Colorado requires internet retailers like Amazon.com to send it reports about their customers in Colorado. Colorado wants to use those reports to force those customers to pay taxes when they buy online. The district court enjoined the statute, thinking it probably is unconstitutional.
Justice Clarence Thomas’s opinion for the Court Tuesday in Direct Marketing Association v. Brohl gave online retailers a big victory. Without deciding whether the statute is valid, the Court said that the injunction can stand while the parties litigate about the statute itself.
The Direct Marketing Association, a trade group for online retailers, promptly filed suit seeking an injunction against the tax; the defendant is the head of Colorado’s taxing authority. The retailers argued that the statute violates the Commerce Clause; they said it is nothing more than a device to avoid the Supreme Court’s holding in Quill v. North Dakota that online retailers ordinarily don’t have to pay sales tax if they have no presence in a state.
The district court agreed and issued an order enjoining enforcement of the statute. On appeal, though, the Tenth Circuit held that the order violated the Tax Injunction Act; it did not reach the merits of the statute’s constitutionality.
The thing most in doubt after the argument was what the Court would say to justify a ruling in favor of the retailers. It seemed clear at the argument that the Court did not agree with the retailers’ contention that the Tax Injunction Act bars an injunction only if it comes in a suit brought by a taxpayer. Because the retailers are not the ones obligated to pay the tax, that argument would mean that this suit was not covered by the statute at all.
Should the Court overturn Quill v. North Dakota and allow the states to impose sales taxes directly on the business of online retailers is much more harmful now to the states than when it was decided; Justice Kennedy reports mail-order commerce of $180 million at the time of Quill, a mail-order company (1992 – a few years before internet commerce), compared to more than three trillion dollars in 2008. Given the increased harm and the transformational effect on our society and economy of electronic communication, he calls for the Court to reconsider Quill as soon as possible. Now that is an opinion that will get noticed in the offices of some general counsels around the country on Wednesday morning.
At the time of this case, I was a senor member of the Direct Marketing Association and working for a major direct marketing company, that took part in this case.
The original case was determined on presence in a state. If you had a retail store, distribution warehouse, a sales office, or sales representatives in the state, you collected sales tax on orders in that state. When online retailers started to use affiliate sales, such as a website linking you to Amazon to buy a book and getting a commission, it got more complicated.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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