Direct Mktg. Ass'n v. Brohl

• Decision Date: 22 February 2016
• Docket Number: No. 12–1175.,12–1175.
• Citation: 814 F.3d 1129
• Parties: DIRECT MARKETING ASSOCIATION, The, Plaintiff–Appellee, v. Barbara BROHL, in her capacity as Executive Director, Colorado Department of Revenue, Defendant–Appellant, and Multistate Tax Commission; Interested Law Professors; The Retail Industry Leaders Association; Retail Litigation Center, Inc.; Colorado Retail Council ; National Governors Association; National Conference of State Legislatures; Council of State Governments; National Association of Counties ; National League of Cities; United States Conference of Mayors; International City/County Management Association; International Lawyers Association; Government Finance Officers Association; Tax Foundation, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

814 F.3d 1129

DIRECT MARKETING ASSOCIATION, The, Plaintiff–Appellee,

v.Barbara BROHL, in her capacity as Executive Director, Colorado Department of Revenue, Defendant–Appellant,andMultistate Tax Commission; Interested Law Professors; The Retail Industry Leaders Association; Retail Litigation Center, Inc.; Colorado Retail Council ; National Governors Association; National Conference of State Legislatures; Council of State Governments; National Association of Counties ; National League of Cities; United States Conference of Mayors; International City/County Management Association; International Lawyers Association; Government Finance Officers Association; Tax Foundation, Amicus Curiae.

No. 12–1175.

United States Court of Appeals, Tenth Circuit.

Feb. 22, 2016.

Frederick R. Yarger, Solicitor General (Cynthia H. Coffman, Attorney General, Stephanie Lindquist Scoville, Senior Assistant Attorney General, Grant T. Sullivan, Assistant Solicitor General, Claudia Brett Goldin, First Assistant Attorney General, Daniel D. Domenico, Solicitor General, and Melanie J. Snyder, Chief of Staff, with him on the briefs), Office of the Attorney General for the State of Colorado, Denver, CO, appearing for Defendant–Appellant.

George S. Isaacson (Matthew P. Schaefer, with him on the briefs), Brann & Isaacson, Lewiston, ME, appearing for Plaintiff–Appellee.

Darien Shanske, University of California, Davis School of Law, Davis, CA, Kirk J. Stark, University of California, Los Angeles, School of Law, Los Angeles, CA, and Alan B. Morrison, George Washington University School of Law, Washington, DC, for Amicus Curiae Interested Law Professors.

Lisa Soronen, Executive Director, State & Local Legal Center, Washington, DC, and Ronald A. Parsons, Jr., Johnson, Abdallah, Bollweg & Parsons, LLP, Sioux Falls, South Dakota, for Amicus Curiae National Governors Association, National Conference of State Legislatures, Council of State Governments, National Association of Counties, National League of Cities, United States Conference of Mayors, International City/County Management Association, International Municipal Lawyers Association, and Government Finance Officers Association.

Helen Hecht, Lila Disque, and Sheldon Laskin, Multistate Tax Commission, Washington, DC, for Amicus Curiae Multistate Tax Commission.

Deborah White, Retail Industry Leaders Association and Retail Litigation Center, Arlington, VA; Tom Goldstein and Eric Citron, Goldstein & Russell, P.C., Bethesda, MD, for Amicus Curiae Retail Industry Leaders Association, Retail Litigation Center, Inc. and Colorado Retail Council.

Joseph D. Henchman, Tax Foundation, Washington, DC, and Joseph P. Kennedy, Kennedy Kennedy & Ives, LLC, Albuquerque, New Mexico, for Amicus Curiae Tax Foundation.

Before BRISCOE, GORSUCH, and MATHESON, Circuit Judges.

MATHESON

, Circuit Judge.

I. INTRODUCTION

When a neighborhood bookstore in Denver sells a book, it must collect sales tax from the buyer and remit that payment to the Colorado Department of Revenue ("Department"). When Barnes & Noble sells a book over the Internet to a Colorado buyer, it must collect sales tax from the buyer and remit. But when Amazon sells a book over the Internet to a Colorado buyer, it has no obligation to collect sales tax. This situation is largely the product of the Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992)

, which held that, under the dormant Commerce Clause doctrine, a state may not require a retailer having no physical presence in that state—e.g., Amazon as opposed to Barnes & Noble—to collect and remit sales tax on the sales it makes there.

Faced with Quill, many states, including Colorado, rely on purchasers themselves to calculate and pay a use tax on their purchases from out-of-state retailers that do not collect sales tax. But few in Colorado or elsewhere pay the use tax despite their legal obligation to do so.¹ With the explosive growth of e-commerce, the states' inability to compel out-of-state retailers to collect sales tax has cost state and local governments significant revenue and disadvantaged in-state retailers, who must collect sales tax at the point of sale. Justice Kennedy recently said this "may well be a serious, continuing injustice faced by Colorado and many other States." Direct Mktg. Ass'n v. Brohl ("Brohl II "), ––– U.S. ––––, 135 S.Ct. 1124, 1134, 191 L.Ed.2d 97 (2015)

(Kennedy, J., concurring).

