Legal Matters: Direct Marketers Take Colorado to the Supreme Court
Following the 10th Circuit decision dismissing the case, the DMA proceeded to file a new lawsuit in state court on the same constitutional grounds as previously alleged in federal court. On Feb. 18, 2014, the Colorado State District Court for the City and County of Denver granted the DMA's motion for a preliminary injunction and barred enforcement of the Colorado notice and reporting law. Now that the U.S. Supreme Court has agreed to review the jurisdictional issue, the state court judge has stayed further proceedings, and the preliminary injunction will remain in place until the Supreme Court issues its ruling.
The precise question presented by the DMA's appeal is as follows:
"Whether the Tax Injunction Act bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, nor requires the collection of a tax, but serves only as a secondary aspect of state tax administration?"
This case has attracted interest from a large number of industry groups that are concerned about a restriction on access to federal court when nonresident companies' constitutional rights have been violated by state tax laws. Several trade associations plan to file amicus curiae, or "friend of the court," briefs in support of the DMA's position.
Impact to Online Retailers
When an out-of-state company is forced to bring its federal constitutional claims (e.g., Commerce Clause, Due Process, Equal Protection, etc.) before a state court judge rather than to a federal court, a common fear is that the state tribunal may be biased against the out-of-state company and that the scales of justice will be tilted in favor of the state. In the current case, Colorado has enacted a law targeted exclusively at companies that are not located in the state, are not Colorado taxpayers, have not been issued an assessment for any tax, and do not owe the state any money.