Will DMA’s Big Day in Court Produce a Welcome Precedent for Remote Sellers?

Lawyer George Isaacson with DMA CEO Thomas Benton and Internet retailer Lou Giesler

Each year the Supreme Court of the United States receives between 9,000 and 10,000 petitions of certiorari to review cases. They hear only 80 to 100. So the DMA’s appearance before Justices Roberts, Ginsburg, and Scalia on Monday was like appearing on Fallon, Ellen, and Stewart all on the same day. It was the Association equivalent of going viral.

But the press that DMA gets from its day in the judicial spotlight will be nothing compared to the financial and administrative relief its members and other remote sellers might realize from a favorable decision. The case stems from a requirement issued by the state of Colorado that Internet and other remote sellers file transactional records for all their customers in the state, including PII. Should Colorado win the right to do so, the rest of the 49 states and thousands of other tax jurisdictions will follow suit. It would spell the demise of thousands of e-commerce businesses.

DMA fought the requirement in District Court in Colorado in 2012 and won a preliminary injunction and summary judgment against the practice. Then last year the U.S. Tenth Circuit Court of Appeals vacated the decision, declaring that, under the Tax Injunction Act (TIA), the federal district court lacked jurisdiction in the matter and that DMA should refile its case in state court. Without getting all Harvard Law Review over this, the Supreme Court case boils down to jurisdiction: Do remote sellers and other businesses have a right to seek redress of state court decisions in federal court?

DMA lawyer George Isaacson told the Supremes that it surely did, since TIA offers relief for taxpayers seeking to avoid liability and that its members were not taxpayers, but merely intermediaries. Colorado Solicitor General Daniel Domenico argued that the sellers, by not handing over transactional data, would be restraining assessment and collection of taxes. Much of the drama in this oral argument—and, believe it or not, the verbal swordplay was surprisingly lively—centered on the definitions of the words “restraint,” “collection,” and “assessment.”

“The justices were really focused in on the meanings of the operative words of the TIA,” said DMA VP of State Affairs Chris Oswald. “That was a strategic move on George’s part, because those words have a technical meaning.”

At one point Justice Elena Kagan asked Isaacson, “But where do you get this idea that the plaintiff has to be the taxpayer, because certainly the text of the statute does not say that.”

Isaacson countered by saying that another case mentioned in the discussion of the TIA identified outsiders that are involved in such cases but whose own tax liability is not in question. “That’s exactly  the situation that you have [here], that we’re not talking about the tax liability of out-of-state retailers,” Isaacson said. “Their tax liability is irrelevant.”

DMA members in the courtroom no doubt took pleasure in Justice Antonin Scalia’s skewering of Domenico over Colorado’s motivations in the case. The Colorado counsel had not gotten out the first complete sentence of his opening argument before Scalia cut him off, asking, “Am I correct that Colorado is the only state that seeks to do this with respect to out-of-state sellers?” When Domenico said it was, Scalia exclaimed, “That’s amazing! I can not imagine that other states have not piled on with this thing…if there are no problems with doing it.”

Following a brief response from Domenico, Scalia remarked, perhaps portentously, “The fact that it’s one of a kind gives me pause.”

Justice Sonia Sotomayor expressed confusion over the tax assessment issue. She said it’s her responsibility to report her income information to the IRS and not her employer’s, but Domenico countered that her employer is required to report her income, as well.

Getting to the heart of this case, Sotomayor prodded, “So that’s because of jurisdictional powers?”

“Right,” Domenico replied.



“So that makes sense to me,” Sotomayor said. “What doesn’t is, how can we apply the TIA to an entity that has no direct responsibility to you? There is a presumption in the TIA that collection, assessment, etcetera, is going to be against an entity that owes you something.”

Justice Stephen Breyer further illuminated the meaning of “collection,” calling on a noted federal appeals court judge. “Henry Friendly said you could use the term ‘collection’ to refer to any method of helping to secure payment. But Congress was referring to methods similar to assessing and levy that would produce money or property directly versus indirectly,” Breyer said to Domenico. “The reason being, once we start down your road, there is no stopping place.”

DMA’s Oswald, a trained lawyer, believes that the Court’s eventual decision will rest in large part on whose version of collection within the scope of the Tax Information Act rings the truest. “The state of Colorado says [the injunction] impedes their ability to collect sales taxes. It’s collection writ broadly,” he said. “George’s argument was that collection means something. You can’t collect something from somebody that doesn’t owe you anything.”

An interchange near the end of the session surely served to buoy DMA spirits, as well. When Domenico declared that the injunction prohibited Colorado from obtaining information about whom the buyers were and how much they owed, Chief Justice John Roberts testily injected, “No, it doesn’t prohibit you from doing that at all.”

“It prohibits us from using the tool provided under state law,” Domenico responded.

“Well, yes, it prohibits you from doing what you want to do,” Roberts said, “but the whole question is whether you can do it.”

That question most likely won’t be answered by the Supreme Court until spring. For the meantime, the marketers are basking in the glow of their moment in history, and were clearly emboldened over their chances for a favorable outcome. At a DMA conference at its D.C. law firm after the Supreme Court session, DMA SVP of Government Affairs Peggy Hudson lauded Isaacson’s litigation skills and called for a round of applause for him.

President and Executive Director of the American Catalog Mailers Association, Hamilton Davison, too, was optimistic but cautious. “Isaacson mounted a great argument on behalf of all remote marketers,” he said, “but the Court can, of course, decide anything it wants.”

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