Tenth Circuit throws out decision striking down Colorado’s Amazon law


The permanent injunction that a federal district court issued in March 2012 enjoining Colorado from enforcing its Amazon law requiring remote sellers to report sales in the state has been dismissed by an appeals court. The Tenth Circuit held on Tuesday that the Tax Injunction Act (TIA, 28 U.S.C. § 1341) precludes federal jurisdiction over the Direct Marketing Association’s claim that Colorado’s law requiring out-of-state retailers to report information about customers’ purchases to each customer and to the Colorado Department of Revenue (DOR) violates the Commerce Clause of the U.S. Constitution ( Direct Marketing Ass’n v. Brohl, No. 12-1175 (10th Cir. 8/20/13).

As a result, the Tenth Circuit remanded the case to the district court to dismiss the Commerce Clause claims and lift the permanent injunction the lower court had imposed prohibiting the DOR from enforcing the law (Direct Marketing Ass’n v. Huber, No. 1:10-CV-01546-REB-CBS (D. Colo. 3/30/12)). Any further proceedings in the case must begin in Colorado’s courts or administrative agencies.


The Colorado law (Colo. Rev. Stat. §39-21-112(3.5)) and related regulations require any retailer that sells $100,000 or more of products to customers in Colorado, but does not collect and remit sales taxes on those products, to:

  • Notify the purchaser that the retailer does not collect Colorado sales tax and that the purchaser is therefore obligated to self-report and pay use tax.
  • Provide each customer who purchases more than $500/year from the retailer with an annual report of the prior calendar year’s purchases and inform the customer that the retailer is required to file an annual purchase summary reporting the customer’s name and total purchases to the Colorado DOR.
  • Provide the DOR with an annual customer information report stating the name, billing and shipping address, and total purchases for each of its Colorado customers.

Retailers can avoid the reporting requirements by voluntarily collecting tax from customers in Colorado.

The Direct Marketing Association (DMA), the plaintiff in the case, is an association of direct marketers that sell products through catalogs, magazine and newspaper advertisements, broadcast media, and the internet. The DMA had earlier in the litigation persuaded the district court to issue an injunction to prevent the law from being enforced. The district court later made the injunction permanent.

The district court found that the law violated the “dormant Commerce Clause” (the constitutional theory that prohibits state actions that interfere with interstate commerce) because it discriminates against out-of-state retailers by treating them differently from in-state retailers and was therefore invalid on its face. The court further held that the DOR had failed to overcome this finding of facial invalidity because it failed to prove that the law advances a legitimate local purpose that could not be served by “reasonable nondiscriminatory alternatives.”

Tax-Injunction Act: A broad jurisdictional barrier

The TIA states that “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State” (Direct Marketing Ass’n v. Brohl, quoting 28 U.S.C. §1341). The Tenth Circuit characterized it as a broad jurisdictional barrier that prevents federal courts from interfering with the important state concern of collecting taxes.

First, the appeals court addressed the issue whether DMA sought to enjoin, suspend, or restrain the assessment, levy, or collection of any tax under state law. The law prohibits federal courts from interfering with state tax collection through declaratory relief, injunctive relief, or damage awards. The DMA argued that the TIA did not apply because it was not a taxpayer seeking to avoid a tax and it was challenging the notice and reporting requirements of the law, not a tax assessment. Nonetheless, the circuit court cited precedent in which the TIA applied to suits brought by third parties attempting to disrupt state tax collection. The central question is whether the plaintiff is attempting to prevent a state from exercising its sovereign taxing power.

The appeals court also concluded that the TIA applies even though DMA was not challenging a tax assessment because the broad language of “enjoin, suspend or restrain” encompassed the challenge DMA was raising. The suit DMA was bringing had the potential to restrain Colorado’s ability to collect sales and use tax, which is sufficient to trigger the jurisdictional bar. The fact that the injunction would restrain Colorado’s ability to collect the tax indirectly rather than directly did not mean the TIA did not apply.
The second part of a TIA claim requires consideration of whether “a plain, speedy and efficient remedy may be had in the courts of such State.” According to the appeals court, this means that Colorado law must provide a full hearing and judicial determination whether the law should apply. To satisfy this requirement, a state must meet certain minimal procedural criteria against illegal tax collection. It does not have to be the “best or speediest remedy” (emphasis in the original). Apparently, the DMA did not challenge the law using the process available to it in Colorado, and the appeals court also noted that the state had considered Commerce Clause challenges to tax laws before.

Nonetheless, to meet the TIA requirement, there must be a specific remedy available for DMA. The court found that specific remedies are available. One remedy is that DMA or a remote retailer it represents can file a lawsuit in state court similar to the one dismissed here seeking injunctive and declaratory relief from the law. Another remedy involves a remote retailer’s paying the tax, which is the alternative to complying with the reporting requirements, and filing for a refund claim in which the retailer claims it is unconstitutional to make it choose between collecting the tax and reporting its Colorado sales. A final option is for a remote retailer to not comply with the law and then challenge any penalties imposed. (Most of these remedies involve remote retailers, not DMA, filing suit; there may be a standing issue if DMA pursues these claims in state court.)

In remanding the case, the appeals court noted that because the TIA divested the district court of jurisdiction over the Commerce Clause claims in the case, it was also precluded from considering the issue on appeal.
Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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