Colorado Judge Blocks Internet Sales-Tax Law, A Month After North Carolina Got A Green Light

Written by Frank Hayes
February 2nd, 2011

Cash-strapped states really want out-of-state Internet retailers to help in collecting sales taxes. But despite a string of new “Amazon laws” aimed at forcing E-tailers to do just that, the states’ options keep getting narrowed—and E-tailers keep getting mixed messages.

Last Wednesday (Jan. 26), a federal judge blocked a Colorado law requiring E-tailers to turn over Internet sales information to the state. But that ruling appears to directly contradict another federal judge’s ruling in October giving a green light to a North Carolina law that requires exactly the same thing. Given that the federal judges at issue are in different regions of the country, this opens the door widely for—and almost requires—U.S. Supreme Court intervention.

The Colorado ruling comes on the heels of a recent court decision about a similar law in New York, which also offered a mix of good and bad news for E-tailers. But the truly bad news is that there’s no clear trend in the decisions. That makes it impossible for E-tailers to know just how close requirements for sales-tax collection might be—and what they need to prepare (and budget) for.

In the Colorado ruling, U.S. District Judge Robert Blackburn said the Colorado law—which requires out-of-state E-tailers to send “you owe sales tax” notices to Colorado customers and report sales to the Colorado Department of Revenue—appears to impose an illegal burden on “out-of-state retailers who have no connection with Colorado customers other than by common carrier or the United States mail.” As a result, the judge issued an injunction to block enforcement of the law for retailers who don’t have any physical operations in Colorado, at least until the case goes to trial.

Blackburn specifically found that issuing such an injunction in this case—brought by the Direct Marketing Association (DMA) on behalf of many of its member retailers—wouldn’t cause much harm to the state. And if it did, it’s appropriate, the judge said.

“I find and conclude that the public’s interest in revenue raising by the state will not be impaired substantially by the issuance of a preliminary injunction. At most, the state may suffer some delay in implementing its new technique for enforcing its use tax laws, if the Act and the Regulations are upheld against the DMA’s challenge,” Blackburn wrote. “On the other hand, the enforcement of a law that likely is unconstitutional, even if the goal of the law is important and legitimate, does not serve the public interest. Thus, the public interest factor weighs in favor of the issuance of a preliminary injunction.”

That’s a sharp contrast to an October decision by a federal judge in Seattle, who ruled that Amazon isn’t protected from having to send similar sales-tax notices and reports about its customers in North Carolina.


2 Comments | Read Colorado Judge Blocks Internet Sales-Tax Law, A Month After North Carolina Got A Green Light

  1. T.Anne Says:

    I don’t understand how the states could justify getting their tax. If I went to another state to make a purchase – I pay what is due there… and I don’t come home to pay it again here. So if I were to go to OR (where there is no state tax) and purchase DVDs, books, CDs, etc and come home – I wouldn’t have to pay tax here. The only purchase I believe that is not true with, is a new car. Now I get the arguement of online I may not pay any sales tax… but if anything – I would think the tax would be due for where the product is coming from, not the state it’s delivered to.

  2. Geo. Jacabo Says:

    Why don’t they just require sales tax to be paid in the state where the company is located. That would be like me going to another state, making a purchase and bringing it home to use. This would cause state’s to re-think the “internet tax” and cause them to maybe lower or eliminate their tax on internet purchases in hopes of luring internet based busineess into their states. It’s all about where they can nickle and dime the consumer to death.


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