The Direct Marketing Association argued a case before the Supreme Court today that could result in a landmark decision on marketers’ access to federal courts regarding state court decisions.
Direct Marketing Association v. Brohl challenges a circuit court reversal of an injunction granted by a federal district court over provisions of a Colorado statute requiring retailers to file annual purchase summaries of their customers in the state. Such reporting would include customer data such as name and billing and shipping addresses. The Tenth Circuit court overturned the injunction, citing the Tax Injunction Act (TIA) that allows taxpayers to seek to avoid tax liability. But today, before the highest court in the land, DMA lawyer George Isaacson argued that the sales tax relationship exists between the state and the consumer and TIA was not applicable.
“There is no tax liability on the part of the out-of-state retailer,” he said in reply to probing from Justice Elena Kagan. “This case does not challenge anybody’s tax liability.”
Kagan then put forth an analogy that could illustrate how a third party might become involved in assessing tax liability. Suppose, she said, she designated a staffer to send an email around the office to see who wanted to chip in on pizza for lunch. “If someone doesn’t pay, we can look at the emails to identify the delinquent. That’s part of the collection process isn’t it?” she asked.
Issacson disagreed as, later in the proceedings, did Justice Samuel Alito in questioning Colorado Solicitor General Daniel Domenico about his notion of retailers‘ restraining payment of taxes on the part of purchasers. “What if the Chief Justice says, ‘fine, you can collect for pizza, but you may not use our email system to do it?’” he asked. “Would you say the Chief Justice has restrained collection?”
In assessing the tenor of the Court during the one-hour oral argument session, Isaacson noted that Justices Alito, Antonin Scalia, Sonia Sotomayor, and Stephen Breyer had done their homework on the issue and exhibited clear concern about the implications of their eventual decision. At the outset of the session, Scalia noted that, “This is an important case.”
In addressing the issue of court jurisdiction, Scalia posed his own hypothetical to Domenico. “Say members of a nonprofit buy computers for the organization, but don’t want their IDs known or hurtful things could happen to them. If Colorado demands the names of its members, and it makes a First Amendment objection, you’re saying they can’t take that to federal court?”
“Yes,” was Domenico’s succinct reply.
DMA argued that marketers need access to federal courts, while Domenico insisted that Colorado should be able to pursue all means of collecting taxes without prohibitive measures by retailers or federal courts. For now, remote sellers and other marketers affected by the issue may take some hope for a favorable decision from Chief Justice John Roberts’s comment near the end of the hearing. “It doesn’t prohibit you at all [from collecting taxes],” he said to Domenico. “The taxpayer owes the state. You just want to have a more efficient way to collect it.”