AL URBANSKI: Hello, everyone, and welcome to DC Direct, where we talk to movers and shakers in Washington about issues affecting direct marketers. I’m Al Urbanski, Senior Editor of Direct Marketing News.
On December 8th, direct marketing history was made when the Supreme Court heard oral arguments in the case of Direct Marketing Association versus Brohl. The Supreme Court receives up to 10,000 requests each year to review cases. They hear only 80 to 100, focusing on those whose outcomes may set or challenge wide-ranging precedents. DMA v. Brohl was one of those.
Here to talk to us today about this momentous event is Chris Oswald, Vice President of State Affairs for the DMA. Chris has shepherded this case with DMA’s legal counsel since its beginnings as a challenge to a Colorado statute requiring marketers from outside the state to register and provide information about their customers inside the state.
Chris, thanks for joining us on DC Direct, and welcome.
CHRIS OSWALD: It’s a pleasure to be with you, Al. Thank you.
URBANSKI: Hey, Chris, you’ve been with this case a long time. If you can, just — I know it’s complex, but try to lay out the basic facts for us and how it ended up in the Supreme Court, and where it’s at now.[00:01:17]
OSWALD: Sure, Al. I’ll try to do that. Back in 2010, the State of Colorado passed a law and promulgated regulation that basically required remote sellers — that is, folks that were selling goods into the state — They passed a regulation that required those remote sellers to both notify their consumers in Colorado and report to the state’s Department of Revenue those sales.
And the regulation was designed to kind of help the state’s Department of Revenue collect use tax, which is basically the flip side of a state sales tax, for those sales. The underlying principle of that regulation was to enable the state to more easily collect those use taxes, and definitely raised some constitutional questions for remote sellers.
So, shortly after the law was passed and the regulation was promulgated, the Direct Marketing Association on behalf of its members filed suit in federal district court in Colorado challenging the constitutionality of the regulation.
And we allege two things. The first thing is that you are treating out-of-state sellers differently than in-state sellers, and that violates the Commerce Clause of the U.S. Constitution. And also, it violates the privacy relationship between remote sellers and their customers within the state.
So at our trial court in federal district court, we won on the Commerce Clause claim. The federal district court agreed with the DMA, saying that the regulation treated in-state sellers differently than out-of-state sellers. And we won. And then the state appealed that trial court decision to the 10th Circuit.
The 10th Circuit Court of Appeals, before they even got to the merits of the underlying claim, basically said, “Whoa, whoa, whoa, whoa. DMA, you can’t even be in federal court because of a little thing called the Tax Injunction Act, or the TIA.” And what the TIA says is that if you wanted to challenge the assessment or the enforcement of a state tax, you have to file your claim in state court. You can’t go to federal court.[00:03:54]
And so we thought that the 10th Circuit got that wrong, and we appealed that 10th Circuit decision to the United States Supreme Court, basically saying that the 10th Circuit’s reading of the TIA was overly broad. We had a constitutional claim, and we weren’t even the party, and our DMA members weren’t even the party that had to pay the tax. This is basically tax that’s owed by those consumers. And so therefore, the TIA shouldn’t apply to us, and we should be able to file our suit in federal court. So a very quick rundown of a very complex issue, Al.
URBANSKI: Absolutely. You know, one of the things, Chris, that I noticed in the court hearing in the oral argument, there were a lot of definitions bandied about. And you mentioned the TIA, which — if you could just expand on that a little. The TIA really had to do with redress for taxpayers who actually had tax liability. Could you just tell us about that, what the import then is for marketers in general?[00:04:59]
OSWALD: Sure, you bet. So the origination of the Tax Injunction Act, Congress passed the TIA back in 1937, and essentially the aim was, and the attempt of the TIA was to prevent folks from saying, “I’m not paying my state taxes, and I’m making a federal case out of it.”
Congress said, “Wait a second. If you’re going to contest the payment or the assessment of your taxes, your state taxes, go to state court.” And so really, it was focused in on taxpayers, and what Congress wanted to do was keep those types of cases out of federal courts and keep them from clogging the federal court docket.
And so really, the TIA is focused in on the taxpayer, at least that’s what we allege. And that was our argument in front of the Supreme Court. It was never intended to implicate or affect remote sellers that don’t even owe the tax. And really, our question and our case is surrounding this notice and reporting requirement, which is designed to help the state’s Department of Revenue go after the tax that’s owed by their own citizens.
URBANSKI: And so someone who’s caught up in this, their only redress would be to have access to the federal court system, right? Tell me about what was the central issue of jurisdiction. I think — and you can correct me if I’m wrong, but I think that was the central issue that interested the justices in agreeing to take this case on. How far-ranging could that precedent be? Is it just limited to remote sellers, just to marketers? Does it go beyond that?[00:06:42]
OSWALD: Well, you know, I think the Supreme Court did take the case, Al, because the 10th Circuit decision diverted from a couple of other circuits, namely the 1st and the 2nd circuit, that had ruled previously on analogues to the tax injection act — i.e., the 10th circuit kind of went off on their own in interpreting how broad the TIA should be.
