United States

Colorado: The Latest TWIST in the Quest to Overturn Quill

Oct 17, 2016
From KPMG TaxWatch

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In a recent twist (pun intended), the State of Colorado has requested that the U.S. Supreme Court, if it grants cert in the case addressing the constitutionality of Colorado’s use tax reporting requirements, should reframe the question presented to address―and overturn―Quill. Recall, in 2010 Colorado became the first state to adopt use tax notice and reporting requirements applicable to non-collecting retailers. Shortly after the Colorado use tax reporting law was enacted, the Direct Marketing Association (DMA) filed suit in Colorado federal district court asserting that the use tax reporting requirements violated the dormant Commerce Clause by imposing an undue burden on interstate commerce. The U.S. District Court found for DMA and permanently enjoined the Department from enforcing the reporting requirements. On appeal, however, the U.S. Court of Appeals for the Tenth Circuit held that the federal Tax Injunction Act (TIA) barred DMA from bringing its suit in federal court. The U.S. Supreme Court subsequently reversed the Tenth Circuit and held that the TIA did not bar DMA’s action in federal court. On remand to the Tenth Circuit, the merits of the matter were finally addressed and the court ruled in Colorado’s favor, finding that Quill was confined to the collection of use tax and that the Colorado reporting requirements did not constitute an undue burden on interstate commerce.

On October 3, 2016, DMA filed a petition for certiorari asking the U.S. Supreme Court to review the Tenth Circuit decision upholding Colorado’s use tax reporting requirements. Shortly thereafter, the Colorado Attorney General filed a conditional cross-petition asserting that the Tenth Circuit decision was correct and that cert should be denied. However, the cross-petition further requests that if the U.S. Supreme Court does grant review, it should instead answer the question presented in the cross-petition: "should Quill be overturned?" As support for its request, Colorado argues that this is an issue of national importance due to the heavy reliance on sales and use taxes by states. Colorado also asserts that Quill's "artificial" rule continues to spawn confusion, as states have adopted a range of divergent and complex approaches to stem their tax losses. Finally, in the state’s view, the DMA case presents an appropriate vehicle to reexamine Quill because DMA's facial challenge involves no tax liability. Please stay tuned to TWIST for future updates on the DMA litigation.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.