Brief of Interested Law Professors as Amici Curiae Supporting Respondent in Direct Marketing Association v. Brohl

38 Pages Posted: 31 Oct 2014 Last revised: 7 Nov 2014

See all articles by Darien Shanske

Darien Shanske

University of California, Davis - School of Law

Alan B. Morrison

George Washington University - Law School

Joseph Bankman

Stanford Law School

Jordan M. Barry

University of San Diego School of Law

Barbara H. Fried

Stanford Law School

David Gamage

Indiana University Maurer School of Law

Andrew J. Haile

Elon University School of Law

Kirk J. Stark

University of California, Los Angeles (UCLA) - School of Law

John A. Swain

University of Arizona - James E. Rogers College of Law

Dennis J. Ventry

University of California, Davis - School of Law

Date Written: October 24, 2014

Abstract

The petitioner in this case has framed the question presented 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.”

Amici agree with the respondent, the State of Colorado, that the Tax Injunction Act bars federal courts from enjoining the operation of the Colorado Statute at issue in this case because this lawsuit is intended to create the very kind of premature federal court interference with the operation of the Colorado use tax collection system that the TIA was designed to prevent. To assist the Court in understanding the application of the TIA to this case, amici (i) place the reporting requirements mandated by the Colorado Statute in the broader context of tax administration and (ii) explain the potential interaction between a decision on the TIA issue in this case and the underlying dispute concerning the dormant Commerce Clause.

Third-party reporting of tax information is a ubiquitous and longstanding feature of modern tax systems. When tax authorities rely on taxpayers to self-report their taxable activities, compliance rates for the collection of any tax is low. Like all states with a sales tax, Colorado faced – and faces – a voluntary compliance problem with the collection of its use tax. The use tax is a complement to the sales tax; in-state vendors collect and remit the sales tax, while in-state consumers are responsible for remitting the use tax on purchases made from out-of-state vendors that do not collect the sales tax. To this compliance challenge, Colorado turned to a third-party reporting solution. In broad strokes, the Colorado Statute imposes a modest requirement on one party to a taxable transaction – specifically on relatively large retailers who do not collect the use tax - to report information on their Colorado sales both to the consumer/taxpayer and to the taxing authorities.

Amici law professors contend that the centrality of third-party reporting to tax administration in general, and its aptness for this problem in particular, indicate that enjoining the operation of the Colorado Statute constitutes “restrain[ing] the assessment, levy or collection” of Colorado’s use tax.

Amici also observe, however, that even a narrow ruling on the scope of the TIA in the Supreme Court could have an unexpected - and we would argue undesirable – impact on the federalism concerns that we think should decide this case. This is because any interpretation of the Colorado Statute for purposes of the TIA made by the Court might be erroneously construed as carrying over to interpreting the Statute for purposes of the dormant Commerce Clause.

We think it likely and reasonable for the courts below to look to the Supreme Court’s decision on the TIA for guidance as to what test to apply under the dormant Commerce Clause. However, amici fear that a decision that held that Colorado’s reporting requirement is integral to Colorado’s “tax collection” for purposes of the TIA will exert a gravitational pull on the lower courts, encouraging them to apply the physical presence test from Quill Corp. v. North Dakota, 504 U.S. 298 (1992) to the Colorado Statute. The Quill test is an especially strict test under the dormant Commerce Clause, and one arguably meant only for “taxes.” Thus, a victory for sensible state tax administration and federalism in this Court could be transmuted into a defeat for those principles below. Amici believe that NFIB v. Sebelius, 132 S. Ct. 2566 (2012), teaches that an answer on the TIA does not compel an answer concerning the dormant Commerce Clause. We call this issue to the Court’s attention so that the Court is aware of how a decision on the TIA issue might be used – or misused – when the case reaches the merits, either in the state or federal court system.

Keywords: sales and use tax, third-party reporting, tax injunction act, dormant commerce clause, Quill v. North Dakota

Suggested Citation

Shanske, Darien and Morrison, Alan B. and Bankman, Joseph and Barry, Jordan and Fried, Barbara H. and Gamage, David and Haile, Andrew J. and Stark, Kirk J. and Swain, John A. and Ventry, Dennis J., Brief of Interested Law Professors as Amici Curiae Supporting Respondent in Direct Marketing Association v. Brohl (October 24, 2014). Stanford Public Law Working Paper No. 2516159; San Diego Legal Studies Paper No. 14-71; UC Davis Legal Studies Research Paper No. 400; UC Berkeley Public Law Research Paper No. 2516159; UCLA School of Law Research Paper No. 14-19. Available at SSRN: https://ssrn.com/abstract=2516159 or http://dx.doi.org/10.2139/ssrn.2516159

Darien Shanske (Contact Author)

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

Alan B. Morrison

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

Joseph Bankman

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-725-3825 (Phone)
650-725-7663 (Fax)

Jordan Barry

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Barbara H. Fried

Stanford Law School ( email )

559 Nathan Abbott Way
Crown Quadrangle
Stanford, CA 94305-8610
United States
650-723-2499 (Phone)
650-725-0253 (Fax)

David Gamage

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

HOME PAGE: http://www.law.indiana.edu/about/people/bio.php?name=gamage-david

Andrew J. Haile

Elon University School of Law ( email )

201 N. Greene Street
Greensboro, NC 27401
United States

Kirk J. Stark

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-825-7470 (Phone)

John A. Swain

University of Arizona - James E. Rogers College of Law ( email )

P.O. Box 210176
Tucson, AZ 85721-0176
United States
(520) 621-7673 (Phone)
(520) 621-9140 (Fax)

Dennis J. Ventry

University of California, Davis - School of Law ( email )

UC Davis School of Law
400 Mrak Hall Drive
Davis, CA 95616-5201
United States
530-752-4566 (Phone)

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