Colorado - Tenth Circuit reverses district court in case challenging use tax reporting requirements 

August 20:  The U.S. Court of Appeals for the Tenth Circuit today reversed a district court’s grant of an injunction prohibiting Colorado’s Department of Revenue from enforcing the use tax reporting requirements enacted in 2010. Direct Marketing Ass’n v. Huber, 12-1175 (10th Cir. August 20, 2013)

According to today’s Tenth Circuit’s decision [PDF 81 KB], federal law—i.e., the Tax Injunction Act (28 U.S.C. §1341)—deprived the federal district court of jurisdiction to enjoin Colorado’s tax collection efforts.


Read an August 2013 report [PDF 210 KB] prepared by KPMG LLP.

Overview

Colorado enacted measures to collect sales and use taxes during the expansion of e-commerce, specifically by imposing notice and reporting requirements on retailers that do not collect taxes on sales to Colorado purchasers.


At issue in this case was whether Colorado’s notice and reporting obligations for non-collecting retailers violate the Commerce Clause.


A group of businesses and organizations (represented by the Direct Marketing Association) filed for injunctive relief in federal district court, and the district court determined that:


  • Colorado’s notice and reporting obligations were unconstitutional.
  • Colorado’s requirements for non-collecting retailers discriminated against and placed undue burdens on interstate commerce, in violation of the Commerce Clause of the U.S. Constitution
  • A permanent injunction prohibiting enforcement of the state requirements was warranted.

Read TaxNewsFlash-United States (April 2, 2012).


The issue in this appeal is whether Colorado’s notice and reporting obligations for non-collecting retailers violated the Commerce Clause.


The Tenth Circuit, however, did not reach the merits of the issue, finding instead that the Tax Injunction Act deprived the district court of jurisdiction to enjoin Colorado’s tax collection effort.


The Tenth Circuit remanded the case to the district court to dismiss the Commerce Clause claims.




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