The Supreme Court Decided on Colorado Sales Tax—Or Did It?

Brian Gordon, CPA
Published Date:
Jul 1, 2015

In 2010, Colorado came up with a unique way to collect use tax on sales from remote sellers outside that state: because states cannot require out-of-state retailers to collect sales tax for them, Colorado passed a law requiring out-of-state sellers to report, to their customers and to the state, the amount of purchases made that is subject to use tax.  This is similar to Form 1099 reporting of taxable income. This requirement was imposed on retailers with more than $100,000 in annual sales into Colorado, and they were required to send notices to Colorado customers who spent more than $500 on annual purchases.

Before the first year ended, one company, Direct Marketing Association (DMA), brought suit in federal district court, claiming that the new law discriminated against interstate commerce and placed undue burden on interstate commerce in violation of the Commerce Clause of the U.S. Constitution. The district court ruled in favor of the plaintiff and placed an injunction against Colorado enforcing its new law.

Colorado appealed this decision to the Tenth Circuit Court of Appeals. Instead of ruling on the merits of the case, the Tenth Circuit said that the district court should not have ruled on this case because it is barred from ruling under the Tax Injunction Act (TIA). The TIA provides that “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”

The case was remanded back to the district court to dismiss DMA’s Commerce Clause claims. Unfortunately, the district court never ruled on the issue of whether Colorado’s reporting law violated the Commerce Clause.

The Case Goes to the Supreme Court

Justice Clarence Thomas delivered the unanimous opinion for the court with respect to this case, Direct Marketing Association v. Brohl. In short, the Court ruled that the TIA did not bar the district court from ruling against Colorado’s law, meaning the Court found against Colorado, because they were limited to ruling on the use of the TIA only; however, the Court appeared very sympathetic to Colorado’s attempt to collect use tax due to the state.

Although the Supreme Court ruled against the use of the TIA, it pointed out that the appellate court also indicated, in a footnote, that the doctrine of comity would weigh strongly in favor of Colorado. Under the comity doctrine, federal courts refrain from “interfer[ing] … with the fiscal operations of the state governments.”

Though the Court told the Tenth Circuit that the TIA was not appropriate, it apparently advised the lower court to revisit the comity doctrine: “Accordingly, we leave it to the Tenth Circuit to decide on remand whether the comity argument remains available to Colorado.”

A Concurring Opinion

Justice Anthony Kennedy filed a concurring opinion that also strongly showed support for state issues with respect to sales tax collection: “The opinion of the Court has my unqualified join and assent, for in my view it is complete and correct. It does seem appropriate, and indeed necessary, to add this sepa­rate statement concerning what may well be a serious, continuing injustice faced by Colorado and many other States.”

Referencing the famous landmark decisions concerning nexus, Kennedy wrote the following:

In Quill, the Court should have taken the opportunity to reevaluate Bellas Hess not only in light of Complete Auto but also in view of the dramatic technological and social changes that had taken place in our increasingly intercon­nected economy.

When the Court decided Quill, mail-order sales in the United States totaled $180 billion. But in 1992, the Internet was in its infancy. By 2008, e-commerce sales alone totaled $3.16 trillion per year in the United States.

Because of Quill and Bellas Hess, States have been unable to collect many of the taxes due…

California, for example, has estimated that it is able to collect only about 4% of the use taxes due on sales from out-of-state vendors. See California State Board of Equal­ization, Revenue Estimate: Electronic Commerce and Mail Order Sales, Rev. 8/13, p. 7 (2013).

The result has been a startling revenue shortfall in many States, with concomitant unfairness to local retailers and their customers who do pay taxes at the register. The facts of this case exemplify that trend.

The legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess.

At its heart, this case is a story within a story. Is this a sign of things to come with respect to sales/use tax and remote sellers? 


Brian Gordon, CPABrian Gordon, CPA, is director of state and local taxes at Sanders Thaler Viola & Katz LLP. His primary role is to represent taxpayers with NYS tax audits and other controversies. Previously, he was with NYS Department of Taxation and Finance for many years as the district audit manager in Manhattan and Brooklyn, where he worked on many audits of various tax types, including high-profile residency audits. Mr. Gordon is a member of the NYSSCPA New York, Multistate & Local Taxation Committee. He writes and speaks on various state and local tax issues and posts a monthly blog at He can be reached at 516-938-5219 or 212-370-3743, or by e-mail at  

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