 24-year-old Supreme Court decision involving a catalog company. The court ruled in that 1992 case that state authorities can't require retailers to collect sales tax unless they have a physical presence in the state, like a brick-and-mortar store.

Had the Supreme Court agreed to rule on the Colorado law, it's not clear that the judges would have upheld the 1992 decision. Justice Anthony Kennedy recently suggested that state governments should be able to require out-of-state online retailers to collect sales tax.

Earlier this year, the 10th Circuit Court of Appeals rejected the DMA's position on the grounds that the 1992 decision only deals with tax collection, as opposed to reporting rules. "In light of the Colorado consumers’ preexisting obligations to pay sales or use taxes whether they purchase goods from a collecting or non-collecting retailer, the reporting obligation itself does not give in-state retailers a competitive advantage," the judges wrote.

In the last several years, numerous states have passed laws aimed at collecting sales tax on e-commerce purchases. In one recent example, a South Dakota law that took effect earlier this year requires out-of-state retailers with more than $100,000 in annual sales to South Dakota residents, or more than 200 transactions per year with South Dakota customers, to report and collect sales tax.

The trade groups NetChoice and American Catalog Mailers Association are challenging that measure in court. A South Dakota judge heard arguments about that law on Friday.

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