United States: Federal Court Of Appeals Upholds Colorado's Sales And Use Tax Notice And Reporting Requirements

On February 22, 2016, the United States Court of Appeals for the Tenth Circuit upheld the constitutionality of Colorado's notification and reporting requirements imposed on out-of-state retailers that do not collect sales tax in the state.1 The Tenth Circuit held that the notification and reporting requirements do not violate the dormant Commerce Clause because they do not discriminate against or unduly burden interstate commerce. In its decision, the Tenth Circuit held that the U.S. Supreme Court's decision in Quill Corp. v. North Dakota2 was not applicable based on U.S. Supreme Court and Tenth Circuit decisions construing Quill narrowly to apply only to the duty to actually collect and remit taxes.


Colorado imposes a complementary sales and use tax. The sales tax is paid at the point of sale, while the "use tax is paid when property is stored, used, or consumed within Colorado but sales tax was not paid to a retailer." 3 In-state retailers are responsible for collecting and remitting the sales tax to the state. Purchasers are required to calculate and remit the appropriate use tax on purchases from out-of-state retailers.

As a result of the difficulty in enforcing compliance with respect to the use tax system, the state enacted legislation in 2010 that imposed several notification and reporting requirements on retailers that do not collect sales tax. 4 The new law imposed three requirements5 on "non-collecting retailers:" 6

  • Sending a "transactional notice" to Colorado purchasers letting them know that they may be subject to Colorado's use tax; 7
  • Sending an "annual purchase summary" to Colorado purchasers who buy more than $500 in goods from the retailer with the dates, categories, and amounts of purchases, reminding them of their obligation to pay use taxes on those purchases; 8 and
  • Filing an annual "customer information report" with the Colorado Department of Revenue listing their customers' names, addresses, and total amounts spent. 9

The Direct Marketing Association (DMA) consists of businesses and organizations that market products directly to consumers via catalogs, print advertisements, broadcast media and the Internet. DMA filed a lawsuit against the Department in a federal District Court arguing that the statute enacting notice and reporting requirements "violates the dormant Commerce Clause because it discriminates against and unduly burdens interstate commerce."

Procedural History

On March 30, 2012, a federal District Court granted a motion for summary judgment in favor of DMA and issued a permanent injunction against the Department that enjoined the enforcement of the notice and reporting requirements. 10 In reaching its decision, the District Court concluded that Colorado's notice and reporting requirements discriminated against and placed undue burdens on interstate commerce, in violation of the Commerce Clause. The Department appealed the District Court's decision.

On August 20, 2013, the U.S. Court of Appeals for the Tenth Circuit held that the Tax Injunction Act (TIA) 11 precluded federal jurisdiction over DMA's claims12 and remanded the case to dissolve the permanent injunction and to dismiss the Commerce Clause claims raised by DMA. 13 Because the Court of Appeals determined that it did not have jurisdiction over the case, it did not consider the substantive aspects of Colorado's notice and reporting requirements, including whether such requirements violated constitutional provisions.

Following the Tenth Circuit's denial of DMA's request for en banc review, DMA appealed the decision to the U.S. Supreme Court, and concurrently filed suit in a state court. 14 The U.S. Supreme Court granted certiorari on July 1, 2014.

On March 3, 2015, the U.S. Supreme Court unanimously held that the TIA did not bar a challenge in federal court of Colorado's sales and use tax notice and reporting requirements for out-of-state retailers. 15 The Court did not consider the underlying merits of the challenges to Colorado's notice and reporting requirements. In reversing and remanding the Tenth Circuit's decision, the Court set the stage for this decision which allowed DMA the ability to raise the federal constitutional challenges concerning Colorado's extensive notice and reporting requirements in federal court rather than in state court.

