DMA sues Colorado over state e-commerce law

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The Direct Marketing Association filed a lawsuit in federal court June 30 claiming a Colorado law requiring out-of-state marketers and multichannel merchants to charge state tax and deliver customer information to state officials is unconstitutional.

“The law forces out-of-state marketers to keep records and contact every Colorado consumer at the end of the year with what they've purchased, and then send a report to state of Colorado listing names, addresses and how much each state residents spent in the previous year with that retailer,” said Jerry Cerasale, SVP of government affairs at the DMA. “From a consumer standpoint it violates privacy, because in some cases just the name of company will tell what was purchased. We see that as violation of consumers' privacy.”

Lewiston, ME-based law firm Brann & Isaacson, which Cerasale said has long handled the DMA's taxes, filed the case.

“There are eight different counts in this complaint, and one of the counts is based upon the Quill vs. North Dakota standard that established limitations on the scope of the state's regulatory rights over out-of-state companies, specifically finding that in connection with sales and use taxes, the company must have a physical presence in a state before it can be subject to that regulation,” explained George S. Isaacson, tax counsel for the DMA and senior partner at Brann & Isaacson.

In addition to the 1992 Quill case, there is ample precedent for the other seven counts in Supreme Court case history, Isaacson said.

The current law, which became effective March 1 after it passed the Colorado General Assembly as part of the state's budget plan, also requires out-of-state marketers to send a list of purchases to Colorado residents detailing what each consumer bought, as well as a report to the state of Colorado with names, addresses and amount spent.

Money raised by the DMA and the American Catalog Mailers Association is funding the lawsuits in part. Cerasale declined to offer how much was raised but indicated, “We filed the lawsuit, which means fundraising was successful.”

Isaacson said the state has notified the firm that the case will be accepted tomorrow. At that time, the state of Colorado has 21 days to file a response to the complaint.

The bill's sponsor, state Sen. Rollie Heath, a Democrat, told the Associated Press in February that lawmakers are protecting in-state stores that contribute property taxes.

“There's no new tax,” Heath told the AP. “We're just collecting what's already on the books.”

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