A federal court judge granted a preliminary injunction against a Colorado law that required e-commerce sites and other out-of-state retailers to disclose information about state residents’ purchases to the authorities. The law took effect last March and requires retailers with more than $100,000 in annual sales that do not have a physical presence in Colorado and that do not otherwise collect Colorado state taxes on sales to Colorado residents to notify Colorado customers that they owe a state tax on their purchases.
Retailers must also send an annual report to customers who spent more than $500 in the previous calendar year each January detailing their purchases from the prior year with the amount of Colorado sales tax they owe, and submit a report to the state with information about all in-state purchases. Penalties range from $5 to $10 per violation.
The Direct Marketing Association filed suit challenging the law, arguing that it interfered with interstate commerce. The DMA argument relies upon a 1992 U.S. Supreme Court decision holding that state governments cannot require retailers to collect state tax unless they have a physical presence in the state, which has been interpreted to mean a brick-and-mortar store.
Judge Robert Blackburn found that DMA had a substantial likelihood of prevailing on the merits of its claims, and granted a preliminary injunction against enforcement of the law. Although the state argued that it had a legitimate interest at stake – increased tax revenue – the court said non-discriminatory alternatives existed.
Noting that the estimated first-year cost for companies to comply with the law ranged from $3,100 to $7,000, the court said that monetary loss was an irreparable injury because if the law is struck down, retailers will be unable to recover their costs.
Comments for this article are closed.