Dormant Commerce Clause and Scope of Quill

The Tenth Circuit began its analysis by providing a broad overview of the dormant Commerce Clause doctrine. Tracing the development of the doctrine, the Tenth Circuit explained that the "focus of a dormant Commerce Clause challenge is whether a state law improperly interferes with interstate commerce." Underlying this is the primary concern of economic protectionism. The Tenth Circuit addressed the four-prong test in Complete Auto16 for dormant Commerce Clause challenges involving state taxes on interstate commerce and concluded that the test did not apply in the case at hand because the facts involved a "reporting requirement and not a tax."

Turning its discussion to Quill,17 the Tenth Circuit stated that its decision in this case was determined by the scope of Quill. The Tenth Circuit concluded that the scope of Quill does not extend beyond sales and use tax collection. The Tenth Circuit noted that in DMA, the U.S. Supreme Court stated that Quill established "the principle that a state 'may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the [state].'" Furthermore, while the U.S. Supreme Court has not overturned Quill, it "has not extended the physical presence rule beyond the realm of sales and use tax collection."

The Tenth Circuit also cited to similar language in its own decision in American Target Advertising, Inc. v. Giani18 to underscore its point. In that decision, the Tenth Circuit stated that "Bellas Hess and Quill concern the levy of taxes upon out-of-state entities" and the U.S. Supreme Court in Quill "repeatedly stressed that it was preserving Bellas Hess' bright-line rule 'in the area of sales and use taxes.'" The Tenth Circuit found that the "Utah Act imposes licensing and registration requirements, not tax burdens" and thus, the "Bellas Hess/Quill bright-line rule is therefore inapposite."

The Tenth Circuit rejected DMA's argument that the Supreme Court cited Quill in three cases19 that did not involve a tax collection obligation. According to the Tenth Circuit, these decisions "merely describe points of law in Quill and do not actually extend its holding to other contexts." None of the cases cited by DMA "actually invokes Quill's dormant Commerce Clause analysis—only its due process analysis and discussion of congressional authority—and they do not demonstrate that Quill extends beyond the actual collection of taxes by out-of-state retailers."

DMA's Discrimination Claim

In granting summary judgment to DMA, the District Court had held that Colorado's notice and reporting requirements: (1) impermissibly discriminated against and (2) unduly burdened interstate commerce. The Tenth Circuit reversed the District Court's order granting summary judgment, finding that the Colorado notice and reporting requirements did not violate the dormant Commerce Clause because the statute does not discriminate against or unduly burden interstate commerce. In its discrimination analysis, the Tenth Circuit considered whether the Colorado notice and reporting requirements facially discriminate against interstate commerce, and whether the direct effect of such requirements is to favor in-state economic interests over out-of-state interests.

Facial Discrimination

The Tenth Circuit found that Colorado's notice and reporting requirements were not facially discriminatory. The notice and reporting requirements do not distinguish between in-state and out-of-state economic interests but impose differential treatment if the retailer collects Colorado sales or use taxes or not.

The Tenth Circuit noted that, while the title of the statute, "An Act Concerning the Collection of Sales and Use Taxes on Sales Made by Out-Of-State Retailers," mentions out-of-state retailers, the statute itself clearly refers to "[e]ach retailer that does not collect Colorado sales tax."

Additionally, the Tenth Circuit stated that "when the Supreme Court has concluded a law facially discriminates against interstate commerce, it has done so based on statutory language explicitly identifying geographical distinctions." According to the Tenth Circuit, the notice and reporting requirements do not make this distinction. The law only distinguishes between "those retailers that collect Colorado sales and use tax and those that do not." Thus, the Tenth Circuit concluded that there was no facial discrimination.

Discriminatory in its Direct Effects

The Tenth Circuit explained that a state law violates the dormant Commerce Clause if "its effect is to favor in-state economic interests over out-of-state interests." 20 This is determined by looking at the "overall effect of the statute on both local and interstate activity." In order to prevail, DMA was required to show that the notice and reporting requirements served to benefit local actors, and burden out-of-state actors, resulting in an alteration of "the competitive balance between in-state and out-of-state firms." DMA failed to meet this burden, leading the Tenth Circuit to hold that the Colorado notice and reporting requirements do not favor in-state economic interests and are not discriminatory in their effect.

