The Direct Marketing Association is Suing Colorado over the state’s new out-of-state sales tax laws. The DMA at press time expected to file its suit in July.
The law (HB 10-1193) requires marketers that ship orders into the state to provide purchase information to the Colorado Department of Revenue regarding who its customers were and what they spent. The notification requirement applies only to purchases on which the customer paid no Colorado taxes.
In an earlier version of the law, enacted on March 1, marketers had to notify customers at the time of purchase via mail that their nontaxed orders would be reported to the Department of Revenue.
Direct merchants also had to send a year-end statement to both the customer and the Department of Revenue. The statements, which will be due on Jan. 31, would cover the previous calendar year’s purchases. But under a new regulation passed in June, marketers have the option of waiting to notify customers until the year-end period, without mentioning it at the time of purchases.
DMA v. Colorado The Colorado law creates administrative headaches for the merchant, not to mention privacy issues for the consumer. The requirement to report direct purchases to the Department of Revenue “is telling the state a lot of information about what I buy,” says Jerry Cerasale, the DMA’s senior vice president of government affairs.
The crux of the DMA’s argument is that Colorado’s new legislation is unconstitutional under the U.S. Supreme Court’s landmark decision Quill v. North Dakota. The 1992 ruling found that North Dakota was not entitled to collect taxes on orders shipped into the state, as Quill did not have a “substantial nexus” (physical presence) in the state.
Colorado aims to circumvent this by collecting the sales taxes directly from the customer, based on the mandated purchase reports that marketers file.
The DMA will be the plaintiff in the suit. Cerasale says a steering committee consisting of people both within and outside the Association is guiding the organization on the lawsuit.
The Colorado statute isn’t the only such challenge marketers could face. Similar bills are under consideration in California and Tennessee. The Multistate Tax Commission, an intergovernmental state agency, is looking at applying uniform long-distance purchase tax regulations, Cerasale says.