Direct Marketing Association v. Brohl (Appellant's Opening Brief)

No.
12-1175
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
The Direct Marketing Association,

Plaintiff-Appellee,

v.

Barbara Brohl, in her capacity as
Executive Director, Colorado
Department of Revenue,

Defendant-Appellant.

On Appeal from the United States District Court
For the District of Colorado
The Honorable Judge Robert E. Blackburn
D.C. No. 10-cv-01546-REB-CBS

APPELLANT'S OPENING BRIEF

JOHN W. SUTHERS
Attorney General

DANIEL D. DOMENICO*
Solicitor General
MELANIE J. SNYDER*
First Assistant Attorney General
STEPHANIE LINDQUIST SCOVILLE*
Senior Assistant Attorney General
GRANT T. SULLIVAN*
Assistant Attorney General
1525 Sherman Street, 7th Floor
Denver, Colorado 80203
(303) 866-5273
*Counsel of Record

Counsel requests oral argument.
Appellate Case: 12-1175 Document: 01018867917 Date Filed: 06/25/2012 Page: 1
TABLE OF CONTENTS

PAGE
i

STATEMENT OF JURISDICTION .......................................................... 1
STATEMENT OF THE ISSUES ............................................................... 2
INTRODUCTION ...................................................................................... 2
STATEMENT OF THE CASE .................................................................. 4
STATEMENT OF THE FACTS ................................................................ 6
STANDARD OF REVIEW....................................................................... 16
SUMMARY OF THE ARGUMENT ........................................................ 18
ARGUMENT ........................................................................................... 21
I. In enjoining the enforcement of Colorado Law, the district
court lost sight of the core objective of the dormant
Commerce Clause ........................................................................... 21
A. The aim of the dormant Commerce Clause is to preserve a
national market free from state economic protectionism ........... 21
B. Colorado Law is not protectionistthe overall tax and
regulatory scheme continues to treat out-of-state retailers
better than in-state retailers........................................................ 24
II. Quill does not reach this farthe district court erred in
finding that Colorado Law unduly burdens interstate
commerce ........................................................................................ 27
A. The district court erred in expanding Quills dormant
Commerce Clause nexus rule, which is strictly limited to
the imposition of a duty to collect sales and use taxes................ 27
B. In the age of the Internet and given modern technology, it
is especially important to decline invitations to extend
Quill .............................................................................................. 33
C. The burdens of the Colorado Law on interstate commerce
are incidental ................................................................................ 36
TABLE OF CONTENTS

PAGE
ii

III. The district court erred in finding that Colorado Law
discriminates against interstate commerce ................................... 44
A. Colorado Law passes the first-tier because it does not
discriminate against interstate commerce .................................. 45
B. Under the second-tier Pike balancing test, Colorado Law
advances strong state interests ................................................... 50
CONCLUSION ........................................................................................ 54

TABLE OF AUTHORITIES

PAGE
iii

CASES
Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir. 1978) ....................... 37, 38
Amazon.com, LLC v. N.Y. State Dept of Taxation & Fin., 913
N.Y.S.2d 129 (N.Y. App. Div. 2010) ..................................................... 10
American Target Adver., Inc. v. Giani, 199 F.3d 1241 (10th Cir.
2000) ..................................................................................................... 30
American Trucking Assn, Inc. v. Mich. Pub. Serv. Commn, 545
U.S. 429 (2005) ............................................................................... 37, 47
Ashwander v. TVA, 297 U.S. 288 (1936) ................................................ 18
Baude v. Heath, 538 F.3d 608 (7th Cir. 2008) ........................................ 44
Bendix Autolite Corp. v. Midwesco Enters., Inc., 486 U.S. 888
(1988) .................................................................................................... 49
Boston Stock Exch. v. State Tax Commn, 429 U.S. 318 (1977) ....... 24, 47
Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476
U.S. 573 (1986) ......................................................................... 44, 46, 47
C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383
(1994) ........................................................................................ 26, 45, 51
Capital One Bank v. Commr of Revenue, 899 N.E.2d 76 (Mass.
2009), cert. denied, 129 S.Ct. 2827 (2009) ........................................... 30
Cardoso v. Calbone, 490 F.3d 1194 (10th Cir. 2007) .............................. 41
Carmichael v. S. Coal & Coke Co., 301 U.S. 494 (1937) ......................... 52
Commonwealth Edison, Co. v. Mont., 453 U.S. 609 (1981) ........ 23, 37, 52
Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159
(1983) .................................................................................................... 33
Dept of Revenue v. Davis, 553 U.S. 328 (2008) ......................... 22, 26, 50
Dows v. City of Chicago, 78 U.S. 108 (1871) ........................................... 26

PAGE
iv

Exxon Corp. v. Governor of Md., 437 U.S. 117 (1978) ................ 42, 43, 49
Fair Hous. Council v. Roomates.com LLC, 521 F. 3d 1157 (9th Cir.
2008) ..................................................................................................... 54
Gen. Motors Corp. v. Tracy, 519 U.S. 278 (1997) ................................... 21
Gillmor v. Thomas, 490 F.3d 791 (10th Cir. 2007) ................................. 16
Golan v. Holder, 609 F.3d 1076 (10th Cir. 2010) .............................. 17, 18
Granholm v. Heald, 544 U.S. 460 (2005) .......................................... 33, 45
H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525 (1949) ...................... 21
Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64 (1963) ........... 7
Henneford v. Silas Mason Co., Inc., 300 U.S. 577 (1937) ......................... 7
Hughes v. Okla., 441 U.S. 322 (1979) ..................................................... 45
Hunt v. Wash. State Apple Adver. Commn, 432 U.S. 333 (1977) ... 21, 23
J.A. Tobin Constr. Co. v. Weed, 407 P.2d 350 (Colo. 1965) ...................... 6
KFC Corp. v. Iowa. Dept. of Rev., 792 N.W.2d 308 (Iowa 2010),
cert. denied, 132 S.Ct. 97 (2011) .................................................... 30, 36
Kleinsmith v. Shurtleff, 571 F.3d 1033 (10th Cir.
2009) ............................................................ 21, 43, 44, 45, 46, 49, 50, 51
Natl Bellas Hess, Inc. v. Dept of Revenue, 386 U.S. 753
(1967) ............................................................................................ passim
Natl Endowment for the Arts v. Finley, 524 U.S. 569 (1998) ............... 17
Natl Geographic Socy v. Cal. Bd. of Equalization, 430 U.S. 551
(1977) ................................................................................................ 7, 24
New State Ice Co. v. Liebmann, 285 U.S. 262 (1932) ............................. 23
Or. Waste Sys., Inc. v. Dept of Env. Quality of State of Or., 511
U.S. 93 (1994) ........................................................................... 46, 47, 48
Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) ............ 36, 43, 45, 50, 51

PAGE
v

Quik Payday, Inc. v. Stork, 549 F.3d 1302 (10th Cir. 2008) .................. 36
Quill Corp. v. N.D., 504 U.S. 298 (1992) ......................................... passim
Sabourin v. Univ. of Utah, 676 F.3d 950 (10th Cir. 2012) ..................... 18
Sabri v. United States, 541 U.S. 600 (2004) ........................................... 17
Schehl v. Commr of Internal Revenue, 855 F.2d 364 (6th Cir.
1988) ..................................................................................................... 53
Shivwits Band of Paiute Indians v. Utah, 428 F.3d 966 (10th Cir.
2005) ..................................................................................................... 16
St. German of Alaska E. Orthodox Catholic Church v. United
States, 840 F.2d 1087 (2d Cir. 1988) ................................................... 53
Tax Commr of the State of W. Va. v. MBNA America Bank, N.A.,
640 S.E.2d 226 (W. Va. 2006), cert. denied, 551 U.S. 1141 (2007) ...... 31
United Haulers Assoc., Inc. v. Oneida-Herkimer Solid Waste
Mgmt. Auth., 550 U.S. 330 (2007) ........................................... 22, 43, 51
United States v. Amon, 669 F.2d 1351 (10th Cir. 1981) ........................ 53
United States v. Catlett, 584 F.2d 864 (8th Cir. 1978) .......................... 53
United States v. Hoover, 727 F.2d 387 (5th Cir. 1984) .......................... 53
United States v. Raines, 362 U.S. 17 (1960) ........................................... 17
United States v. Richey, 924 F.2d 857 (9th Cir. 1990) ........................... 53
W. Live Stock v. Bureau of Revenue, 303 U.S. 250 (1938) ............... 37, 52
Washington State Grange v. Washington State Republican Party,
552 U.S. 442 (2008) ........................................................................ 17, 18
STATUTES
39-21-112(3.5), C.R.S. (2011) .................................................................. 4
39-21-112(3.5)(c)(I), C.R.S. (2011) ........................................................ 12
39-21-112(3.5)(d)(I), C.R.S. (2011) ........................................................ 13

PAGE
vi

39-21-112(3.5)(d)(II), C.R.S. (2011) ...................................................... 13
39-21-112.3.5(3)(b), C.R.S. (2011) ........................................................ 40
39-21-118(2), C.R.S. (2011) ......................................................... 8, 25, 42
39-22-303, C.R.S. (2011) ....................................................................... 32
39-26-101 to 39-26-127, C.R.S. (2011) ............................................ 7, 25
39-26-103(1)(a), C.R.S. (2011) .......................................................... 8, 25
39-26-103(4), C.R.S. (2011) ......................................................... 8, 25, 42
39-26-105, C.R.S. (2011) ................................................................... 8, 25
39-26-105(1)(a), C.R.S. (2011) ................................................................ 8
39-26-105(1)(g), C.R.S. (2011) ................................................................ 8
39-26-202, C.R.S. (2011) ......................................................................... 6
18 U.S.C. 1331 ........................................................................................ 1
28 U.S.C. 1292(a)(1) ................................................................................ 2
28 U.S.C. 1341 ...................................................................................... 31
68 Okla. Stat. Ann. 1406.1(A) (2012) ................................................... 10
Maine Rev. State. Ann., 1754-B(2)-(5) (2012) ...................................... 11
Okla. Admin. Code 710:65-21-8 (2012) ................................................ 10
S.C. Code Ann., 12-36-2690 (2012) ....................................................... 11
RULES
1 C.C.R. 201-1: 39-22-303.11(a) ............................................................ 32
1 C.C.R. 201-1: 39-22-303.11(c) ............................................................ 32
1 C.C.R. 201-1:39-21-112.3.5 .................................................................. 4
1 C.C.R. 201-1:39-21-112.3.5(1)(a)(iii) .................................................. 39
1 C.C.R. 201-1:39-21-112.3.5(2) ............................................................ 12

PAGE
vii

1 C.C.R. 201-1:39-21-112.3.5(2)(a)(ii)(1) .............................................. 40
1 C.C.R. 201-1:39-21-112.3.5(2)(d) ....................................................... 40
1 C.C.R. 201-1:39-21-112.3.5(3) ............................................................ 13
1 C.C.R. 201-1:39-21-112.3.5(3)(c)(ii) ................................................... 40
1 C.C.R. 201-1:39-21-112.3.5(4) ............................................................ 13
1 C.C.R. 201-1:39-21-112.3.5(2)(e) ...................................................... 40
Fed. R. Evid. 702 ..................................................................................... 50
OTHER AUTHORITIES
Billy Hamilton, Remembrance of Things Not So Past: The Story
Behind the Quill Decision, State Tax Notes, Mar. 14, 2011, pp.
809-10 ................................................................................................... 28
Donald H. Regan, The Supreme Court and State Protectionism:
Making Sense of the Dormant Commerce Clause, 84 Mich. L.
Rev. 1091, 1120 (May 1986) ................................................................. 52
John A. Swain and Walter Hellerstein, The Questionable
Constitutionality of Amazons Distribution Center Deals, State
Tax Notes, Dec. 5, 2011 ........................................................................ 48
Leandra Lederman, Reducing Information Gaps to Reduce the
Tax Gap: When is Information Reporting Warranted?, 78
Fordham L. Rev. 1733, 1738-1739 (March 2010) ................................ 12
PRIOR OR RELATED APPEALS NONE

No. 12-1175
IN THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
The Direct Marketing Association,

Plaintiff-Appellee,

v.

Barbara Brohl, in her capacity as
Executive Director, Colorado
Department of Revenue,

Defendant-Appellant.

