A federal judge has temporarily blocked a Colorado law that required out-of-state online retailers to notify the state of residents’ purchases in order to collect sales tax from individual shoppers.
US District Judge Robert Blackburn issued a temporary injunction on January 26 at the request of the Direct Marketing Association (DMA), which sued the state last year over the law, according to an Associated Press report. The law also required multichannel retailers to notify consumers what tax they owed the state.
Jonathan Johnson, president of Overstock.com, said the injunction indicates that the DMA’s lawsuit to stop the law has a good chance of success. He added that it will also force lawmakers in other states to question similar legislation.
“We are very pleased with the result. As I read the opinion, one of the criteria for granting the injunction is a likelihood of success on the merits of the case, so we are hopeful that when it goes to trial the law will be found unconstitutional,” he said. “There are a lot of states right now, including California, where lawmakers are considering copycat laws. Hopefully, this slows them down.”
Retailers said last spring that the law violated the 1992 Quill Corp. v. North Dakota case in which the US Supreme Court ruled that retailers who do not have a physical presence in a state do not have to collect and remit sales taxes there.
Jerry Cerasale, SVP of government affairs at the DMA, noted that “right now, no remote seller has to send out a [tax collection] notice at the time of the transaction.”
“The best thing for us is that it looks like this is a reaffirmation of the Quill decision,” he said.
However, the bill’s sponsor, Democratic State Sen. Rollie Heath, told the AP last year that lawmakers are protecting in-state retailers that contribute property taxes to state coffers. “There’s no new tax,” he told the AP. “We’re just collecting what’s already on the books.”
Reached January 27, Heath told Direct Marketing News that the court challenge “is probably inevitable and it’s good to get a court to rule on it.”
“I’m confident they are going to uphold it,” he said.
Retailers are also fighting taxation laws in other states. Ohio reportedly hit at least one out-of-state retailer with assessments for back taxes and penalties last summer, citing its Commercial Activity Tax enacted in 2005.