DIRECT MARKETING ASSOCIATION v. BROHL
Colorado imposes a 2.9% tax on the sale of tangible goods in the state, which retailers with a physical presence in the state are required to collect from purchasers and remit to the state. If a Colorado purchaser has not paid the sales tax on tangible goods, as occurs in some online and mail-order transactions in which the businesses have no physical presence in Colorado, the purchaser must pay a 2.9% use tax and is responsible for reporting and paying the tax to the state. To increase the rate of collection of the use tax, in 2010, Colorado implemented regulations for non-collecting retailers whose gross sales in Colorado exceed $100,000. These retailers must provide transactional notices to Colorado purchasers, send annual purchase summaries to Colorado customers, and annually report Colorado purchaser information to the Colorado Department of Revenue. Retailers that do not comply with these regulations are subject to penalties.
In June 2010, Direct Marketing Association (DMA)—a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the Internet—sued the Colorado Department of Revenue’s executive director and argued that the regulations violated the Commerce Clause by discriminating against interstate commerce. The district court granted DMA’s request for an injunction and later granted summary judgment in favor of DMA. The U.S. Court of Appeals for the Tenth Circuit did not reach a decision on the merits of the appeal and instead held that the Tax Injunction Act deprived the district court of jurisdiction to enjoin Colorado’s tax collection effort.
Does the Tax Injunction Act bar federal court jurisdiction over a suit brought by non-taxpayers to enjoin the enforcement of notice-and-reporting requirements of state tax law that neither impose nor require the collection of a tax?