On Appeal from the United States District Court
For the District of Colorado
The Honorable Judge Robert E. Blackburn
D.C. No. 10-cv-01546-REB-CBS

APPELLANT'S OPENING BRIEF

Defendant-Appellant, Barbara Brohl, in her capacity as Executive
Director of the Colorado Department of Revenue (DOR), submits this
Opening Brief.
STATEMENT OF JURISDICTION
The United States District Court for the District of Colorado had
jurisdiction over this matter pursuant to 18 U.S.C. 1331. On March
30, 2012, the district court entered an Order on the parties cross
2
motions for summary judgment and entered a permanent injunction.
[Appx. 2142-63]. DOR filed a timely Notice of Appeal with the district
court on April 27, 2012. [Appx. 2164-66]. This Court has jurisdiction
pursuant to 28 U.S.C. 1292(a)(1).
STATEMENT OF THE ISSUES
Does the dormant Commerce Clause require not only exempting
out-of-state retailers from collecting sales tax on sales to the states
consumers, but also exempting them from providing information
necessary for state enforcement and collection of taxes owed by
consumers on those sales?
INTRODUCTION
Contrary to popular belief, Internet and other remote retail
purchases are not exempt from state taxes. States impose sales and use
taxes on purchases of goods at retail, whether that purchase is made in
person, by phone, or via the Internetand it is uncontested that doing
so is perfectly constitutional. The only dispute in this case is over what
states may do to enforce and collect these constitutional taxes.
3
Over four decades ago, the Supreme Court limited one method of
enforcing sales and use taxes, for one subset of interstate retailers
those with no physical presence in the state. Those retailers, the Court
held, cannot be required to collect sales and use taxes and remit them to
the state. Colorado does not do so. Instead, Colorado requires retailers
who do not collect sales tax to provide information about such sales to
consumers and the state so that consumers may self-report and pay the
taxes owed.
The relative difficulty of collecting of sales and use taxes directly
from consumers has given rise to the popular misconception that
Internet and other remote sales are not taxedand the related
misconception that online and remote retailers are entitled to a
significant and growing competitive advantage. The dormant
Commerce Clause is not meant to ensure that interstate commerce is
treated more favorably than instate commerce. Plaintiff-Appellee, the
Direct Marketing Association (DMA), however, wishes to shield its
members perceived price advantageone that appears to exist solely
because taxes due are not collected at the point of sale. The dispute
here is whether the dormant Commerce Clause affords non-collecting
4
retailers the right to abet consumer tax evasion while stripping states of
the ability to enforce an undisputedly constitutional tax through
reasonable reporting requirements.
STATEMENT OF THE CASE
In 2010, DMA initiated this action to challenge a Colorado statute,
39-21-112(3.5), C.R.S., and the implementing regulations, 1 C.C.R.
201-1:39-21-112.3.5, (together, Colorado Law). DMA asserted eight
claims for relief against DOR: (1) discrimination against interstate
commerce under the United States Constitution; (2) improper
regulation of interstate commerce under the United States
Constitution; (3) violation of the right to privacy under the United
States Constitution; (4) violation of the right to privacy under the
Colorado Constitution; (5) violation of the right of free speech under the
United States Constitution; (6) violation of the right of free speech
under the Colorado Constitution; (7) deprivation of property without
due process of law under the United States and Colorado Constitutions;
and (8) taking of property without due process of law under the United
5
States and Colorado Constitutions. [Appx. 11-43, 46-83].
1
DOR filed a
motion to dismiss all but the first two claims (Commerce Clause
claims). [Appx. 3204-39].
2
DMA moved for a preliminary injunction solely on the Commerce
Clause claims. [Appx. 84-114]. The parties agreed to engage in limited
factual discovery, including expert discovery, related to the Commerce
Clause claims, and to defer discovery on the remaining claims. The
district court found DMA had a likelihood of success on the merits of the
Commerce Clause claims and granted the motion for a preliminary
injunction. [Appx. 1654-68].

At the parties joint request, the district court then approved a
briefing schedule for cross-motions for summary judgment on the
Commerce Clause claims and stayed all proceedings on the remaining
claims. [Appx. 1669-74, 1677-79]. Given this stipulated briefing