In 2010, Colorado attempted to address use tax non-compliance by enacting a law ("Colorado Law") that imposes notice and reporting obligations on retailers that do not collect sales tax. Plaintiff–Appellee Direct Marketing Association ("DMA")—a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the Internet—has challenged this law as violating the dormant Commerce Clause.

DMA argues the Colorado Law unconstitutionally discriminates against and unduly burdens interstate commerce. The district court agreed with both arguments, granted summary judgment to DMA, and permanently enjoined the Department from enforcing the Colorado Law. See Direct Mktg. Ass'n v. Huber, No. 10–cv–01546–REB–CBS, 2012 WL 1079175, at *10–11 (D.Colo. Mar. 30, 2012)

. Defendant–Appellant Barbara Brohl, Executive Director of the Department, appeals.²

We have jurisdiction under 28 U.S.C. § 1291

. We reverse because the Colorado Law does not discriminate against nor does it unduly burden interstate commerce.

II. BACKGROUND

A. Factual History

Colorado has imposed a sales tax since 1935 and a use tax since 1937. The taxes are complementary. The sales tax is paid at the point of sale and the use tax is paid when property is stored, used, or consumed within Colorado but sales tax was not paid to a retailer. See Colo.Rev.Stat. §§ 39–26–104

, –202, –204(1). In approving the sales-use tax system under the dormant Commerce Clause, the Supreme Court described it as follows:

The practical effect of a system thus conditioned is readily perceived. One of its effects must be that retail sellers in Washington will be helped to compete upon terms of equality with retail dealers in other states who are exempt from a sales tax or any corresponding burden. Another effect, or at least another tendency, must be to avoid the likelihood of a drain upon the revenues of the state, buyers being no longer tempted to place their orders in other states in the effort to escape payment of the tax on local sales.

Henneford v. Silas Mason Co., 300 U.S. 577, 581, 57 S.Ct. 524, 81 L.Ed. 814 (1937)

.

The methods for collecting sales and use taxes vary. In-state retailers subject to sales tax collection are tasked with assorted requirements—for example, obtaining a license, calculating state and local taxes, accounting for exemptions, collecting the tax, filing a return, remitting the tax to the state, and keeping certain records. In-state retailers are also liable for any sales taxes they do not collect and may be subject to fines or criminal penalties for non-compliance.

Because Colorado cannot compel out-of-state retailers without a physical presence in the state to collect taxes, the state requires purchasers themselves to calculate and remit use taxes on their purchases from out-of-state retailers. The regimes differ greatly in effectiveness—compliance with the sales tax is extremely high, and compliance with the use tax is extremely low.

To assist the state in collecting use tax from in-state purchasers, most seemingly unaware of their tax responsibility,³ the Colorado legislature passed a law in 2010 that imposes three obligations on retailers that do not collect sales taxes—"non-collecting retailers"⁴ : (1) to send a "transactional notice" to purchasers informing them that they may be subject to Colorado's use tax, see Colo.Rev.Stat. § 39–21–112(3.5)(c)(I)

; 1 Colo.Code Regs. § 201–1:39–21–112.3.5(2);⁵(2) to send Colorado purchasers who buy goods from the retailer totaling more than $500 an "annual purchase summary" with the dates, categories, and amounts of purchases, reminding them of their obligation to pay use taxes on those purchases, Colo.Rev.Stat. § 39–21–112(3.5)(d)(I) ; 1 Colo.Code Regs. § 201–1:39–21–112.3.5(3); and (3) to send the Department an annual "customer information report" listing their customers' names, addresses, and total amounts spent, Colo.Rev.Stat. § 39–21–112(3.5)(d)(II) ; 1 Colo.Code Regs. § 201–1:39–21–112.3.5(4). DMA objected to these requirements and brought suit against the Executive Director of the Department.

B. Procedural History

DMA filed a facial challenge to the Colorado Law in federal district court in 2010. Among other claims,⁶ it contended that the Colorado Law violates the dormant Commerce Clause because it discriminates against and unduly burdens interstate commerce.

On March 30, 2012, the district court granted summary judgment to DMA on both grounds. Huber, 2012 WL 1079175, at *10–11

. The court permanently enjoined the Department from enforcing the Colorado Law. Id.

On August 20, 2013, this panel held that the district court lacked jurisdiction to hear DMA's challenge under the Tax Injunction Act ("TIA"). See Direct Mktg. Ass'n v. Brohl ("Brohl I "), 735 F.3d 904, 906 (10th Cir.2013)

; 28 U.S.C. § 1341. We remanded the case to the district court to dismiss DMA's claims and dissolve the permanent injunction. Brohl I, 735 F.3d at 921. The Tenth Circuit rejected a request for en banc review. Direct Mktg. Ass'n v. Brohl, No. 12–1175 (10th Cir. Oct. 1, 2013) (unpublished).

On December 10, 2013, the district court dismissed DMA's claims and dissolved the permanent injunction. Shortly thereafter, it dismissed the remainder of DMA's eight claims without prejudice.

DMA then sued the Department in state court. It also petitioned for certiorari to the Supreme Court, seeking review of the Tenth Circuit's dismissal of its claims based on the TIA.

On February 18, 2014, the state district court preliminarily enjoined enforcement of the Colorado Law...