In its analysis, the Tenth Circuit rejected DMA's argument that "any differential treatment" between in-state and out-of-state entities violates the dormant Commerce Clause and that Colorado's notice and reporting requirements should be viewed in isolation. The Tenth Circuit noted that the reporting obligation does not give in-state retailers a competitive advantage. The Tenth Circuit also noted that disparate treatment is not discrimination if the subjects of the treatment are not similarly situated. The "noncollecting out-of-state retailers are not similarly situated to the in-state retailers, who must comply with tax collection and reporting requirements that are not imposed on the out-of-state non-collecting retailers." Finally, the Tenth Circuit held that DMA did not prove that the notice and reporting requirements imposed "a discriminatory economic burden on out-of-state vendors when viewed against the backdrop of the collecting retailers' tax collection and reporting obligations." The reporting requirements apply to retailers that do not otherwise have to comply with tax collection and reporting and were created to "increase compliance with preexisting tax obligations," the Tenth Circuit explained.

The Tenth Circuit then considered whether the Colorado notice and reporting requirements had a discriminatory effect, and viewed this question in terms of the reach of Quill. The Tenth Circuit had already determined that Quill was inapplicable to the Colorado notice and reporting requirements because Quill concerned the collection of sales and use taxes, while Colorado's law was enacted to deal with a different objective. As a result, DMA needed to prove that the notice and reporting obligations were discriminatory if such obligations constituted "'differential treatment of in-state and outof- state economic interests that benefits the former and burdens the latter,' and thereby 'alter[] the competitive balance between in-state and out-of-state firms.'" According to the Tenth Circuit, DMA failed to prove discrimination. In addition, the Tenth Circuit concluded that DMA failed to show that the notice and reporting requirements for noncollecting out-of-state retailers are more burdensome than the regulatory requirements faced by in-state retailers, including obtaining a license and calculating the amount of tax due.

DMA's Undue Burden Claim

Following the rejection of DMA's discrimination arguments, the Tenth Circuit separately evaluated DMA's undue burden argument. As DMA relied on Quill in its analysis of undue burden, the Tenth Circuit summarily concluded that Quill's non-applicability to the Colorado notice and reporting requirements made it impossible for DMA to prevail on the undue burden claim. The Tenth Circuit did not evaluate whether the notice and reporting requirements could be invalidated based on the argument that the burden imposed on interstate commerce was "clearly excessive in relation to the putative local benefits." 21


The decision by the Tenth Circuit marks the latest twist in a seemingly unending loop of litigation between DMA and the Department on the legality of imposing expansive notice and reporting requirements on remote sellers. If the result ultimately stands, the Tenth Circuit's decision would endorse notice and reporting requirements as an alternative method by which states attempt to address the issue of the disparity in treatment between online sellers and brick-and-mortar sellers. It remains to be seen whether other states immediately adopt the notice and reporting requirements, which are based on a model statute adopted by the Multistate Tax Commission, or whether they await a final disposition of the case. Given the uncertainty in this area, one would think that states might exercise caution for the moment.

As this litigation has evolved, in addition to notice and reporting statutes directed at remote sellers, states have used a variety of tools to expand the universe of taxpayers subject to the collection and remittance requirements of the sales and use tax, including the adoption of click-through and affiliate nexus statutes. At the same time, several incarnations of federal legislation that would overturn the Quill physical presence standard continue to be considered in Congress, albeit at a deliberate pace.

DMA now faces a decision on whether to: (i) request an en banc hearing as it did the last time the Tenth Circuit handed down an adverse decision to DMA; (ii) appeal directly to the U.S. Supreme Court; or (iii) acquiesce to the Tenth Circuit's decision. Each approach carries possibilities and risks. If history is a guide, DMA's request for an en banc hearing by the entire Tenth Circuit may not be granted, though at the very least, such action would provide DMA additional time to consider its remaining alternatives. If an appeal to the U.S. Supreme Court is taken, a review is far from guaranteed. However, the probability that certiorari would be granted by the Court is somewhat higher than usual, given that the Court heard the prior litigation that resulted in the case being heard by the federal courts. At the very least, Justice Anthony Kennedy's statement in a concurring opinion22 in the U.S. Supreme Court's DMA decision that the "legal system should find an appropriate case" to challenge Quill makes it likely that at least one justice wants to grant certiorari.