1
DMA voluntarily dismissed its claims under the Colorado
Constitution. [Appx. 3254-90].
2
Following DMAs submittal of a sworn affidavit establishing that at
least one of its members is subject to Colorado Law, DOR agreed not to
contest DMAs standing on the Commerce Clause claims and withdrew
that portion of the motion to dismiss. DOR reserved the right to contest
DMAs associational standing on the remaining claims, as well as to
contest DMAs jus tertii standing. [Appx. 3291-94].
6
schedule, the district court denied DORs motion to dismiss as to the
non-Commerce Clause claims without prejudice and authorized DOR to
renew that motion after full resolution of the Commerce Clause claims.
[Appx. 3295].
The district court granted DMAs motion for summary judgment,
denied DORs summary judgment motion, and permanently enjoined
DOR from enforcing Colorado Law (the Order). [Appx. 2142-63]. The
district court found Colorado Law discriminates against and unduly
burdens interstate commerce. [Id.].
STATEMENT OF THE FACTS
Colorado Sales and Use Tax. Colorado enacted a sales tax in
1935 and a complementary use tax in 1937. Use tax has long been due
on the storage, usage, or consumption of tangible property within
Colorado when sales tax has not been paid. 39-26-202, C.R.S. The
obligation to pay the sales or use tax is upon the consumer. J.A. Tobin
Constr. Co. v. Weed, 407 P.2d 350, 353 (Colo. 1965). The use tax aims to
capture lost sales tax revenue when sales are diverted outside the state
or are accomplished remotely, as through catalog purchases or the
Internet.
7
The purpose of a complementary sales and use tax scheme is to
make all tangible property used or consumed in the state subject to a
uniform tax burden, regardless of whether it is acquired within or
without the state. Halliburton Oil Well Cementing Co. v. Reily, 373
U.S. 64, 66 (1963). Another proper function of this scheme is to put
local retailers subject to the sales tax on a competitive parity with out-
of-state retailers exempt from the sales tax. Natl Geographic Socy v.
Cal. Bd. of Equalization, 430 U.S. 551, 555 (1977). Although the use
tax, if looked at in isolation, is facially discriminatory, the Supreme
Court long ago determined that when paired with a sales tax of the
same rate, it does not run afoul of the dormant Commerce Clause.
Henneford v. Silas Mason Co., Inc., 300 U.S. 577 (1937).
Colorado requires retailers doing business in the state to collect
sales tax from consumers at the time of the transaction. Retailers who
collect Colorado sales tax must comply with a series of requirements:
obtain a license, calculate the state and local sales tax due, including
determining whether any exemptions apply, collect the tax at the time
of the transaction, file a return, remit the tax collected to the state, and
maintain records. See 39-26-101 to 39-26-127, C.R.S. If they comply
8
with these requirements, collecting retailers may retain a small portion
of the taxes collected for the expense of collection and remittance. 39-
26-105(1)(a), (g), C.R.S. Collecting retailers are themselves liable for
the sales tax even if they do not actually collect the tax from purchasers
and may be subject to criminal penalties if they fail to collect and remit.
39-26-105, 39-21-118(2), 39-26-103(1)(a), (4), C.R.S.
As a result of two Supreme Court decisions, these burdens
associated with state sales and use tax collection may be required only
of those retailers with a physical presence within the state. Quill Corp.
v. N.D., 504 U.S. 298 (1992); Natl Bellas Hess, Inc. v. Dept of Revenue,
386 U.S. 753 (1967). In Bellas Hess, the Court created a safe harbor
from sales and use tax collection obligations for mail-order businesses
whose only connection with customers in the state was by common
carrier or U.S. mail. 386 U.S. at 758. Twenty-five years later, Quill
affirmed the special Commerce Clause physical presence rule on stare
decisis grounds, noting the substantial reliance by the industry upon
the bright-line rule established in Bellas Hess. 504 U.S. at 308, 317. As
a result of these decisions, national retailers with locations in Colorado,
like Home Depot or Target, must collect and remit sales tax on their
9
online or other remote sales. Internet and mail-order companies with
no physical presence in the state, like Amazon.com or L.L. Bean, are not
required to do so.
The Explosion of E-Commerce and the Tax Gap. Since
Bellas Hess and Quill were decided, technology and retail business
practices have evolved dramatically. When Bellas Hess was decided,
the national mail-order sales industry was $2.4 billion annually. 386
U.S. at 763. When the Court decided Quill 25 years later, that industry
had ballooned to $180 billion annually. 504 U.S. at 329. With the
addition of E-commerce, the remote-sales industry has exploded. E-
commerce nearly tripled over the last decade alone, from $1.06 trillion
in 2000 to $3.16 trillion in 2008. [Appx. 1726-90, 1958].
States collect taxes due on E-commerce much less effectively than
on other transactions because retailers without a physical presence in
the state are not required to collect and remit the tax, and consumer
compliance with the use tax is very weak. Id. Consumers, whether
unknowingly or willfully, regularly fail to pay the tax owed if it is not
collected at the point of sale. Id. As a result, states and their
economies experience increased evasion of sales and use taxes and the
10
resulting lost revenue, lost sales by Main Street vendors who must
collect sales tax, and the economically inefficient alteration of business
practices to avoid collection responsibility. Id.
Sales and use tax revenue historically account for approximately
one-third of Colorados General Fund. [Appx. 1726-56, 1928-31].
Colorado state and local governments are estimated to have failed to
collect hundreds of millions of dollars in sales or use tax due on E-
commerce sales between 2010 and 2012 alone. Id. Colorado also loses
tax revenue on other types of remote sales, such as from mail-order
firms. Id.
Although Congress has the authority to enact a national scheme
to address the state sales and use tax gap, it has not done so. See Quill,
508 U.S. at 318. In the absence of action by Congress, the states have
approached the significant challenges created by Quill in different
ways. See, e.g., Amazon.com, LLC v. N.Y. State Dept of Taxation &
Fin., 913 N.Y.S.2d 129 (N.Y. App. Div. 2010) (discussing New York
affiliate nexus law requiring certain on-line retailers to collect sales tax
on purchases by residents); 68 OKLA. STAT. ANN. 1406.1(A) (2012),
OKLA. ADMIN. CODE 710:65-21-8 (2012) (creating consumer notice
11
requirements for non-collecting retailers); S.C. CODE ANN., 12-36-2690
(2012) (creating sales tax collection exemption for retailers who own,
lease, or use a distribution facility in the state provided the retailer
makes a capital investment of at least $125 million and creates at least
2,000 jobs after 2013); MAINE REV. STATE. ANN., 1754-B(2)-(5) (2012)
(identifying specific activities that do not constitute substantial physical
presence by retailers for sales tax collection, such as attending trade
shows in the state or holding a corporate board of directors or share
holders meeting in the state).
Third-Party Reporting and Tax Compliance. Tax compliance
improves dramatically when a third party reports taxable activity to the
taxing authority. The U.S. Department of the Treasury, Internal
Revenue Service, has conducted research on the income tax gap, the
aggregate amount of true tax liability imposed by law for a given tax
year that is not paid voluntarily and timely. [Appx. p. 1726-56, 1791-
96]. This research confirms the commonsense notion that compliance
with tax laws dramatically increases when a third party reports taxable
activity to the taxing authority. [Id. at 1803-07]; see also Leandra
Lederman, Reducing Information Gaps to Reduce the Tax Gap: When is
12
Information Reporting Warranted?, 78 Fordham L. Rev. 1733, 1738-
1739 (March 2010) (comparing third party information reporting to red
light cameras spurring compliance in the first instance because the
taxpayer is aware the government is watching).
Colorado Law. Colorado provides non-collecting retailers with
the choice between collecting sales tax, just like in-state retailers and
national retailers with a physical presence, or, complying with three
information reporting requirements. These third-party reporting
requirements aim to increase voluntary tax compliance by consumers
and improve DORs ability to collect tax due from consumers.
First, non-collecting retailers must notify Colorado purchasers
that, although the retailer is not collecting sales tax, the purchase may
be subject to Colorados use tax (the Transactional Notice). 39-21-
112(3.5)(c)(I), C.R.S.; 1 C.C.R. 201-1:39-21-112.3.5(2). The
Transactional Notice serves to educate consumers about their state use
tax liability with the aim of increasing voluntary compliance.
Second, non-collecting retailers must send Colorado customers
who purchase more than $500 from the retailer in a year an annual
summary listing the dates, general categories, and amounts of their
13
purchases and reminding them of their use tax obligation (the Annual
Purchase Summary). 39-21-112(3.5)(d)(I), C.R.S.; 1 C.C.R. 201-
1:39-21-112.3.5(3). The Annual Purchase Summary arms the consumer
with accurate information to facilitate reporting and paying the use tax.
Third, non-collecting retailers must send an annual report to DOR
listing only customer names, addresses, and total amounts spent (the
Customer Information Report). 39-21-112(3.5)(d)(II), C.R.S.; 1
C.C.R. 201-1:39-21-112.3.5(4). The Customer Information Report
serves two functions. First, it allows DOR to pursue audit and
collection actions against taxpayers who fail to pay the tax. Second, it
is designed to increase voluntary consumer compliance with state tax
laws because consumers know that a third party has reported their
taxable activity to the taxing authority.
Even before the enactment of Colorado Law, many out-of-state
retailers elected to collect sales tax although they are not required to do
so. For example, of the Internet retailers listed in the publication Top
500 Internet Retailers, at least 39 do not have a physical presence in
Colorado, but nevertheless collect Colorado sales tax. [Appx. 1726-56,
1932-33, 4, 6].
14
Colorado Law provides some leeway for variance in approaches to
compliance and also allows affected retailers to comply by means of
reasonable efforts. [Appx. 1726-56, 1934-62]. For example, a retailer
can comply with the Transactional Notice requirement by linking a
notice or popup window at the time of the online purchase, by slipping
the notice in as a packing slip for delivery, or through other methods.
[Appx. 1726-56, 1963-72, 1964:9-1965:6, 1965:13-15, 1966:10-20,
1967:20-1969:1]. DMAs expert estimates a packing insert costs less
than ten cents per package. [Id. at 1972:3-5]. Further, no magic words
need be used to comply with Colorado Law, and DOR has provided
acceptable sample language for the Transactional Notice, so that
retailers need not interpret Colorado Laws requirements on their own.
[Appx. 1726-56, 1973-79, 1975-78].
DOR also created templates to assist retailers in preparing and
electronically filing the Annual Purchase Summary. [Appx. 1726-56,
1980-81, 5-6, 1982-87]. Moreover, non-collecting retailers need not
create new data to complydata for the Annual Purchase Summary
and Customer Information Report already exists. [Appx. 1726-56, 1963-
15
72, 1968:5-6, 1969:5-16]. Retailers track and maintain customer data in
very detailed ways. [Id; Appx. 1934-35, 1936-62].
Colorado Law is also narrow in its ambit, affecting only large non-
collecting retailers with significant sales in Colorado. Colorado Law
exempts retailers with less than $100,000 in gross annual sales in
Colorado, meaning the vast majority of retailers in the country are not
subject to the requirements. [Appx. 1726-56, 1934-60]. Because Annual
Purchase Summaries are required only for customers who spend more
than $500 annually, DMAs expert estimated that retailers would have
to create reports for fewer than 20% of Colorado purchasers, and it
could be as low as 10%. [Appx. 1726-56, 1963-72, 1970:11-20; 1971:3-
5.].
For the affected retailers, the relative cost of compliance is
negligible, particularly given their existing participation in the Internet
economy. For the smallest affected non-collecting retailer, the reporting
requirements will result in estimated onetime, non-recurring costs in
the first year ranging from $2,571 to $6,000, or only 0.043% to 0.100%
of total national sales. [Appx. 213-43, 276-304]. Recurring annual costs
are estimated at $589 to $1,000, or 0.010% to 0.017% of gross annual
16
sales. [Id.] Larger retailers will be able to comply with the reporting
requirements as part of their ongoing system enhancements and
regular tax compliance efforts, all at a nominal cost. [Appx. 213-43,
276-304]. Even the smallest affected retailers costs may be mitigated
by reliance on third-party packaged E-commerce solution providers and
by incorporating the requirements of Colorado Law into regular process
improvements and existing annual tax preparation efforts. [Appx.
1726-56, 1934-35, 1936-60].
In contrast to the low costs of compliance, the estimated annual
revenue associated with Colorado Law as adopted is highinitially
estimated to be $12.5 million for fiscal year 2011-12 and expected to
increase over time as awareness of Colorado Law and enforcement
compliance increase. [Appx. 2079-2109, 2116-19].
STANDARD OF REVIEW
This Court reviews challenges to the constitutionality of a statute
de novo. Shivwits Band of Paiute Indians v. Utah, 428 F.3d 966, 972
(10th Cir. 2005). Furthermore, there is a strong presumption that
statutes are constitutional. Gillmor v. Thomas, 490 F.3d 791, 798 (10th
Cir. 2007).
17
Facial constitutional challenges are generally disfavored as
[f]acial invalidation is, manifestly, strong medicine that has been
employed by the [Supreme] Court sparingly and only as a last resort.
Golan v. Holder, 609 F.3d 1076, 1094 (10th Cir. 2010) (quoting Natl
Endowment for the Arts v. Finley, 524 U.S. 569, 580 (1998)) (alterations
in original). A plaintiff can succeed on a facial challenge only by
establish[ing] that no set of circumstances exists under which the Act
would be valid, i.e., that the law is unconstitutional in all of its
applications. Washington State Grange v. Washington State
Republican Party, 552 U.S. 442, 449 (2008) (internal quotations
omitted; alteration in original). Courts reviewing claims of facial
invalidity must be careful not to go beyond the statutes language and
speculate about hypothetical or imaginary cases. Id. at 450 (citing
United States v. Raines, 362 U.S. 17, 22 (1960)).
The general disfavor of facial challenges is rooted in several
rationales: (1) claims of facial invalidity rest on speculation, causing the
risk of premature interpretations based on factually barebones
records, Sabri v. United States, 541 U.S. 600, 609 (2004); (2) facial
challenges run contrary to the rule of judicial restraintthat courts
18
should neither anticipate a question of constitutional law in advance of
the necessity of deciding it nor formulate a rule of constitutional law
broader than is required by the precise facts to which it is to be applied,
Ashwander v. TVA, 297 U.S. 288, 347 (1936) (Brandeis, J., concurring);
and (3) facial attacks threaten to short circuit the democratic process by
preventing laws embodying the will of the people from being
implemented in a manner consistent with the Constitution, Washington
State Grange, 552 U.S. at 451. Thus, plaintiffs bear a particularly
heavy burden in raising a facial constitutional challenge. Golan, 609
F.3d at 1094 (internal quotations omitted).
Similarly, this Court reviews a district courts grant of summary
judgment de novo, applying the same standards that the district court
should have applied. Sabourin v. Univ. of Utah, 676 F.3d 950, 957
(10th Cir. 2012). This Court evaluates the evidence in the light most
favorable to the non-moving party, here, DOR. Id. at 957.
SUMMARY OF THE ARGUMENT
The district courts permanent injunction should be reversed. In
mounting a facial challenge, DMA failed to meet its heavy burden to
establish that Colorado Law is unconstitutional in all its applications.
19
In enjoining Colorado Law, the district court lost sight of the core
objective of the dormant Commerce Clauseto prevent states from
engaging in preferential treatment of in-state interests over out-of-state
interests. Colorado Law does not do this. Because out-of-state retailers
are subject to only modest information reporting requirements and
possess a significant perceived price advantage since tax is not collected
at the point-of-sale, they maintain a significant competitive advantage
over in-state retailers and those national retailers with a physical
presence in the state who collect and remit sales tax.
Because the district court viewed DMAs Commerce Clause claims
through an expanded reading of Quill, it erroneously and summarily
concluded that Colorado Law unduly burdens interstate commerce. In
the age of the Internet and modern technology, this Court should
continue to decline opportunities to extend the reach of the special
bright-line Quill rule. The modest reporting requirements of Colorado
Law do not unduly burden interstate commerce, and DMA did not meet
its burden to show that the requirements are clearly excessive.
The district court also erred in finding that Colorado Law
discriminates on its face against interstate commerce. The court
20
employed a before-and-after approach that analyzed in isolation how
non-collecting retailers were treated prior to and after Colorado Law
was enacted. Instead, the proper inquiry for a discrimination challenge
under the dormant Commerce Clause is to compare how in-state and
out-of-state retailers are treated and determine whether the former is
favored and the latter placed at a competitive disadvantage. Although
Colorado Law treats out-of-state non-collecting retailers differently, the
States overall tax and regulatory scheme continues to discriminate in
favor of these retailers. Colorado Law did not shift that balance.
Finally, Colorado Law advances Colorados considerable and
legitimate state interests in recovering tax revenue due to the state,
promoting the fair distribution of the cost of government, and enforcing
compliance with state tax laws.
21
ARGUMENT
I. In enjoining the enforcement of Colorado Law,
the district court lost sight of the core objective
of the dormant Commerce Clause.
A. The aim of the dormant Commerce
Clause is to preserve a national market
free from state economic
protectionism.
The Commerce Clause establishes both an affirmative power in
Congress to regulate commerce amongst the states and also a dormant
limitation on the power of the states to enact laws that impose
substantial burdens on such commerce. Kleinsmith v. Shurtleff, 571
F.3d 1033, 1039 (10th Cir. 2009). The fundamental objective of the
dormant Commerce Clause is to preserve a national market for
competition undisturbed by preferential advantages conferred by a
State upon its residents or resident competitors. Gen. Motors Corp. v.
Tracy, 519 U.S. 278, 299 (1997); see also Hunt v. Wash. State Apple
Adver. Commn, 432 U.S. 333, 351 (1977) (referring to the Commerce
Clauses overriding requirement of a national common market); H.P.
Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 539 (1949) (holding that
the Commerce Clause fosters a system of free access to every market in
the Nation where consumers may look to the free competition from
22
every producing area in the Nation to protect him from exploitation by
any.).
Modern interpretations of the dormant Commerce Clause are
driven by concern about economic protectionismthat is, regulatory
measures designed to benefit in-state economic interests by burdening
out-of-state competitors. Dept of Revenue v. Davis, 553 U.S. 328, 337-
38 (2008). In the absence of protectionism, the dormant Commerce
Clause is not a roving license for federal courts to decide what
activities are appropriate for state and local government to undertake.
United Haulers Assoc., Inc. v. Oneida-Herkimer Solid Waste Mgmt.
Auth., 550 U.S. 330, 343 (2007). In Davis, the Court emphasized that a
government function is not susceptible to standard dormant Commerce
Clause scrutiny owing to its likely motivation by legitimate objectives
distinct from the simple economic protectionism the Clause abhors. Id.
at 341. Of particular concern to the Court were the difficulties in
judicial attempts to weigh the costs and benefits of the tax-exempt bond
interest scheme at issue in that case; the judiciarys unsuitability to
evaluate the relative burdens of different taxation methods; and the
23
dangers of untoward consequences for the bond market if a court were
empowered to strike down a decades-old scheme. Id. at 355-56.
Further, in the absence of economic protectionism, states remain
free to develop solutions in the area of tax administration. Under our
federal system, the determination is to be made by state legislatures in
the first instance and, if necessary, by Congress, when particular state
taxes are thought to be contrary to federal interests. Commonwealth
Edison, Co. v. Mont., 453 U.S. 609, 628 (1981); see also Hunt, 432 U.S.
at 350 (in the absence of conflicting legislation by Congress, there is a
residuum of power in the state to make laws governing matters of local
concern which nevertheless in some measure affect interstate commerce
or even, to some extent, regulate it.) (internal quotations omitted).
Such is the proper role of the states as laboratories for economic policy.
See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis,
J., dissenting) (It is the happy incidents of the federal system that a
single courageous State may, if its citizens choose, serve as a laboratory;
and try novel social and economic experiments without risk to the rest
of the country.).
24
B. Colorado Law is not protectionistthe
overall tax and regulatory scheme
continues to treat out-of-state retailers
better than in-state retailers.
Colorados Law is not protectionist, but rather encourages open
competition and tax-neutral decisions by consumers. National retailers
with stores in Colorado, as well as local Colorado businesses, are at a
competitive disadvantage because they must collect and remit sales tax
on all their sales, whether in-store, remote, or online. See Quill, 504
U.S. at 328-329 (White, J., dissenting) (noting that an out-of-state
business can undercut in-state companies with its comparative price
advantage in selling products free of use tax). The Supreme Court has
recognized that a proper function of complementary sales and use tax
schemes is to put local retailers subject to the sales tax on a
competitive parity with out-of-state retailers exempt from the sales
tax. Natl Geographic Socy, 430 U.S. at 555 (noting constitutionality of
such schemes is settled); see also Boston Stock Exch. v. State Tax
Commn, 429 U.S. 318, 332 (1977) (compensatory taxes leave a
consumer free to make choices without regard to tax consequences).
Colorado Law promotes such competitive parity by educating
25
consumers about their use tax obligation and promotes an open market
where consumers are not misled that no tax is due merely because it
was not collected at the point of sale.
Even with the information reporting requirements of Colorado
Law, non-collecting retailers continue to operate at a significant
commercial advantage over collecting retailers who must collect and
remit sales tax. In marked contrast to the non-collecting retailers
information reporting requirements under Colorado Law, collecting
retailers must obtain a license, calculate the state and local sales tax
owed, determine whether any exemptions apply, collect the tax at the
time of the transaction, provide a tax receipt, file returns, remit the tax
collected on a monthly or quarterly basis, and maintain records. 39-
26-101 to 39-26-127, C.R.S.; see also Bellas Hess, 386 U.S. at 766
(Fortas, J., dissenting) (There is no doubt that the collection of taxes
from consumers is a burden.). Moreover, collecting retailers ultimately
are liable for paying the tax whether they collect it or not, 39-26-105,
C.R.S., and those who fail to collect and remit may be subject to
criminal penalties. 39-21-118(2), 39-26-103(1)(a), (4), C.R.S. Yet
non-collecting retailers are free to do business in Colorado via the
26
Internet or mail catalog unfettered by any of these burdens. Non-
collecting retailers also maintain their perceived point-of-sale price
advantage since tax is not collected at the point of sale.
Like the tax-exempt bond interest scheme in Davis, Colorados
effort to spur consumer compliance with its use tax is a legitimate
objective[] distinct from simple economic protectionism. 553 U.S. at
341. Inducing compliance with state tax laws permits the state to pay
for public projects, a quintessentially public function. Id.; accord C &
A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 429 (1994)
(protection of the public fisc is a legitimate non-protectionist interest).
Cf. Dows v. City of Chicago, 78 U.S. 108, 110 (1871) (the modes adopted
[by the states] to enforce the taxes levied should be interfered with as
little as possible.).
27
II. Quill does not reach this farthe district court
erred in finding that Colorado Law unduly
burdens interstate commerce.
A. The district court erred in expanding
Quills dormant Commerce Clause
nexus rule, which is strictly limited to
the imposition of a duty to collect sales
and use taxes.
The holding in Quill resulted from a very specific factual history
and narrow line of cases in the arena of state sales and use taxation. In
Bellas Hess, the Court held that both due process and the dormant
Commerce Clause preclude a state from imposing a use tax collection
obligation on a mail-order company whose only connection with
customers in the state was by common carrier or the mail. 386 U.S. at
758. Twenty-five years later in Quill, the Court revisited the very same
issues in an action by the North Dakota Tax Commissioner to require a
mail-order business to pay tax, interest, and penalties from sales to
North Dakota customers, from whom the business failed to collect and
remit taxes in reliance on Bellas Hess. 504 U.S. 298.
Noting modern minimum contacts due process standards, the
Quill Court overruled Bellas Hess to the extent it required physical
presence for the imposition of the duty to collect use tax on due process
28
grounds. Id. at 308 (In modern commercial life it matters little that
such solicitation is accomplished by a deluge of catalogs rather than a
phalanx of drummers: The requirements of due process are met
irrespective of a corporations lack of physical presence in the taxing
state.). Under the Commerce Clause, however, the Court affirmed the
physical presence rule on stare decisis grounds, noting the substantial
reliance by the industry upon the bright-line Bellas Hess rule. Id. at
317. Because the duty to collect actually creates tax liability, the Quill
Court was particularly concerned with the retrospective consequences
of overruling Bellas Hess and creating unanticipated tax liability for the
mail-order industry where sellers had not collected sales tax based on
their reasonable reliance upon Bellas Hess. 504 U.S. at 318 n.10; see
also Billy Hamilton, Remembrance of Things Not So Past: The Story
Behind the Quill Decision, State Tax Notes, Mar. 14, 2011, pp. 809-10
(noting Supreme Court granted certiorari on the issue of whether Bellas
Hess was still good law but not issue of retroactive tax liability and
citing a critical exchange during oral argument wherein the states
attorney suggested state would pursue companies retroactively for
taxes not collected).
29
Acknowledging the artificiality of this rule, the Court noted the
benefit of encouraging settled expectations, which in turn fosters
investment by businesses and individuals. Id. at 315-316. In retaining
the physical presence nexus rule of Bellas Hess, however, the Court
suggested contemporary Commerce Clause jurisprudence might not
dictate the same result were the issue to arise for the first time today.
504 U.S. at 311. Quill, therefore, is more properly viewed as a
testament to the value of stare decisis than as an articulation of a
general physical presence standard under the dormant Commerce
Clause.
Quills explicit and consistent language compels the conclusion
that its holding is strictly limited to the imposition of a duty to collect
state sales and use taxes. See, e.g., 504 U.S. at 308 (Comparable
reasoning justifies the imposition of the collection duty on a mail-order
house that is engaged in continuous and widespread solicitation of
business within a State.); id. at 315 (Under Bellas Hess, [vendors
lacking physical presence] are free from state-imposed duties to collect
sales and use taxes.); id. (Such a rule firmly establishes the
boundaries of legitimate state authority to impose a duty to collect sales
30
and use taxes and reduces litigation concerning those taxes.); id. at 318
(Congress is now free to decide whether, when, and to what extent the
States may burden interstate mail-order concerns with a duty to collect
use taxes.) (emphasis added).
Consistent with this limited reading of Quill, this Court has
narrowly restricted the holding to the collection of taxes. American
Target Adver., Inc. v. Giani, 199 F.3d 1241, 1254-55 (10th Cir. 2000)
(limiting Bellas Hess and Quill rule to levy of taxes and declining to
extend special Commerce Clause nexus rule to state licensing and
registration requirements). Similarly, other appellate courts and the
Supreme Court have consistently declined opportunities to extend
Quill. In a corporate income tax case, the Supreme Court of Iowa held
that Quills physical presence nexus standard does not extend beyond
sales and use taxation. KFC Corp. v. Iowa. Dept. of Rev., 792 N.W.2d
308, 324-328 (Iowa 2010), cert. denied, 132 S.Ct. 97 (2011); see also
Capital One Bank v. Commr of Revenue, 899 N.E.2d 76, 84 (Mass.
2009), cert. denied, 129 S.Ct. 2827 (2009) (noting Quill Court explicitly
emphasized on more than one occasion, a narrow focus on sales and use
taxes and declining to extend physical presence rule to financial
31
institution excises); Tax Commr of the State of W. Va. v. MBNA
America Bank, N.A., 640 S.E.2d 226, 232-33 (W. Va. 2006), cert. denied,
551 U.S. 1141 (2007) (same result in business franchise and corporate
income tax case).
The bright-line rule of Quill therefore applies only when a state:
(1) imposes tax collection duties, including ultimate tax liability, (2) the
tax at issue is the sales and use tax, and (3) the retailer subject to the
tax lacks a physical presence within the state. The district court
ignored the first and most critical factor and focused solely upon the
last two factors.
3
Further, because both Bellas Hess and Quill applied specifically to
the collection and remittance of sales and use tax, stare decisis is not
In doing so, the district court erroneously extended
Quills special dormant Commerce Clause nexus rule to regulatory or
information reporting requirements.

