Colorado has a sales tax of 2.9% for products purchased in the state, and a use tax of 2.9% for products purchased outside the state, but used in the state. Because of the Supreme Court’s 1992 decision in Quill Corp v. North Dakota, a state may not collect taxes from “retailers with no in-state physical presence,” and Colorado does not collect use taxes from out-of-state (i.e., catalog and online) retailers.

Instead, Colorado puts the onus on the taxpayers to pay their use tax.

Tax Injunction Act

Finding that both prongs were met, the 10th Circuit dissolved the permanent injunction and remanded for the district court to dismiss DMA’s claim for lack of jurisdiction.

prohibits [federal] jurisdiction if (1) DMA’s action seeks to ’enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,’ 28 U.S.C. § 1341, and (2) ‘a plain, speedy and efficient remedy may be had in the courts of such State.’

Moving Forward

In all likelihood, this is a temporary victory because DMA has the option of raising its claims in state court. Or, it could be a permanent victory if Congress passes the Marketplace Fairness Act, “which would allow states to collect sales taxes from online retailers regardless of whether they have a physical presence in the state,” reports The Denver Post.

Related Resources:

  • Discriminatory Taxation Action Must Proceed in State Court (FindLaw’s U.S. Supreme Court Blog)
  • The Nine Eye the Tenth: Briefs Requested, Sentence Vacated (FindLaw’s U.S. Tenth Circuit Blog)
  • Quill Corp. v. North Dakota (FindLaw’s CaseLaw)

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