Thursday, February 20, 2014

State Court Suspends Colorado Notice and Reporting Law

On Tuesday, February 18, 2014, Judge Morris Hoffman of the Colorado District Court for the City and County of Denver granted the motion for a preliminary injunction filed by the Direct Marketing Association (“DMA”) in its suit challenging the 2010 Colorado statute that imposes onerous notice and reporting obligations upon out-of-state retailers that do not collect Colorado sales tax. The Court suspended, effective immediately, all of the Colorado law’s requirements (referred to in the ligation as the “Transactional Notice,” the “Annual Purchase Summary,” and the “Customer Information Report”). Judge Hoffman explained that “Plaintiff has proved to my satisfaction at this stage that each of the Act’s three notification and reporting requirements are facially discriminatory” in violation of the Commerce Clause of the United States Constitution. As a result, remote sellers that do not collect Colorado sales tax are not required to comply with the law’s provisions, pending further action by the Court as the case proceeds.

Readers will recall that the DMA previously obtained both a preliminary and permanent injunction against the Colorado law’s enforcement from the federal District Court for the District of Colorado. The injunction was dissolved in late 2013 after the federal Court of Appeals for the Tenth Circuit ruled that the Tax Injunction Act (“TIA”) deprived the federal District Court of jurisdiction to enter the injunction. In response, the DMA filed an action in state court in November 2013, challenging the law.

The DMA is represented in the case by Brann & Isaacson partners George Isaacson and Matthew Schaefer.

The state court will hold a status conference in the next few weeks to determine further proceedings in the case. We will keep readers apprised of further developments in the case.

Thursday, February 6, 2014

State Sales Tax Enforcement After the Supreme Court’s Denial of Cert in Amazon/Overstock

As we have discussed in prior posts, Amazon and filed petitions for certiorari with the U.S. Supreme Court seeking review of the New York Court of Appeals decision that the New York affiliate click-through nexus statute, on its face, did not violate the Commerce Clause. Late last year, the U.S. Supreme Court denied the petitions and, therefore, the New York Court of Appeals’ decision stands.

While the denial of cert means that the New York statute is constitutional on its face, it is not an indication that the U.S. Supreme Court agrees with the New York Court of Appeals’ decision or that the Court has blessed affiliate click-through nexus laws. It simply signifies that the issues presented in that case did not warrant review. Less than 5% of all petitions for certiorari are granted.

States, however, have taken the denial of cert as a prompt to propose affiliate click-through nexus laws. Thus, representatives have introduced bills in the legislatures of four states—Hawaii, Indiana, Tennessee, and South Carolina—that are modeled after the New York statute. There are some variations among this proposed legislation, but in general each provides for a presumption of nexus if the remote seller pays commissions to a person (the affiliate) who resides in the state for referrals by a website link or otherwise, if the retailer’s sales in the state from such referrals exceed $10,000. The bills would also permit the retailer to overcome the presumption by showing that the affiliate does not otherwise solicit sales on behalf of the retailer or otherwise make a market in the state. The New York Court of Appeals in the Amazon/Overstock cases stated that the presumption was rebuttable, so that the retailer could prove that the affiliate did not engage in solicitation activities on behalf of the retailer in New York. The rebuttable presumption saved the constitutionality of the statute.