3
By treating the information reporting requirements of Colorados Law
like a tax, the district court may have unnecessarily implicated the Tax
Injunction Act (TIA). 28 U.S.C. 1341 (providing federal courts shall
not enjoin, suspend or restrain the assessment, levy or collection of any
tax under State law where a plain, speedy and efficient remedy may be
had in the courts of such State). In any event, this Court may reverse
the district courts injunction without running afoul of the TIA or
comity principles.
32
triggered here. Additionally, because the information reporting
requirements of Colorado Law do not impose a duty to collect or pay a
tax, the retroactivity considerations that weighed heavily upon the
Quill Court are not present here.
Without performing any analysis of the alleged burdens associated
with Colorado Law, the district court summarily concluded that those
burdens are inextricably related in kind and purpose to the burdens
condemned by Quill. [Appx. 2158]. This is not the case. Out-of-state
businesses without a physical presence can be subjected to a wide range
of obligations by the states in which they deliberately avail themselves
of economic opportunities. For example, the information reporting
requirements of Colorado Law are similar to the record-keeping and
reporting requirements long imposed on non-nexus, out-of-state
members of consolidated or combined entities for income tax. Many
states, including Colorado, require that all members of a combined
group be included in the income tax return for the group. See, e.g., 39-
22-303, C.R.S.; 1 C.C.R. 201-1: 39-22-303.11(a) & (c). Although no tax
is imposed on these non-nexus corporate members, they must maintain
appropriate records and participate in filing the group return. See, e.g.,
33
Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159, 167-68
(1983) (discussing state tax combined reporting methods). While these
burdens carry some cost, it is well-accepted that states may impose
those burdens despite the lack of nexus. See, e.g., Quill, 504 U.S. at 319
(Scalia, J., concurring) (discussing state regulatory jurisdiction,
including Blue Sky laws); Granholm v. Heald, 544 U.S. 460 (2005)
(state liquor licensing scheme).
B. In the age of the Internet and given
modern technology, it is especially
important to decline invitations to
extend Quill.
Given the technological advancements and change in economic
realities in the 25 years between Bellas Hess and Quill, adherence to
the physical presence rule already made limited sense when Quill was
decided in 1992. Quill, 504 U.S. at 301-02 (agreeing with North Dakota
Supreme Courts reasoning that tremendous social, economic,
commercial, and legal innovations rendered Bellas Hess holding
obsolete, but reversing nonetheless). In the age of the Internet and
modern technology, expansion of that rule makes even less sense today.
34
On the 20 year anniversary of Quill, the world of E-commerce and
remote sales looks vastly different and any asserted undue burdens of
Colorado Law must be viewed through this contemporary lens. Even in
1967, Justice Fortas recognized the advances of modern technology and
criticized the Bellas Hess majority for exempting the direct-mail
industry from collection burdens:
The burden is no greater than that placed upon local
retailers by comparable sales tax obligations; and the Courts
response that these administrative and record keeping
requirements could entangle appellants interstate business
in a welter of complicated obligations vastly underestimates
the skill of contemporary man and his machines. There is no
doubt that the collection of taxes from consumers is a
burden; but it is no more of a burden on a mail order
houselocated in another State than on an enterprise in the
same State which accepts orders by mail; and it is, indeed,
hardly more of a burden than it is on any ordinary retail
store in the taxing State.
386 U.S. at 766 (dissenting) (emphasis added).
The development of the Internet and the explosion of E-Commerce
since Bellas Hess and Quill counsel against the expansion of the special
bright-line rule created to address the unique history and burdens
associated with sales and use tax collection as applied to the direct-mail
industry. When Bellas Hess was decided, the national mail order sales
35
industry was $2.4 billion annually. 386 U.S. at 763 (Fortas, J.,
dissenting) (predicting haven of immunity, resulting from favored
position and exemption from bearing the fair burden of state taxes, will
increase in size and importance). When the Court decided Quill 25
years later, that industry had grown to $180 billion annually. 504 U.S.
at 329. Reaching $3 trillion in 2008, E-Commerce is no infant industry,
and expansion of a rule that already affords a substantial artificial
advantage is contrary to dormant Commerce Clause objectives.
The economic reality is that in the areas of Internet and remote
sales, non-collecting retailers have benefitted from a perceived price
advantage and windfall of customers who either unknowingly or
deliberately avoid paying the sales or use tax due on their transactions.
Any reliance non-collecting retailers have based on the haven of
immunity Bellas Hess and Quill created cannot reasonably entitle
them to a zone infinitely free from any state regulation, particularly
when such retailers have substantial economic presence and profit
handsomely from transactions with Colorado consumers. As the Iowa
Supreme recently noted, it simply does not make sense to require
Barnes & Noble to collect and remit sales tax on its online sales but not
36
impose the same burden on Amazon.com when the difference is in the
manner in which those retailers have chosen to do business and not the
degree to which they benefit from the provision of government services
in the taxing state. KFC Corp., 792 N.W.2d at 326 (physical presence
is not a meaningful surrogate for economic presence).
C. The burdens of the Colorado Law on
interstate commerce are incidental.
Colorado Law imposes modest information reporting
requirements, none of which unduly burden interstate commerce. In
evaluating whether a law unduly burdens commerce, this Court looks at
whether the burden [] imposed greatly exceeds the extent of the local
benefits. Quik Payday, Inc. v. Stork, 549 F.3d 1302, 1309 (10th Cir.
2008); accord Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)
(burdens must be clearly excessive to violate dormant Commerce
Clause). See infra Part III. B. (discussing state interests under Pike
balancing test).
The Supreme Court recognizes businesses are often subject to
regulation and costs by the various states in which they do business and
that such costs do not run afoul of the dormant Commerce Clause. See,
37
e.g., American Trucking Assn, Inc. v. Mich. Pub. Serv. Commn, 545
U.S. 429, 438 (2005) (concluding businesses operating in multiple states
expect
Similarly, in Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir. 1978),
this Court upheld an Oklahoma statute that prevented state court
actions to collect on consumer credit balances where the interest rate
exceeded the statutes maximum. It was stipulated that the out-of-state
mail-order retailers cost of complying with the Oklahoma statutes
reduced finance charges and special processing costs amounted to
$160,500 annually. Id. at 1161. This Court held that the retailers
obligation to sort out the Oklahoma credit transactions, and accord
them somewhat different treatment was not an unreasonable burden.
Id. at 1162. Significantly, the Aldens court observed, In the era of
computers, the record shows that a sorting of this nature, with separate
to pay local fees in each of those states); cf. W. Live Stock v.
Bureau of Revenue, 303 U.S. 250, 254 (1938) (Commerce Clause does
not relieve those engaged in interstate commerce from their just share
of state tax burden even though it increases the cost of doing business.
(emphasis added)); accord Commonwealth Edison Co., 453 U.S. at 623-
624.
38
Oklahoma contracts, would not be such an unreasonable burden as
compared to the local interest in the subject. Id.
Today, 34 years after Aldens, the cost to even unsophisticated non-
collecting retailers to report information contained in data that they
already collect and store is even more negligible. See Bellas Hess, 386
U.S. at 766 (Fortas, J., dissenting) ([T]he Court's response that these
administrative and record keeping requirements could entangle
appellant's interstate business in a welter of complicated obligations
vastly underestimates the skill of contemporary man and his
machines.). Here, even the most conservative costs of compliance pale
in comparison to the costs in Aldens, since the smallest affected
retailers would spend no more than $6,000 in the first year and $1,000
annually thereafter. In fact, the vast majority of affected retailers
would incur no costs at all.
In light of the myriad of methods available to comply with the
modest reporting requirements, it is not surprising that the cost to non-
collecting retailers is negligible. Because the data needed for the
reporting requirements already exists in the non-collecting retailers
computer systems, [Appx. 1726-56, 1963-72, 1968:14-16], the
39
compliance costs consist largely of one-time computer setup expenses
for redirecting the information. [Appx. 213-43, 276-304]. Larger
retailers will be able to comply with the reporting requirements as part
of their ongoing system enhancements and regular tax compliance
efforts, all at a nominal cost. [Appx. 283-84] Specifically, the reporting
requirements will result in an estimated one-time, non-recurring costs
in the first year ranging from $2,571 to $6,000, or 0.043% to 0.100% of
sales. [Appx. 213-43, 276-304]. Recurring annual costs are estimated
at $589 to $1,000, or 0.010% to 0.017% of gross annual sales.
4
Beyond its negligible compliance costs, Colorado Law is both
narrow in its application and intentionally flexible in the means that
compliance may be accomplished:
[Id.].
These estimated expenses are not only de minimis relative to the large
size of the affected non-collecting retailers, but are also legally
permissible under traditional dormant Commerce Clause jurisprudence.
Colorados reporting requirements apply only to the narrow group
of non-collecting retailers whose annual gross sales in Colorado
exceed $100,000. 1 C.C.R. 201-1:39-21-112.3.5(1)(a)(iii). Hence,
DORs expert estimated only a relatively small number of

4
These estimated costs are conservative because they are based on the
smallest affected non-collecting retailer. [Appx. 213-43, 276-304].
40
retailers will be affected by the requirements. [Appx. 213-43,
276-304].

