By Jack Minor
A lawsuit has been filed in Federal Court against Colorado challenging a law that requires online merchants to collect sales tax, claiming that the law is unconstitutional.
The Direct Marketing Association in announcing the suit said the “law and the regulations implementing it are an unconstitutional and blatant violation of Colorado consumers’ privacy.” According to the details of the suit, the law discriminates against interstate commerce and exposes confidential consumer information with the risk of unauthorized disclosure.
The law passed in February by the Colorado General Assembly requires out-of-state retailers with over $100,000 of gross sales in Colorado to do several things. They must inform customers they are required to self-report tax where the retailer does not collect the tax, send year-end statements to Colorado customers summarizing their purchase history over the course of the year. and report to the Department of Revenue information regarding their Colorado customers, including the billing and shipping addresses and the amount of the purchases during the prior year.
Supporters of the law say it is intended to level the playing field against Colorado merchants that have a physical presence and currently collect sales tax on every purchase. The suit notes that the reporting requirements only apply to out-of-state retailers who will incur time and expense in preparing and mailing out the annual purchases summary. The law does not allow merchants to include the statement with a regular shipping invoice, it must be sent in a separate first-class envelope. Reporting requirements also apply if a family or friend from out of state makes a purchase and requests it to be shipped to a resident of Colorado.
DMA says in the suit that the reporting requirements could reveal personal information about customers to the state such as their private interests and possibly their religious beliefs, political opinions, medical conditions, financial situations, family issues, or sexual orientation.
The suit goes on to state that retailers with a physical presence in Colorado are required to obtain a sales-tax license and collect taxes for the state, however “Retailers that have no office, store, property, employees or other physical presence in Colorado are not obligated under Colorado law, and are protected by the commerce clause of the United States Constitution from being required to collect Colorado sales tax on retail sales to Colorado consumers.”
The lawsuit comes as the Federal Government is making new moves to enable states to tax internet sales. Rep. Bill Delahunt (D-MA) introduced a bill last week that would change the current rules regarding online sales.
Under current law Americans who make purchases online with an out-of-state vendor are not generally required to pay sales tax. Delahunt’s bill, the Main Street Fairness Act, is in response to a Supreme Court decision in 1992 that said generally speaking retailers cannot be required to collect out of state sales tax unless Congress changes the current law.
A draft of the legislation is not yet available.
Tags: Colorado, commerce, Congress, Court, Department Revenue, DMA, end, February, February Colorado General Assembly, Federal Government, information, law, lawsuit, legislation, online, report, state, Supreme, tax, year