State and Local Tax Alert – December 2016

Posted on: December 22nd, 2016 by BDO USA Tax Publications Feed

U.S. Supreme Court Declines to Hear Colorado’s Sales and Use Tax Customer Notice and Reporting Requirements Dispute

 
Summary

On December 12, 2016, the U.S. Supreme Court denied two petitions for a writ of certiorari in Direct Marketing Ass’n v. Brohl, No. 16-267 and Brohl v. Direct Marketing Ass’n, No. 16-458.  The Court declined to review a federal circuit court of appeal’s decision that upheld Colorado’s sales and use tax customer notice and reporting requirements for remote sellers, thus allowing the decision to stand.  The Court also declined to grant Colorado’s petition asking that Quill Corp. v. North Dakota, 504 U.S. 298 (1992) be overturned.
 

Details

Background
In 2010, Colorado enacted Colo. Rev. Stat. § 39-21-112.3.5, which imposes notice and reporting obligations on retailers that do not collect sales tax on their sales to Colorado customers.  Specifically, a non-collecting retailer is subject to the following notification and reporting requirements:
 
  • At the time of each sale – A non-collecting retailer must provide a Colorado purchaser with notice that its purchase is subject to sales or use tax, unless it is specifically exempt.  The notice must contain specific verbiage outlined in Colo. Rev. Stat. § 39-21-112.3.5 and failure to provide the required notice may result in a $5 penalty for each instance of noncompliance.
  • By January 31st of each year - A non-collecting retailer must send an annual notice to a Colorado purchaser who had made $500 or more of Colorado purchases in the preceding calendar year that summarizes the total amount paid by the purchaser.  This notice must: (i) contain the date of purchase, a description of the type of item purchased, and the dollar amount of the purchase; (ii) include a statement that Colorado law requires that the consumer file a sales or use tax return and pay tax on all taxable Colorado purchases for which no tax has been collected by the retailer; and (iii) indicate that the non-collecting retailer is required by law to provide the Colorado Department of Revenue with the total dollar amount of purchases made by the Colorado purchaser.  Failure to provide the required notice may result in a $10 penalty for each instance of noncompliance.
  • No specified due date – A non-collecting retailer must provide a customer information report to the Colorado Department of Revenue that contains Colorado purchaser names, addresses, and total amounts of Colorado purchases in the past calendar year.  Failure to file the required report may result in a penalty equal to the product of $10, and the number of Colorado purchasers that should have been included in the report.
The Direct Marketing Association (“DMA”), an industry group of businesses and organizations that market and sell products via catalogs, advertisements, broadcast media, and the Internet, challenged the law as discriminatory against and imposing an undue burden on interstate commerce in violation of the “dormant” Commerce Clause of the United States Constitution.  On February 22, 2016, the United States Court of Appeals for the Tenth Circuit held that the Colorado law does not violate the Commerce Clause and upheld Colorado’s sales and use tax customer notice and reporting requirements for remote sellers.  See the BDO SALT Alert that discusses this decision in more detail.
 
Petitions for Review
On August 29, 2016, DMA filed with the U.S. Supreme Court a petition for a writ of certiorari and maintained that the Colorado law discriminates against interstate commerce by imposing burdens on out-of-state companies that in-state companies are not required to bear.  On October 3, 2016, the Colorado Department of Revenue filed a conditional cross-petition for a writ of certiorari and asked that if the Court took the case, the Court should revisit and overturn the physical presence requirement of Quill Corp. v. North Dakota, 504 U.S. 298 (1992).  On December 12, 2016, the U.S. Supreme Court denied both petitions.
 

BDO Insights

  • The Supreme Court’s denial of review makes the Tenth Circuit decision binding on states within the circuit (i.e., Colorado, Kansas, New Mexico, Oklahoma, Wyoming, and Utah).  Colorado has not enforced its sales and use tax customer notice and reporting requirements for remote sellers due to an injunction that was issued.  However, Colorado will likely ask a court to dissolve the injunction as a result of the Supreme Court’s denial.
  • Colorado non-collecting retailers should consider whether they have a sales and use tax customer notice and reporting obligation, regardless of whether they have a physical presence in Colorado.  If an obligation exists, such a remote retailer should ensure that it has the systems in place to notify and report as required by the law.
  • States other than Colorado that have adopted similar use tax notification and reporting requirements include Louisiana, Oklahoma, and Vermont.  See the BDO SALT Alert that discusses the Louisiana and Vermont use tax notification and reporting requirements, and the BDO SALT Alert that discusses the Oklahoma use tax notification requirement.  The Supreme Court’s decision not to review Direct Marketing could encourage other states to pursue similar legislation.
 
 

For more information, please contact one of the following regional practice leaders:
 

West:   Atlantic:
Rocky Cummings
Tax Partner

 
  Jeremy Migliara
Tax Managing Director

 
Paul McGovern
Tax Managing Director
  Jonathan Liss
Tax Managing Director

 
Northeast:   Central:
Janet Bernier 
Tax Partner

 
  Angela Acosta
Tax Managing Director

 
Matthew Dyment
Tax Principal

 
  Nick Boegel
Tax Managing Director

 


Southeast:
  Joe Carr
Tax Principal

 
Ashley Morris
Tax Managing Director

 
  Mariano Sori
Tax Partner

 
Scott Smith
Tax Managing Director

 
  Richard Spengler
Tax Managing Director

 
Tony Manners
Tax Managing Director






 
 

Southwest:
Gene Heatly
Tax Managing Director

Tom Smith
Tax Partner
 

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