Colorado Law requires the non-collecting retailer to send the
Annual Purchase Summary only to Colorado customers who spend
more than $500 annually. 1 C.C.R. 201-1:39-21-112.3.5(3)(c)(ii).
According to DMAs own expert, this limitation results in non-
collecting retailers sending the summaries to a mere 10 to 20
percent of their customers. [Appx. 1726-56, 1963-72, 1970:11-20,
1971:3-5].

For the Transactional Notice and Annual Purchase Summary,
Colorado Law allows for substantial compliance by non-collecting
retailers subject to similar requirements in other states. 1 C.C.R.
201-1:39-21-112.3.5(2)(e), 39-21-112.3.5(3)(b).

Colorado Law provides leeway for variance in approaches to
compliance, allowing affected retailers to comply through
reasonable and nominal efforts. [Appx. 213-43, 276-304, 281-82].
For example, the Transactional Notice may be located either in
close proximity to the total price, or on a linking notice popup
window that directs the purchaser to the principal notice. 1
C.C.R. 201-1:39-21-112.3.5(2)(d). Alternatively, if the non-
collecting retailer indicates that no sales tax is being collected, the
notice may be included on the invoice or immediately before, as
part of, or immediately after the sale. 1 C.C.R. 201-1:39-21-
112.3.5(2)(a)(ii)(1). Other workarounds such as a packaging
insert (at a cost of less than 10 cents) are also possible. [Appx.
1726-56, 1963-72, 1972:3-5].

DOR has provided acceptable sample language for the
Transactional Notice so non-collecting retailers need not draft the
notice themselves. [Appx. 1726-56, 1973-79].

DOR has provided instructions and templates to assist non-
collecting retailers with preparing and electronically filing the
Customer Information Report through a website secured with a
41
Secure Sockets Layer (SSL), ensuring the data is encrypted and
that transactions are secure. [Appx. 1726-56, 1981 5-6]. The
transmission options, either online or by hard-copy media, would
not result in any cost to the non-collecting retailer with respect to
securing such data. [Appx. 213-43, 276-304].

DMA asserted below that Colorado customers are likely to cease
patronizing non-collecting retailers once they learn that the retailer is
obligated to report their purchase information to DOR. Aside from the
speculative nature of this hypothesis, see Cardoso v. Calbone, 490 F.3d
1194, 1197 (10th Cir. 2007) (evidence may not be based on speculation),
this conclusion does not create a dormant Commerce Clause violation.
Even under Colorado Law, non-collecting retailers are still able to offer
their goods for sale at a perceived discount as compared to their
collecting-retailer counterparts, since tax is not collected at the point-of-
sale a commercial advantage that is both significant and, at its core,
discriminates in favor of and not against non-collecting retailers. See
Quill, 504 U.S. at 329 (White, J., dissenting) (Also very questionable is
the rationality of perpetuating a rule that creates an interstate tax
shelter for one form of business-mail-order sellers-but no countervailing
advantage for its competitors.). At most, Colorado Law results in a
modest change to non-collecting retailers structure or methods of
42
operationareas not protected by the dormant Commerce Clause.
Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978).
Moreover, non-collecting retailers can opt out of the reporting
requirements of Colorado Law. Non-collecting retailers always have the
freedom to choose between two alternatives: either report the
information required by Colorado Law or collect and remit sales tax, as
many large retailers with no physical presence in Colorado have elected
to do. [Appx. 1726-56, 1932-33]. This is a voluntary choice not
available to retailers with a physical presence in Coloradothey must
When viewed against the estimated $12.5 million of revenue
generated by the reporting requirements in the first year alone, [Appx.
2079-2109, 2116-19], the limited reporting impositions asked of non-
collecting retailers cannot be said to be clearly excessive, particularly
when the bulk of such burden consists of onetime, non-recurring
expenses. [Appx. 213-43, 276-304]. Moreover, any nominal cost of
complying with Colorado Law may be passed on to Colorado consumers,

collect sales tax or face civil and criminal penalties. 39-26-103(4), 39-
21-118(2), C.R.S. Thus, any differential treatment actually favors non-
collecting retailers to the detriment of collecting retailers.
43
whose elected representatives voted for the reporting requirements in
the first instance. See United Haulers, 550 U.S. at 345 (upholding
waste flow control ordinance where cost of compliance is likely to fall
upon the very people who voted for the laws.).
The remote possibility that some DMA members may elect to
withdraw from the Colorado market rather than comply, as DMA
insists without support, is speculative and beside the point. The
Commerce Clause protects the interstate market, not particular
interstate firms, from prohibitive or burdensome regulations. Exxon
Corp., 437 U.S. at 127-28. There is no reason to think that the
withdrawing non-collecting retailers supply will not be promptly
replaced by another non-collecting retailerone willing to comply with
the reporting requirements to offer their goods for sale in Colorado. Id.
at 127.
Finally, DMA failed to sustain its evidentiary burden. See
Kleinsmith, 571 F.3d at 1043 ([a]ny balancing approach, of which Pike
is an example, requires evidence. It is impossible to tell whether a
burden on interstate commerce is clearly excessive in relation to the
putative local benefits without understanding the magnitude of both
44
burdens and benefits. (quoting Baude v. Heath, 538 F.3d 608, 612 (7th
Cir. 2008)). DMA submitted no evidence of any actual burden of
Colorado Law upon any of DMAs members. Indeed, not even a scintilla
of proof was submitted establishing that any member investigated the
cost of altering their computer systems to comply with the reporting
requirements. [Appx. 2210:18-21, 2220:12-17, 2221:10-15]; see also
Kleinsmith, 571 F.3d at 1042 (noting plaintiff fails to say that he has so
much as investigated the costs of complying with the present statute).
III. The district court erred in finding that Colorado
Law discriminates against interstate commerce.
The district court erred as a matter of law in finding that the
Colorado Law discriminates against interstate commerce.
Discrimination challenges brought under the Commerce Clause are
subject to a two-tiered analysis. Kleinsmith, 571 F.3d at 1039. When a
state statute directly regulates or discriminates against interstate
commerce, or when its effect is to favor in-state economic interests over
out-of-state interests, [the Court has] generally struck down the statute
without further inquiry. Id. (quoting Brown-Forman Distillers Corp. v.
N.Y. State Liquor Auth., 476 U.S. 573, 579 (1986)). When, however, a
45
statue has only indirect effects on interstate commerce and regulates
evenhandedly, [the Court has] examined whether the States interest is
legitimate and whether the burden on interstate commerce clearly
exceeds the local benefits. Id. Under this second tier, a law will be
upheld unless the burdens imposed are clearly excessive in relation to
the putative local benefits. Pike, 397 U.S. at 142. The burden to show
discrimination rests on the party challenging the statute. Hughes v.
Okla., 441 U.S. 322, 336 (1979). Colorado Law passes both tiers of
review.
A. Colorado Law passes the first-tier
because it does not discriminate
against interstate commerce.
The first-tier inquiry turns on whether the challenged law
affirmatively or clearly discriminates against interstate commerce on
its face or in practical effect. Kleinsmith, 571 F.3d at 1040 (quoting C &
A Carbone, Inc., 511 U.S. at 402 (emphasis added). Under the
Commerce Clause, discriminatory laws are those that mandate
treatment of in-state and out-of-state economic interests that benefits
the former and burdens the latter. Granholm, 544 U.S. at 472
(emphasis added) (internal quotations omitted). The challenging party
46
must demonstrate both how local economic actors are favored by the
legislation, and how out-of-state-actors are burdened. Kleinsmith, 571
F.3d at 1041. The district court erred in finding Colorado Law
discriminates against interstate commerce.
The district court erroneously invoked a before-and-after approach
that analyzed in isolation the effect on non-collecting retailers prior to
and after Colorado Law was enacted. This before-and-after approach
has no support in Commerce Clause jurisprudence. In a discrimination
challenge, the critical consideration is the overall effect of the statute
on both local and interstate activity. Brown-Forman, 476 U.S. at 579.
Discrimination against interstate commerce requires a comparative
showing of differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter. Or. Waste
Sys., Inc. v. Dept of Env. Quality of State of Or., 511 U.S. 93, 99 (1994)
(emphasis added). This analysis, correctly performed, is not concerned
with whether out-of-state retailers are incrementally more burdened
before and after the passage of a law. Rather, the district court was
obligated to determine whether in-state retailers are favored or
provided a commercial advantage over out-of-state retailers. See, e.g.,
47
Boston Stock Exch., 429 U.S. at 329 (Commerce Clause precludes
discrimination that creates a direct commercial advantage to local
business) (emphasis added); Am. Trucking Assn, Inc., 545 U.S. at 433
(same).
Further, the district court stopped short its discrimination inquiry
upon a finding of differential treatment and failed to examine whether
that treatment amounted to discrimination against interstate
commerce. Relying upon Oregon Waste, the district court concluded the
degree of differential burden is of no relevance when considering a
regulatory scheme that does not regulate evenhandedly. [Appx. 2151].
5

5
Supreme Court case law makes clear that to regulate evenhandedly
simply means the statute does not discriminate on its face or in effect.
Brown-Forman, 476 U.S. at 579.

In Oregon Waste, the degree of differential burden was irrelevant
because the statute discriminated on its face between in-state and out-
of-state waste sources by imposing a higher fee upon the disposal of
waste generated outside the state than that imposed on waste
generated within the state. 511 U.S. at 99-100 & n.4. Had the Oregon
Waste rates been reversed, so that out-of-state waste was subject to a
lower fee, clearly this would not amount to discrimination under the
48
Commerce Clause. Thus, Oregon Waste stands simply for the point that
the degree of burden beyond what is borne by in-state actors is
irrelevant. In order to constitute discrimination for purposes of the
dormant Commerce Clause, the burden borne by out-of-state actors
must still be greater than that borne by in-state interests.
Because out-of- state retailers are treated better than instate
retailers, Colorado Law does not discriminate. As described in Part I.
B. above, out-of-state retailers remain at a competitive advantage under
Colorado Law due to the heavier burdens associated with collecting,
being liable for sales tax, and their perceived point-of-sale price
advantage. See also John A. Swain and Walter Hellerstein, The
Questionable Constitutionality of Amazons Distribution Center Deals,
State Tax Notes, Dec. 5, 2011 ([Quill] has created a world that
effectively forces states to discriminate against local commerce.). Out-
of-state non-collecting retailers have a choice between collecting sales
tax, just like in-state retailers and national retailers with a physical
presence, or, complying with the information reporting requirements.
This choice is not available to in-state retailers or national retailers
with a physical presence within the state. Although the district court
49
found even this choice to be a burden, [Appx. 2152], logic warrants a
finding that discrimination is not present given such a choice.
6
DMA failed to meet its heavy burden to establish Colorado Law
discriminates against interstate commerce. Kleinsmith requires actual
and not speculative evidence for a challenger to sustain a Commerce
Clause claim. Under the first tier, this Court explained the plaintiff
has not presented evidence that could satisfy his burden to establish a
discriminatory effect, that he has not shown how the [Utah law] alters
the competitive balance between resident and nonresident attorneys,
and that even if he had shown evidence of economic loss, he would
still need to show a discriminatory effect upon interstate commerce in
attorney-trustee services as a whole. Id. at 1042 (citing Exxon Corp.,
437 U.S. 117). Here, the dearth of actual evidence in the record reveals
DMA has similarly failed to meet its heavy evidentiary burden. DMA
relied solely on a survey of Colorado Internet consumers that it
commissioned. In addition to the fatally-flawed methodology the survey

6
Further, non-collecting retailers are not forced to choose between two
unlawful burdens and therefore the district courts reliance upon
Bendix Autolite Corp. v. Midwesco Enters., Inc., 486 U.S. 888 (1988)
was misplaced.
50
invoked, see [Appx. 924-44, 1603-11] (seeking exclusion of survey and
related testimony under F.R.E. 702), the speculative survey is not
evidence of any actual burden on or discrimination against interstate
commerce.
B. Under the second-tier Pike balancing
test, Colorado Law advances strong
state interests.
When the challenged law does not discriminate, the challenger
must rely on the second-tier inquiry by employing the balancing test set
forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Kleinsmith,
571 F.3d at 1040. Under Pike, the statute will be upheld unless the
burden imposed on such commerce is clearly excessive in relation to the
putative local benefits. 397 U.S. at 142. State laws frequently
survive Pike scrutiny. Davis, 553 U.S. at 339.
Here, the district court conflated the per se standard from the
first-tier inquiry with the Pike balancing test by improperly weighing
the availability of nondiscriminatory alternatives against the putative
local benefits. [Appx. 2152-54]. Under Pike, the second tier requires
weighing the putative local benefits against the burdens on interstate
51
commerce, not the available nondiscriminatory alternatives. 397 U.S.
at 142.
7
Any burdens on interstate commerce associated with Colorado
Law, discussed in Part II.C. above, are not clearly excessive in relation
to the three strong state taxing authority interests it advances. First,
Colorado Law enhances DORs ability to recover from consumers the
sales and use tax revenue due to the Statea vital component of the
State budget.
Colorado Law handily passes the Pike test.
8