But the implication here goes way beyond direct marketers, as you said. Let’s take for example a state law that has passed that affects your right to worship or your right to speak or maybe your gun ownership. If the state enacts some sort of onerous law or regulation like that under their taxing authority, depending on how the Supreme Court rules, you may be forced to litigate that in state court, and you may not have even the option of challenging the constitutionality of that state law in federal court.[00:07:43]
So, really, the case centers on your ability to access federal courts to challenge overly broad state laws and regulations, and that’s the thrust of what we were arguing.
URBANSKI: That’s amazing. This actually could be more historic a movement on the part of direct marketers than I had first imagined.
URBANSKI: No idea it was that far-ranging. Let’s talk, though, about, since — You know, their specific interest here is the Marketplace Fairness Act and the incredibly complex issue of how remote sellers in a digital world where people — I mean, we’re right in the midst of this now, where this is being recorded during the Christmas rush, and there’s all this commerce going on digitally and across state borders.
Tell me a little bit about what you heard. What was the tenor of the court with specifics such as those? Because some of those did come up. What were some of the things that the justices commented on that you’d like to share with our readers?
OSWALD: Well, I think that one of the things that was interesting is, while the case itself centers around the scope and the application of the Tax Injunction Act, I mean, that’s a jurisdictional question, right? But really, what was interesting was how the justices understood the implication of this decision on the underlying topic and issue of remote sales tax collection.
It’s one of those things that they fully understood the impact of how their opinion may influence the way that states can go about trying to get that tax and go about collecting it. So it was very interesting to see the dynamic. Even though the case was centered around this Tax Injunction Act, the justices were discussing amongst themselves kind of the import underlying the case.
URBANSKI: Yeah, absolutely. One of the things I’ve found fascinating — because you hear these names, Roberts and Scalia and Sotomayor, and there are these big time justices. But they’re just people, and I thought it was interesting that they used examples from their regular lives, and seemed almost personally concerned about the rights of everybody in this case. So
OSWALD: Oh, definitely. I think that one of the most interesting back-and-forths was — Justice Kagan brought up an example of collecting money for a pizza party within the court, and the use of the Supreme Court’s e-mail system to try to collect money.
I think it was really interesting to hear some of these hypotheticals come up. And the good news is, for those who weren’t able to be in the court, like you and I were, Al, they can listen to the oral argument on the Supreme Court website, which is SupremeCourt.gov. And I think you’re going to link to it. After folks listen to this podcast, they can go to the Supreme Court website and listen for themselves.
URBANSKI: Absolutely. And I would encourage people to check it out. It’s actually a lot more interesting than you would think. One thing that’s great about this for the hearings, Chris, is, it’s an hour, so they pack a lot into that hour.
Let’s just wrap up, Chris, and talk a little bit about the Marketplace Fairness Act. So the lame-duck session in Congress has come to a close, and I don’t know if it’s official, but it’s at least unofficially closed at this point. There was no vote on the Marketplace Fairness Act. Is this a good sign for marketers? Can they relax on this issue now? What do we face in the 114th Congress with marketplace fairness?[00:11:21]
OSWALD: Well, I think the Marketplace Fairness Act is going to be front and center in the upcoming congressional session, Al. I know it for a fact that the other side is very, very confident that they can pass MFA next year, in the next Congress. I’ve spoken with representatives that are promoting the MFA. You know, I think that it is one of those issues that, from the state’s perspective, they believe that there’s so much tax revenue that they’re missing out, and I think that that may be a little bit in doubt.
But there’s that perception that they’re missing out on so much revenue, and their budgets are hurting. So there’s a ton of pressure from the states and other groups to pass MFA. So I think that we’ll see a lot of action on MFA in the next Congress.[00:12:15]
Now, you know, while the other side may be supremely confident, there’s a reason that MFA hasn’t passed in the last however many years since it’s been proposed. This is a terribly complex issue, and to be clear, the DMA has never been opposed to the collection of remote sales and use tax.
One of the things that we are very concerned about is making there that it is a fair system for all. We don’t want remote sellers or online retailers to be unduly penalized on any sort of remote sales tax collection issue. So that’s one of the big reasons why we filed suit originally in this case, and that’s one of the big reasons that we have some real reservations with MFA as it was drafted and as it passed the Senate this last go-round.
But again, stay tuned. And remote sellers, online retailers really should be paying attention to congressional action at the beginning of this next Congress, for sure.
URBANSKI: Great. Thanks for that assessment for us, Chris. That’s all the time we have. And Chris, , props to you and the DMA for getting this case all the way to the head of the game, up there in Washington, and it was quite a special day, was it not?[00:13:35]
OSWALD: It certainly was. It was certainly a red-letter day for the DMA. And we were just pleased to be able to represent our members at the highest court in the land. Our attorneys who argued the case, George Isaacson and Matt Schaefer, they’ve been with us from the get-go, since when we first filed suit in Colorado. And they did a supremely competent job. As a matter of fact, you know, George is one of the top tax attorneys in the country. So he really understood this issue, and he did the DMA proud. And I think that members of the Direct Marketing Association can take real pride in the job that was done in front of the Supreme Court.
URBANSKI: No question about it. Thanks again, Chris, and thanks to all of you for listening to DC Direct. Be sure to join us on a regular basis to get the inside views of people in Washington who are involved with issues confronting direct marketers and working on your behalf — or, I talk to some, Chris, sometimes who aren’t working on their behalf. We get both sides.
This is Al Urbanski from Direct Marketing News signing off.