The biggest risk that DMA may face in appealing the decision to the Court is that the Court ultimately grants certiorari, and finds not only that the Colorado collection and reporting requirements are legal, but that the Quill physical presence standard is obsolete. Having said that, any presumption about what the Court might do with this case is fraught with a great deal of uncertainty, in large part due to the recent death of U.S. Supreme Court Justice Antonin Scalia. The expected lengthy nomination process for his successor may impact the Court's workload in the short term, and, depending upon the identity of Justice Scalia's successor, may have implications on whether, and if so, how the Court approaches the litigation.

Out-of-state retailers will likely not be disappointed to hear that the Department has not yet fired up the machinery to administer the Colorado reporting requirements, having taken a "wait and see" approach as this plays out.


1 Direct Marketing Association v. Brohl, U.S. Court of Appeals, 10th Circuit, No. 12-1175, Feb. 22, 2016.

2 504 U.S. 298 (1992).

3 Citing COLO. REV. STAT. §§ 39-26-104, 39-26-202, 39-26-204(1).

4 H.B. 10-1193, Laws 2010, which is now codified at COLO. REV. STAT. § 39-21-112(3.5).

5 Certain de minimis retailers, or retailers with de minimis purchasers, are not subject to these requirements. 1 COLO. CODE REGS. § 39-21-112.3.5(1)(a) provides that retailers who made less than $100,000 in total gross sales in Colorado in the previous calendar year, and who reasonably expect gross sales in the current calendar year to be less than $100,000, are exempt from the notice and reporting obligations.

6 1 COLO. CODE REGS. § 39-21-112.3.5(1)(a) defines a "non-collecting retailer" as "a retailer that sells goods to Colorado purchasers and that does not collect Colorado sales or use tax."

7 COLO. REV. STAT. § 39-21-112(3.5)(c)(I); 1 COLO. CODE REGS. § 39-21-112.3.5(2).

8 COLO. REV. STAT. § 39-21-112(3.5)(d)(I); 1 COLO. CODE REGS. § 39-21-112.3.5(3).

9 COLO. REV. STAT. § 39-21-112(3.5)(d)(II); 1 COLO. CODE REGS. § 39-21-112.3.5(4).

10 Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, No. 10-cv-01546-REBCBS, March 30, 2012.

11 28 U.S.C. § 1341. The TIA provides that federal "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."

12 Direct Marketing Association v. Brohl, 735 F.3d 904 (10th Cir. 2013).

13 The District Court dismissed DMA's claims and dissolved the permanent injunction on Dec. 10, 2013.

14 Direct Marketing Association v. Department of Revenue, Colo. District Court, No. 13CV34855, Feb. 18, 2014. The state District Court preliminarily enjoined enforcement of the Colorado notice and reporting requirements based on DMA's dormant Commerce Clause constitutional argument claiming facial discrimination. After the U.S. Supreme Court granted certiorari, the state court stayed its proceedings.

15 Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (2015).

16 Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).

17 Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

18 199 F.3d 1241 (10th Cir. 2000).

19 Polar Tankers, Inc. v. City of Valdez, 557 U.S. 1 (2009); MeadWestvaco Corp. v. Illinois Department of Revenue, 553 U.S. 16 (2008); Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997).

20 Citing to Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573 (1986).

21 Referencing the undue burden test set forth by the U.S. Supreme Court in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

22 135 S. Ct. 1124 (2015) (Kennedy, J., concurring). For a discussion of this case, see GT SALT Alert: U.S. Supreme Court Holds Challenge to Colorado's Sales and Use Tax Notice and Reporting Requirements Not Barred by Tax Injunction Act. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.