7
Kleinsmith makes clear that the availability of non-discriminatory
alternatives is relevant only under the first tier inquiry if there is a
determination that the law is discriminatory. 571 F.3d at 1040.
Because the Colorado Law does not discriminate, this Court need not
reach the question of whether there are any sufficient non-
discriminatory alternatives.
[Appx. 258-59, 7-8]. In United Haulers, 550 U.S. at
346, the Court determined that revenue generation is a cognizable
benefit for purposes of the Pike test. Id. at 346; see also C & A
Carbone, Inc., 511 U.S. at 429 (protection of public fisc is a legitimate
non-protectionist benefit); Donald H. Regan, The Supreme Court and
8
The district court overlooked the core aim of Colorado Law: to increase
voluntary consumer compliance with the sales and use tax through
information and third party reporting. Instead, the district court
erroneously concluded that tax collection is enhanced only to the extent
it encourages non-collecting retailers to collect and remit the tax rather
than comply with Colorado Law.
52
State Protectionism: Making Sense of the Dormant Commerce Clause, 84
Mich. L. Rev. 1091, 1120 (May 1986) ([R]aising revenue for the state
treasury is . . . a federally cognizable benefit.).
Second, Colorado Law, which undisputedly provides an
enforcement mechanism for the sales and use tax scheme, promotes the
fair distribution of the cost of government. See Commonwealth Edison
Co., 453 U.S. at 622-623 (citing Carmichael v. S. Coal & Coke Co., 301
U.S. 494, 521-533 (1937)). In Commonwealth Edison Co., the Court
reaffirmed the fundamental principle that government exists primarily
to provide for the common good. 453 U.S. at 623. The Court noted that
nothing in the Commerce Clause divests the states of their broad taxing
latitude merely because the taxed activity has some connection to
interstate commerce. Id.; see also Quill, 504 U.S. at 328 (White, J.,
dissenting) (an out-of-state business derives numerous commercial
benefits from state in which it does business, such as sound local
banking institutions to support credit transactions and courts to ensure
collection of purchase price). To the contrary, interstate commerce may
be made to pay its just share of the state tax burden even though it
increases the cost of doing business. W. Live Stock, 303 U.S. at 254.
53
Third, Colorado Law promotes respect for and compliance with the
tax lawsa legitimate governmental interest recognized by a majority
of the Circuit Courts of Appeals, including the Tenth Circuit. See, e.g.,
United States v. Richey, 924 F.2d 857, 862 (9th Cir. 1990) (maintaining
a workable tax system is a compelling governmental interest); Schehl v.
Commr of Internal Revenue, 855 F.2d 364, 367 (6th Cir. 1988)
(promoting public compliance with tax laws is a legitimate
governmental interest); St. German of Alaska E. Orthodox Catholic
Church v. United States, 840 F.2d 1087, 1094 (2d Cir. 1988)
(enforcement of tax laws is a compelling governmental interest); United
States v. Hoover, 727 F.2d 387, 389-90 (5th Cir. 1984) (deterrent effect
offered by prosecution serves legitimate interest in promoting general
compliance with tax laws); United States v. Amon, 669 F.2d 1351, 1360
(10th Cir. 1981) (same as Hoover); United States v. Catlett, 584 F.2d
864, 868 (8th Cir. 1978) (same as Hoover).
This is no trivial concern in the use tax context. The dismal rate
of compliance with state use taxes in the era of booming E-commerce
underscores the need for heightened enforcement techniques. As
consumers make more and more purchases via the Internet from
54
businesses that do not collect the sales and use tax, the tax gap widens.
Id; see also Fair Hous. Council v. Roomates.com LLC, 521 F. 3d 1157,
1164 n.15 (9th Cir. 2008) (Internet is the dominant and perhaps the
preeminent means in which commerce is conducted). Third-party
reporting under Colorado Law combats this tax gap. The burdens upon
non-collecting retailers are, therefore, incidental and do not outweigh
the strong state interests furthered by Colorado Law.
CONCLUSION
Even if Colorado Law has the incidental effect of marginally
reducing the sizeable commercial advantage currently enjoyed by non-
collecting retailers, the dormant Commerce Clause does not preclude
this result. It would be ironic indeed to allow states to enact
constitutional sales and use tax schemes but then strip them of
reasonable means of enforcement to collect on those taxes. As a result,
DOR respectfully requests that this Court reverse the decision of the
district court granting judgment in DMAs favor and enjoining Colorado
Law, and that the Court direct that summary judgment be entered in
DORs favor on DMAs Commerce Clause claims.
55
DOR respectfully requests oral argument to address these
constitutional issues of first impression.
Respectfully submitted this 25th day of June, 2012.

JOHN W. SUTHERS
Attorney General

s/ Daniel D. Domenico
DANIEL D. DOMENICO*
Solicitor General
MELANIE J. SNYDER*
First Assistant Attorney General
STEPHANIE LINDQUIST SCOVILLE*
Senior Assistant Attorney General
GRANT T. SULLIVAN*
Assistant Attorney General
1525 Sherman Street, 7th Floor
Denver, Colorado 80203
*Counsel of Record

CERTIFICATE OF COMPLIANCE
Section 1. Word count
As required by Fed. R. App. P. 32(a)(7)(c), I certify that this brief is
proportionally spaced and contains 10,327

words.

Complete one of the following:

x I relied on my word processor to obtain the count and it is Microsoft
Office Word 2007.

I counted five characters per word, counting all characters including
citations and numerals.

I certify that the information on this form is true and correct to the best of
my knowledge and belief formed after a reasonable inquiry.

s/Stephanie Lindquist Scoville


CERTIFICATE OF DIGITAL SUBMISSION
AND PRIVACY REDACTIONS

I hereby certify that a copy of the foregoing APPELLANTS
OPENING BRIEF, as submitted in Digital Form via the courts ECF
system, is an exact copy of the written document filed with the Clerk
and has been scanned for viruses with the Symantec Endpoint
Protection, Version 11.0.7101.1056, and, according to the program, is
free of viruses. In addition, I certify all required privacy redactions
have been made.

s/ Stephanie Lindquist Scoville


CERTIFICATE OF SERVICE

I hereby certify that a copy of the within APPELLANTS
OPENING BRIEF was furnished through (ECF) electronic to the
following on this 25th day of June, 2012 addressed as follows:

George S. Isaacson
Matthew P. Schaefer
BRANN & ISAACSON
184 Main Street, P.O. Box 3070
Lewiston, ME 04243-3070
gisaacson@brannlaw.com
mschaefer@brannlaw.com

