Defending Colorado's Use Tax Reporting Requirement

Abstract

In the course of the recent back-and-forth between states and internet retailers over the collection of use taxes, Colorado enacted House Bill 1193, which imposes notice and reporting requirements on retailers that do not collect use taxes on behalf of the state. Not surprisingly, an action has now been filed challenging the constitutionality of those requirements. The action, brought by the Direct Marketing Association (the “DMA”) in Colorado federal district court, contends that the statute's notice and reporting requirements violate the dormant Commerce Clause. A Viewpoint article published by State Tax Notes in April (the “April Viewpoint”) argued the same. The DMA Complaint and the April Viewpoint might reach the correct conclusion, but whether they do is hardly obvious and most likely turns on the standard of review the court applies to the reporting requirements. In fact, there are colorable, and perhaps even persuasive, arguments that HB 1193 should survive Commerce Clause review. This article presents some of those arguments.