The Direct Marketing Association will sue the state of Colorado over its new out-of-state sales tax laws. The DMA expects to file its suit within the next few weeks, and is soliciting its members to chip in for its legal expenses.
The Colorado law requires marketers that ship orders into the state to provide purchase information to the Colorado Department of Revenue regarding who its customers were and what they spent. The notification requirement applies only to purchases on which the customer paid no Colorado taxes.
“If I purchase things from a general marketer, it’s announced to the Department of Revenue that I spent $100 on unnamed goods,” Jerry Cerasale, the DMA’s senior VP of government affairs, told Direct Newsline.
“But if I purchase $100 worth of goods from a medical place, or a specific company whose name basically says what sort of product it is, that’s telling the state a lot of information about what I buy. Do we want the state to have that sort of information?”
Since being enacted on March 1, the law has been modified. Previously, marketers had to notify customers at the time of purchase that their non-taxed orders would be reported to the Department of Revenue. That notification must be sent via first-class mail.
Marketers also had to send a year-end statement to both the customer and the Department of Revenue. The statements, which will be due on Jan. 31 of every year, would cover the previous calendar year’s purchases.
But under a new regulation passed earlier this month, marketers have the option of waiting to notify customers until the end-year period, without mentioning it at the time of purchase.
On June 16, the DMA sent its members an e-mail alert discussing the Colorado law. The message also solicited funds in support of the legal action. These funds would be specifically earmarked for the legal challenge, Cerasale said, and would not go to cover general DMA expenses. The URL for the donation form is http://www.the-dma.org/membership/colorado/.
“If there is money left over it will be returned pro rata,” Cerasale added. “This is not a DMA fundraiser for DMA coffers. It’s just for the lawsuit.”
The crux of the DMA’s argument is that Colorado’s new legislation is unconstitutional under the U.S. Supreme Court’s decision in Quill v. North Dakota. In 1992, the Court ruled that North Dakota was not entitled to collect taxes on orders shipped into the state as Quill did not have a “substantial nexus” (physical presence) in the state.
Colorado is attempting to circumvent this by collecting the sales taxes directly from the customer, based on the mandated purchase reports marketers file.
The DMA will be the plaintiff in the suit. Cerasale said a steering committee consisting of people both within and outside the DMA were guiding the organization on the lawsuit, although he declined to offers specifics regarding members of the steering committee.
The money raised will also cover a survey of Colorado consumers designed to show the effect of the new legislation. According to Cerasale, the survey is currently being conducted.
The Colorado statute isn’t the only such challenge marketers are facing. Similar bills are undergoing consideration in California and Tennessee, and the Multistate Tax Commission, an intergovernmental state agency, is looking at applying uniform long-distance purchase tax regulations, Cerasale said.
The DMA is not the only organization following the Colorado initiative. On April 27, American Catalog Mailers Association president and executive director Hamilton Davison sent a message to his organization’s members. Davison used urgent prose to characterize Colorado’s initiative, asking “What’s worse than having to pay sales taxes in every state? Having to report to every state every purchase your customers have made so the taxing authorities can start chasing your customers down and ordering them to pay back taxes.”
According to Davison’s letter, George S. Isaacson, an attorney who specializes in state tax issues, will serve on the DMA’s legal team. Davison urged ACMA members to support the DMA effort.
The bill number for the Colorado law was HB 10-1193.