s/ Stephanie Lindquist Scoville

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Case No. 10-cv-01546-REB-CBS
THE DIRECT MARKETING ASSOCIATION,
Plaintiff,
v.
ROXY HUBER, in her capacity as Executive Director, Colorado Department of
Revenue,
Defendant.
ORDER CONCERNING CROSS MOTIONS FOR SUMMARY JUDGMENT
Blackburn, J.
This matter is before me on the parties cross motions for summary judgment: (1)
Plaintiffs Motion for Summary Judgment as to Counts I and II Alleging Violations
of the Commerce Clause [#98]
1
; and (2) Defendants Motion for Partial Summary
Judgment - Counts I and II (Commerce Clause) [#99], both filed May 6, 2011. The
parties both filed responses [#100 & #101] and replies [#102 & 103].
2
I grant the
plaintiffs motion, and I deny the defendants motion.
I. JURISDICTION & STANDING
I have jurisdiction over this case under 28 U.S.C. 1331 (federal question).
1
[#98] is an example of the convention I use to identify the docket number assigned to a
specific paper by the courts case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.
2
The issues raised by and inherent to the cross-motions for summary judgment are fully briefed,
obviating the necessity for evidentiary hearing or oral argument. Thus, the motions stand submitted on the
briefs. Cf. FED. R. CIV. P. 56(c) and (d). Geear v. Boulder Cmty. Hosp., 844 F.2d 764, 766 (10th
Cir.1988) (holding that hearing requirement for summary judgment motions is satisfied by court's review of
documents submitted by parties).
Case 1:10-cv-01546-REB-CBS Document 105 Filed 03/30/12 USDC Colorado Page 1 of 22
Although the defendant challenges the plaintiffs standing to pursue certain of its claims,
the defendant does not challenge the plaintiffs standing to present its claims under the
Commerce Clause. I conclude that the plaintiff has standing on these claims. The
parties seek summary judgment only on the claims under the Commerce Clause.
Therefore, I need not and do not address standing further.
II. STANDARD OF REVIEW
Summary judgment is proper when there is no genuine issue as to any material
fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
(1986). A dispute is genuine if the issue could be resolved in favor of either party.
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586,
106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d
1131, 1135 (10
th
Cir. 1994). A fact is material if it might reasonably affect the outcome
of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.
A movant who bears the burden of proof at trial must submit evidence to
establish every essential element of its claim. See In re Ribozyme Pharmaceuticals,
Inc. Securities Litigation, 209 F.Supp.2d 1106, 1111 (D. Colo. 2002). Once the
motion has been supported properly, the burden shifts to the nonmovant to show, by
tendering depositions, affidavits, and other competent evidence, that summary
judgment is not proper. Concrete Works, Inc. v. City & County of Denver, 36 F.3d
1513, 1518 (10
th
Cir. 1994), cert. denied, 115 S.Ct. 1315 (1995). All the evidence must
be viewed in the light most favorable to the party opposing the motion. Simms v.
Oklahoma ex rel Department of Mental Health and Substance Abuse Services, 165
2
F.3d 1321, 1326 (10
th
Cir.), cert. denied, 120 S.Ct. 53 (1999).
III. BACKGROUND
The plaintiff, The Direct Marketing Association (DMA), asks the court to enter a
permanent injunction enjoining the defendant from enforcing the notice and reporting
obligations imposed on many out-of-state retailers under a Colorado law, now codified
at 39-21-112(3.5), C.R.S. (2010) (the Act), and under the concomitant regulations
promulgated by the Colorado Department of Revenue (DOR) to implement the Act, 1
Colo. Code Regs. 201-1:39-21-112.3.5 (2010) (the Regulations).
3
In general, the Act
and Regulations require retailers that sell products to customers in Colorado, but do not
collect and remit Colorado sales tax on those transactions, to report certain information
about the customers purchases from the retailer to each customer and to the Colorado
Department of Revenue.
The DMA is an association of businesses and organizations that market products
directly to consumers via catalogs, magazine and newspaper advertisements,
broadcast media, and the internet. The Act and the Regulations will affect many
members of the DMA. The defendant, Roxy Huber, is the Executive Director of the
Colorado Department of Revenue, the state agency charged with enforcing the Act and
the Regulations. The DMA alleges that certain requirements of the Act and the enabling
Regulations violate the constitutional rights of many members of the DMA. The present
motions concern the contention of the DMA that the Act and the Regulations violate the
rights of many of its members under the Commerce Clause of the United States
Constitution. U.S. Const. art. I, 8.
3
Copies of the Act and the Regulations are attached to the DMAs motion for preliminary
injunction [#15] as Exhibits 1 and 2.
3
The Act and the Regulations establish three new obligations for retailers who sell
products to customers in Colorado, but who do not collect and remit Colorado sales tax
on those transactions. First, such retailers must notify their Colorado customers that the
retailer does not collect Colorado sales tax and, as a result, the purchaser is obligated
to self-report and pay use tax to the DOR (Transactional Notice).
Second, such retailers must provide each of their Colorado customers an annual
report detailing that customers purchases from the retailer in the previous calendar
year, informing the customer that he or she is obligated to report and pay use tax on
such purchases, and informing the customer that the retailer is required by law to report
the customers name and the total amount of the customers purchases from that
retailer to the DOR (Annual Purchase Summary). The Annual Purchase Summary must
be provided only to customers who spend more than 500 dollars in the calendar year
with the particular reporting retailer.
Third, such retailers must provide the DOR with an annual report concerning
each of the retailers Colorado customers stating the name, billing address, shipping
addresses, and the total amount of purchases from the retailer by each of the retailers
Colorado customers (Customer Information Report). The Law exempts retailers with
less than 100,000 dollars in gross annual sales in Colorado.
The Act and the Regulations are tools for DOR to enforce and collect the
long-existing Colorado sales and use tax. Colorado enacted a sales tax in 1935 and a
complementary use tax in 1937. Use tax is due on the storage, usage, or consumption
of tangible property within Colorado when sales tax has not been paid. 39-26-202,
C.R.S. Of course, the use tax is designed to capture sales tax revenue that is lost when
sales are diverted out of state or are accomplished remotely, as through catalog
4
purchases or via the Internet. The obligation to pay the sales or use tax is on the
consumer. J.A. Tobin Construction Co. v. Weed, 407 P.2d 350, 353 (Colo. 1965).
Ultimately, the DMA seeks a declaration that the Act and the Regulations are
unconstitutional because they violate the Commerce Clause. On the same basis, the
DMA seeks a permanent injunction enjoining enforcement of the Act and the
Regulations.
IV. THE DORMANT COMMERCE CLAUSE
The Commerce Clause expressly authorizes Congress to regulate Commerce
with foreign Nations, and among the several States. U.S. Const. art. I, 8. The
Commerce Clause long has been read as having a negative or dormant sweep as well.
The clause, by its own force prohibits certain state actions that interfere with interstate
commerce. Quill Corp. v. North Dakota By and Through Heitkamp, 504 U.S. 298,
309 (1992) (quoting South Carolina State Highway Dept. v. Barnwell Brothers, Inc.,
303 U.S. 177, 185 (1938)). The negative Commerce Clause denies the States the
power unjustifiably to discriminate against or burden the interstate flow of articles of
commerce. Oregon Waste Systems, Inc. v. Department of Environmental Quality
of State of Or., 511 U.S. 93, 98 (1994).
The DMA asserts two claims under the dormant Commerce Clause. First, the
DMA contends that the Act and the Regulations discriminate impermissibly against
interstate commerce. I will refer to this claim as the discrimination claim. Second, the
DMA contends that the Act and the Regulations impermissibly impose undue burdens
on interstate commerce. I will refer to this claim as the undue burden claim.
V. DISCRIMINATION CLAIM
A state law violates the discrimination aspect of the dormant Commerce Clause if
5
it discriminates against interstate commerce either facially or in practical effect.
Hughes v. Oklahoma, 441 U.S. 322, 336 (1979). The United States Supreme Court
has adopted a two tier approach to analyzing discrimination claims. Brown-Forman
Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 578 - 579 (1986). At the
first tier, (w)hen a state statute directly regulates or discriminates against interstate
commerce, or when its effect is to favor in-state economic interests over out-of-state
interests, we have generally struck down the statute without further inquiry. Id. at 579.
When a statute has only indirect effects on interstate commerce and regulates
evenhandedly, we have examined whether the State's interest is legitimate and whether
the burden on interstate commerce clearly exceeds the local benefits. Id. (citing Pike
v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)). The second tier of the analysis is
the balancing of a states legitimate interests with the burden on interstate commerce
under the Pike analysis.
We have also recognized that there is no clear line separating the
category of state regulation that is virtually per se invalid under the
Commerce Clause, and the category subject to the Pike v. Bruce Church
balancing approach. In either situation the critical consideration is the
overall effect of the statute on both local and interstate activity.
Id.; see also Kleinsmith v. Shurtleff, 571 F.3d 1033, 1039 - 1044 (10
th
Cir. 2009)
(describing and applying the two tier analysis).
Under the dormant Commerce Clause, a law discriminates against interstate
commerce if it imposes differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter. Oregon Waste Systems, Inc.
v. Department of Environmental Quality of State of Or., 511 U.S. 93, 99 (1994). In
Oregon Waste Systems, for example, the Supreme Court concluded that Oregons two
dollar and twenty-five cent per ton surcharge on out-of-state solid waste brought into
6
Oregon for disposal when compared to the eighty-five cents per ton surcharge imposed
on in-state solid waste was discriminatory in violation of the dormant Commerce Clause.
Id. at 100. The Oregon Waste Systems Court noted that the degree of a differential
burden or charge on interstate commerce is of no relevance to the determination
whether a State has discriminated against interstate commerce. Id. at 100 n. 4
(internal quotation and citation omitted). If a restriction on commerce is discriminatory,
it is virtually per se invalid. Id. at 99 (citations omitted). In Oregon Waste Systems,
the court found the statute in question to be facially discriminatory and virtually per se
invalid. Id. at 100. Facing that conclusion, the Court determined that the statute must
be invalidated unless the state can show that the statute advances a legitimate local
purpose that cannot be adequately served by reasonable nondiscriminatory
alternatives. Id. at 101 (citation and internal quotation omitted). Justifications for
discriminatory restrictions on commerce must pass the strictest scrutiny. Id. Strict
scrutiny leaves few survivors. City of Los Angeles v. Alameda Books, Inc., 535 U.S.
425, 455 (2002).
On their face the Act and the Regulations do not distinguish between in-state
retailers (those with a physical presence a brick and mortar presence in the state)
and out-of-state retailers (those with no physical presence in the state who make sales
to customers in the state). Rather, the Act focuses on the distinction between retailers
who collect Colorado sales tax and those who do not collect Colorado sales tax. See,
e.g., 39-21-112, C.R.S. As the defendant notes, this distinction between collecting and
non-collecting retailers is driven by the Commerce Clause law established in Quill
Corp. v. North Dakota By and Through Heitkamp, 504 U.S. 298, 309 (1992) and
related cases. Defendants motion [#99], p. 14.
7
Quill concerned an undue burden claim under the dormant Commerce Clause,
but its holding drives the analysis of the Act and the Regulations in relation to the
plaintiffs discrimination claim. Under the law established in Quill and related cases,
Colorado may not impose any duty to collect sales and use taxes on out-of-state
retailers whose only connection to Colorado is by common carrier or the U.S. mail.
Quill, 504 U.S. at 315. Rather, a duty to collect such taxes may be imposed only on
retailers who have a physical presence in the state. Id. at 317 - 318. Thus, out-of-state
retailers that do not have a physical presence in Colorado are not obligated to collect
and remit sales tax on their sales to customers in Colorado. According to the plaintiff,
the Act and the Regulations discriminate impermissibly against this group of out-of-state
retailers by imposing on those retailers burdens that are not be borne by in-state
retailers.
A. FIRST TIER ANALYSIS
According to the defendant, the Act and the Regulations do not discriminate
against out-of state-retailers and interstate commerce because, reading the plain
language of the Act and the Regulations, they both apply to all retailers, in-state and
out-of-state, that sell to Colorado purchasers but do not collect Colorado sales tax.
Applying the law established by the Supreme Court, I conclude that the veil provided by
the words of the Act and the Regulations is too thin to support the conclusion that the
Act and the Regulations regulate in-state and out-of-state retailers even-handedly. This
is true because, viewed in the context of Quill and provisions of Colorado law that
require all in-state retailers to collect sales tax, I am constrained to conclude that the Act
and the Regulations directly regulate and discriminate against out-of-state retailers and,
therefore, interstate commerce.
8
Under Colorado law, all retailers doing business in Colorado and selling to
Colorado purchasers must obtain a sales tax license and must collect and remit the
sales tax applicable to each sale. 39-26-103, 104, 106, 204, C.R.S. Civil and
criminal penalties may be imposed on a retailer who fails to comply. 39-21-118(2),
39-26-103(1)(a), (4), C.R.S. Under Quill and related law, these duties and penalties
cannot be imposed on out-of-state retailers whose only connection to Colorado is by
common carrier or the U.S. mail. 504 U.S. at 315. Thus, under Colorado law, the
obligation to collect and remit sales tax is imposed only on in-state retailers, retailers
with a physical presence in the state. Under the Act and the Regulations, retailers who
collect and remit Colorado sales tax are not obligated to provide the Transactional
Notice, the Annual Purchase Summary, and the Customer Information Report otherwise
required by the Act and the Regulations. 39-21-112, C.R.S. Assuming they comply
with the mandates of Colorado law, in-state retailers are not subject to the Act and the
Regulations.
4

