DMA’s Isaacson and Benton with Internet retailer Lou Giesler at the Supreme Court
In a unanimous 9-0 decision, the United States Supreme Court ruled in favor of a petition by the Direct Marketing Association (DMA) in a case that contested Colorado law that required out-of-state retailers to report purchases and personal information of state residents.
“DMA’s landmark victory protects marketers and all businesses from the overreach of state laws,” DMA CEO Thomas Benton said. “DMA believes national businesses having access to a neutral, federal forum is a critical aspect of our judicial system.”
Calculating that it was losing as much as $20 million a year in tax revenue to remote sellers that didn’t collect sales tax from state residents, Colorado in 2010 passed a law requiring non-collecting retailers with sales exceeding $100,000 to notify both the state and the purchaser of tax liability. In addition, the law required retailers to send tax notices to Colorado residents who had spent $500 or more, and to divulge their names and addresses to the state tax authority.
In 2012 the DMA won relief from the legislation in Federal District Court, but the Tenth Circuit Court in Colorado reversed the decision, citing the Tax Injunction Act (TIA), which provides that federal district courts “shall not enjoin, suspend, or restrain the assessment, levy, or collection” of taxes by a state. Arguing that the judgment impeded the rights of business to seek redress of state decisions in federal court, the association submitted the petition DMA v. Brohl to the Supreme Court, which accepted it for review and heard oral arguments in the case on December 8.
Much of the case hinged on the definitions of terms such as “assessment,” “collection,” and “restraint,” and the opinion written by Justice Clarence Thomas that was filed on March 3 found that the Tenth Circuit Court erred in basing its decision on the premise that the DMA’s suit served to restrain Colorado’s collection of taxes.
“Enforcement of the notice and reporting requirements may improve Colorado’s ability to assess and ultimately collect its sales and use taxes from consumers, but the TIA is not keyed to all activities that may improve a State’s ability to assess and collect taxes,” Thomas wrote. “Such a rule would be inconsistent not only with the text of the statute, but also with our rule favoring clear boundaries in the interpretation of jurisdictional statutes.”
Attorney George Isaacson, who presented DMA’s argument before the Supreme Court, said the decision will have wide repercussions. “The decision…was gratifying not only to the direct marketing industry, but to all businesses in securing access to federal court,” he remarked.
The crux of Thomas’s opinion, Isaacson said, was that the Colorado appeals court defined “restraint” too broadly. “The Supreme Court said that it was a misinterpretation in [the Tenth Circuit Court] saying that the initial decision would inhibit the state from levying taxes. Instead, ‘restraint’ refers to stopping the collection of the tax from a specific taxpayer.”
Isaacson said the decision also struck a blow for privacy protection, in that Colorado was requiring retailers to turn over confidential consumer transaction information.