Explicitly, the Act defines those who are subject to its reporting requirements as
any retailer that does not collect Colorado sales tax. 39-21-112, C.R.S. Given the
circumstances described above, only out-of state retailers must provide the Transaction
Notice and the Annual Purchase Summary to their customers. Only out-of state
retailers must provide the Customer Information Report to the state.
5
The Act and the
4
Evidence submitted by the defendant indicates that the Tax Compliance Section of the
Colorado Department of Revenue discovers each year only a very small number of Colorado retailers who
are not complying with their legal obligation to collect and remit sales tax. Response to motion for
preliminary injunction [#50], Exhibit 16 (Reiser Affidavit). The existence of this inconsequential number of
non-compliant in-state retailers does not change the Commerce Clause analysis.
5
As noted in the background section above, these requirements do not apply to retailers whose
sales to a particular customer are below a certain level, or whose gross sales in Colorado during a
calendar year are below a certain level. Even with these limitations, the Act and the Regulations will be
applicable to many out-of-state retailers. These limitations of the Act and the Regulations are not relevant
9
Regulations impose a notice and reporting burden on out-of-state retailers and that
burden is not imposed on in-state retailers. It is undisputed that compliance with the Act
and the Regulations would impose some burdens, including costs of compliance and
possibly lost sales, on out-of-state retailers.
The defendant argues that demonstrating differential treatment alone is not
sufficient to prove that the Act and the Regulations are discriminatory. Defendants
response [#101], pp. 14 - 15. That is true, but only when analyzing a statute that
regulates evenhandedly and has only indirect effects on interstate commerce. For
example, in Kleinsmith the court determined that the statute in question did not
discriminate on its face and, therefore, proceeded to determine if the evidence
established that the statute discriminated in its practical effect. Kleinsmith, 571 F.3d
1033, 1040 - 1041. In that context, the court concluded that (n)ot every benefit or
burden will suffice [to show discriminatory effect] only one that alters the competitive
balance between in-state and out-of-state firms. Id. at 1041. However, when
considering a regulatory scheme that does not regulate evenhandedly between in-state
and out-of-state retailers, like the Act and the Regulations, the degree of a differential
burden or charge on interstate commerce is of no relevance to the determination
whether a State has discriminated against interstate commerce. Oregon Waste
Systems, 511 U.S. at 100 n. 4 (internal quotation and citation omitted).
The defendant argues also that the Act and the Regulations do not discriminate
because retailers subject to the Act and the Regulations, by definition out-of-state
retailers, may choose between two alternatives: comply with the Act and the
to the first tier discrimination analysis.
10
Regulations or voluntarily collect and remit Colorado sales tax. Defendants motion
[#99], pp. 15 - 16. Of course, the choice to collect and remit imposes the same burden
faced by in-state retailers. According to the defendant, there can be no discrimination
against non-collecting out-of-state retailers who have a choice to be subject to precisely
the same burdens as in-state retailers who do not enjoy the same choice. Defendants
response [#101], p. 17.
The states creation of this option does not resolve the problem. Under Quill
Colorado may not condition an out-of-state retailers reliance on its rights on a
requirement that the retailer accept a different burden, particularly when that burden is
unique to out-of-state retailers. See Bendix Autolite Corp. v. Midwesco Enterprises,
Inc., 486 U.S. 888, 893 (1988). Stated differently, without the Act and the Regulations,
out-of-state retailers did not have the burden of making this choice. The Act and the
Regulations impose the burden of this choice on out-of-state retailers but not on in-state
retailers. The choice does not eliminate, but instead, highlights the discrimination.
Regardless of the states salutary local purposes, its enactment of a statutory
scheme and concomitant regulations that produce, in effect, a geographic distinction
between in-state and out-of-state retailers discriminates patently against interstate
commerce. Given that patent discrimination, the Act and the Regulations violate the
Commerce Clause, unless the defendant can satisfy the requirements of the second tier
of the discrimination analysis.
B. SECOND TIER ANALYSIS
Under Oregon Waste, the second tier of the analysis requires a determination of
whether the Act and the Regulations advance a legitimate local purpose that cannot be
served adequately by reasonable nondiscriminatory alternatives. Oregon Waste, 511
11
U.S. at 101. When discrimination against commerce is demonstrated, the burden falls
on the State to justify it both in terms of the local benefits flowing from the statute and
the unavailability of nondiscriminatory alternatives adequate to preserve the local
interests at stake. Hughes v. Oklahoma, 441 U.S. 322, 336 (1979). The Oregon
Waste Court undertook this analysis, despite its discussion of per se invalidity when a
law is facially discriminatory. Id. Justifications for discriminatory restrictions on
commerce must pass the strictest scrutiny. Id.
The defendant argues that the State of Colorado has three important interests at
stake. First, the Act and the Regulations enhance the DORs ability to recover sales
and use tax revenue due to the state.
6
Second, enforcement of sales and use taxes
promotes the fair distribution of the cost of government. Third, promoting the
enforcement of tax law promotes respect for and compliance with the tax laws. Without
question, these are legitimate state interests and purposes.
According to the plaintiff, there are at least three reasonable nondiscriminatory
alternatives to serve these purposes. First, some states include a line on their resident
income tax returns on which residents report use tax due. Second, the DOR could
increase audits of business consumers. Third, consumer education and notification
programs may increase compliance with use tax obligations. Plaintiffs motion [#98], p.
9.
Relying on its contention that the Act and the Regulations are not discriminatory,
the defendant spends little time addressing reasonable nondiscriminatory alternatives.
6
The defendant argues that the Law and the Regulations also enhances DORs ability to recover
sales taxes. The notice and reporting obligations at issue all relay information about the use tax liability of
a Colorado resident who buys something from an affected out-of-state retailer. Collection of sales tax is
enhanced only to the extent the regulatory scheme encourages out-of-state retailers to collect and remit
sales tax rather than comply with the Law and the Regulations.
12
Defendants response [#101], p. 12 n. 4. According to the defendant, Colorado has not
previously included a line on its income tax returns for reporting use tax. Defendants
response [#101], pp. 4 - 5. However, between 1966 and 1974, the DOR included a
consumer use tax return with income tax return forms. Id. That practice was
discontinued because the amount of tax collected did not justify the printing expense.
Id.
The record contains essentially no evidence to show that the legitimate interests
advanced by the defendant cannot be served adequately by reasonable
nondiscriminatory alternatives. Therefore, the defendant has not met its very high
burden of proof under the strict scrutiny standard applicable in the second tier of the
Commerce Clause discrimination analysis.
C. CONCLUSION
Quill puts states like Colorado in a difficult position. The state cannot require
out-of-state retailers, retailers with no physical presence in the state, to collect and remit
sales tax on sales those retailers make to residents of Colorado. Residents who make
purchases from those retailers are obligated to pay use tax on those purchases, but
enforcing the use tax is significantly more difficult than enforcing the sales tax. Seeking
to enhance enforcement of the use tax on those who make purchases from out-of-state
retailers, a state understandably looks to the out-of-state retailers for key information
that can enhance enforcement. However, if the state has a mandatory sales tax
system, as does Colorado, enforcing a reporting requirement on out-of-state retailers
will, by definition, discriminate against the out-of-state retailers by imposing unique
burdens on those retailers. Such a system imposes a differential burden on out-of-state
retailers because the different burden is imposed precisely because the retailer is an
13
out-of-state retailer entitled to the protection of Quill. Quill creates the in-state versus
out-of-state distinction, and the dormant Commerce Clause prohibits differential
treatment based on that distinction. Only a change in the law by the Supreme Court or
action by Congress can change this situation. Quill, 504 U.S. at 318 (Congress is now
free to decide whether, when, and to what extent the States may burden interstate mail-
order concerns with a duty to collect use taxes.)
Viewing the undisputed facts in the record in the light most favorable to the
defendant, I conclude that the Act, codified at 39-21-112(3.5), C.R.S. (2010), and the
concomitant Regulations promulgated by the Colorado Department of Revenue (DOR)
to implement the Act, 1 Colo. Code Regs. 201-1:39-21-112.3.5 (2010), are
unconstitutional under the dormant Commerce Clause. That is true because the Act
and the Regulations directly regulate and discriminate against out-of-state retailers and,
therefore, interstate commerce. That discrimination triggers the virtually per se rule of
facial invalidity. The defendant has not surmounted that facial invalidity by showing that
the Act and the Regulations serve legitimate state purposes that cannot be served
adequately by reasonable nondiscriminatory alternatives. Thus, the plaintiff is entitled
to summary judgment on its first claim for relief for discrimination under the Commerce
Clause. Obversely, the defendants motion for summary judgment on this claim must
be denied.
VI. UNDUE BURDEN CLAIM
In its second claim for relief, the DMA alleges that the Act and the Regulations
impose improper and burdensome regulations on interstate commerce. The DMA relies
heavily on the law established in Quill Corp. v. North Dakota By and Through
Heitkamp, 504 U.S. 298, 309 (1992) to support its undue burden claim. To rehearse, in
14
Quill, the Court concluded that undue burdens on interstate commerce sometimes may
be avoided by the application of a bright line rule. According to Quill, the dormant
Commerce Clause and the Courts earlier holding in National Bellas Hess, Inc. v.
Department of Revenue of State of Ill., 386 U.S. 753, 758 (1967) create a bright line
rule with regard to the collection of sales and use tax. This law creates a safe harbor
for vendors whose only connection with customers in the [taxing] State is by common
carrier or the United States mail. Under Bellas Hess, such vendors are free from state-
imposed duties to collect sales and use taxes. Quill, 504 U.S. at 315 (internal
quotation omitted). Many members of the DMA are vendors that have no physical
presence in Colorado and whose only connection with Colorado customers is by
common carrier, the United States mail, and/or the internet.
The Quill Court examined and applied the quadripartite test enunciated in
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). Under Complete
Auto, a state tax will survive a Commerce Clause challenge as long as the tax (1) is
applied to an activity with a substantial nexus with the taxing state; (2) is fairly
apportioned; (3) does not discriminate against interstate commerce; and (4) is fairly
related to the services provided by the state. Complete Auto, 430 U.S. at 279.
Complete Auto rejected the previously applied distinction between direct and indirect
taxes on interstate commerce because that formalism allowed the validity of statutes to
hinge on legal terminology, draftsmanship and phraseology. Quill, 430 U.S. at 310
(internal quotation, citation, and brackets omitted). The Complete Auto test
emphasizes the importance of looking past the formal language of a tax statue to its
practical effect. Quill, 504 U.S. at 310. The first and fourth prongs of the Complete
15
Auto test limit the reach of state taxing authority so as to ensure that state taxation
does not unduly burden interstate commerce. Quill, 504 U.S. at 313. The safe harbor
established in Quill is a meant to delineate and define the limits of the substantial nexus
requirement of the Complete Auto test to ensure that a state tax law does not impose
an undue burden on interstate commerce. Id.
As the defendant notes, the Act and the Regulations do not require out-of-state
retailers to collect sales and use taxes. However, they do require out-of-state retailers
to gather, maintain, and report information, and to provide notices to their Colorado
customers and to the DOR. Those notices are required to provide information about the
out-of-state retailers and their Colorado customers. The sole purpose of these
requirements is to enhance the collection of use taxes by the State of Colorado. The
defendant asserts no other reason to require such reporting.
Correctly, the defendant notes that the holding in Quill has a very narrow focus
on sales and use taxes. Capital One Bank v. Commissioner of Revenue, 899
N.E.2d 76, 84 (Mass. 2009). When addressing taxes and regulations outside of that
narrow focus, many cases hold that Quills narrow focus should not be expanded into
other areas. See, e.g., Capital One 899 N.E.2d at 86 (Quill dormant Commerce
Clause standard is not applicable to financial institution excise taxes); American Target
Advertising, Inc. v. Giani,199 F.3d 1241, 1255 (10
th
Cir. 2000) (narrow analysis of
Quill not applicable to law requiring all professional fund raising consultants to register).
In this case, the burden of the notice and reporting obligations imposed by the
Act and the Regulations is somewhat different than the burden of collecting and
remitting sales and use taxes. However, the sole purpose of the burdens imposed by
the Act and the Regulations is the ultimate collection of use taxes when sales taxes
16
cannot be colleted. Looking to the practical effect of the Act and the Regulations, as
Quill instructs, I conclude that the burdens imposed by the Act and the Regulations are
inextricably related in kind and purpose to the burdens condemned in Quill. The Act
and the Regulations impose these burdens on out-of-state retailers who have no
physical presence in Colorado and no connection with Colorado customers other than
by common carrier, the United States mail, and the internet. Those retailers are
protected from such burdens on interstate commerce by the safe-harbor established in
Quill.
Viewing the undisputed facts in the record in the light most favorable to the
defendant, I conclude that the Act, codified at 39-21-112(3.5), C.R.S. (2010), and the
concomitant Regulations promulgated by the Colorado Department of Revenue (DOR)
to implement the Act, 1 Colo. Code Regs. 201-1:39-21-112.3.5 (2010), are
unconstitutional under the dormant Commerce Clause. That is true because, under the
standard established in Quill, a state law that imposes a use tax collection burden on a
retailer with no physical presence in the state causes an undue burden on interstate
commerce. The burdens imposed by the Act and the Regulations are inextricably
related in kind and purpose to the burdens condemned in Quill. Thus, the Act and the
Regulations impose an undue burden on interstate commerce. The plaintiff is entitled to
summary judgment on their second claim for relief, asserting an undue burden claim
under the Commerce Clause. Thus, the defendants motion for summary judgment on
this claim must be denied.
VII. DECLARATORY & INJUNCTIVE RELIEF
A. DECLARATORY RELIEF
Under the Declaratory Judgment Act, 28 U.S.C. 2201 - 2202, the court may
17
enter a judgment declaring the rights and other legal relations of any interested party
seeking such declaration . . . . 28 U.S.C. 2201. Such a judgment or decree is
reviewable as a final judgment. Id. The DMA seeks a declaration that the Act and the
Regulations are unconstitutional. The DMA has established that the Act and the
Regulations are unconstitutional and, therefore, the DMA is entitled to a declaratory
judgment to that effect.
B. INJUNCTIVE RELIEF
A party may obtain a permanent injunction if it proves: (1) actual success on the
merits; (2) irreparable harm unless the injunction is issued; (3) the threatened injury
outweighs the harm that the injunction may cause the opposing party; and (4) the
injunction, if issued, will not adversely affect the public interest. Fisher v. Okla. Health
Care Auth., 335 F.3d 1175, 1180 (10th Cir.2003); See also Prairie Band Potawatomi
Nation v. Wagnon, 476 F.3d 818, 822 (10
th
Cir. 2007). The DMA has established each
of these elements.
1. Success on the Merits. In this order, the court grants summary judgment to
DMA on its two claims asserting that the Act and the Regulations violate the Commerce
Clause. With that, the DMA has achieved success on the merits of these two claims.
2. Irreparable Harm. When the impairment of a constitutional right is at issue, no
further showing of irreparable harm is necessary. Kikumura v. Hurley, 242 F.3d 950,
963 (10
th
Cir. 2001). In a recent case, the United States Court of Appeals for the Tenth
Circuit indicated that violation of Commerce Clause rights constitutes irreparable injury.
American Civil Liberties Union v. Johnson, 194 F.3d 1149, 1163 (10
th
Cir. 2010)
(citing American Libraries Assn v. Pataki, 969 F.Supp. 160, 168 - 183 (S.D.N.Y.
1997)). Although the Tenth Circuits statement in Johnson is dicta, I conclude that
18
violation of the constitutional rights of the members of DMA under the Commerce
Clause constitutes irreparable injury. Thus. the DMA has established irreparable harm.
3. Balance of Harms & Public Interest. When considering an injunction against a
law that has been found to be unconstitutional, the balance of harms and public interest
considerations largely collapse into each other. The Colorado Department of Revenue
does not have a legitimate interest in enforcing a law that is unconstitutional. Chamber
of Commerce of U.S. v. Edmondson, 594 F.3d 742, 771 (10
th
Cir. 2010). Moreover,
the public interest will perforce be served by enjoining the enforcement of the invalid
provisions of state law. Id. Both of these factors have been established.
4. Conclusion. The DMA has established the four elements necessary to
support the entry of a permanent injunction. The court will enter an order permanently
enjoining enforcement of the Act and the Regulations against retailers who have no
physical presence in the state of Colorado.
VII. CONCLUSION & ORDERS
The Act and the Regulations violate the Commerce Clause and, therefore, are
unconstitutional. This is true for two reasons. First, the Act and the Regulations directly
regulate and discriminate against out-of-state retailers and interstate commerce. That
discrimination triggers the virtually per se rule of facial invalidity. The defendant has not
overcome this facial invalidity by showing that the Act and the Regulations serve
legitimate state purposes that cannot be served adequately by reasonable
nondiscriminatory alternatives. Second, the Act and the Regulations impose an undue
burden on interstate commerce under the standard established in Quill Corp. v. North
Dakota By and Through Heitkamp, 504 U.S. 298, 309 (1992).
19
THEREFORE, IT IS ORDERED as follows:
1. That the Plaintiffs Motion for Summary Judgment as to Counts I and II
Alleging Violations of the Commerce Clause [#98] filed May 6, 2011, is GRANTED;
2. That the Defendants Motion for Partial Summary Judgment - Counts I
and II (Commerce Clause) [#99] filed May 6, 2011, is DENIED;
3. That under 28 U.S.C. 2201, the plaintiff, The Direct Marketing Association,
is entitled to a judgment declaring that the provisions of 39-21-112(3.5), C.R.S. (2010)
(the Act), and the regulations promulgated thereunder, 1 Colo. Code Regs. 201-1:39-
21-112.3.5 (2010) (the Regulations), are unconstitutional to the extent that the Act and
the Regulations require
A. that a retailer must notify their Colorado customers that the
retailer does not collect Colorado sales tax and, as a result, the purchaser
is obligated to self-report and pay use tax to the Colorado Department of
Revenue (Transactional Notice); and
B. that a retailer must provide to each of its Colorado customers an
annual report detailing that customers purchases from the retailer in the
previous calendar year, informing the customer that he or she is obligated
to report and pay use tax on such purchases, and informing the customer
that the retailer is required by law to report the customers name and the
total amount of the customers purchases from that retailer to the Colorado
Department of Revenue (Annual Purchase Summary); and
C. that a retailer must provide the Colorado Department of
Revenue with an annual report concerning each of the retailers Colorado
customers stating the name, billing address, shipping addresses, and the
20
total amount of purchases from the retailer by each of the retailers
Colorado customers (Customer Information Report);
4. That effective forthwith defendant Roxy Huber, in her capacity as Executive
Director, Colorado Department of Revenue, together with her agents, servants,
employees, attorneys-in-fact, or anyone acting on their behalf, are PERMANENTLY
ENJOINED AND RESTRAINED from enforcing the provisions of 39-21-112(3.5),
C.R.S. (2010) (the Act) and the regulations promulgated thereunder, 1 Colo. Code
Regs. 201-1:39-21-112.3.5 (2010) (the Regulations), to the extent that the Act and the
Regulations require
A. that a retailer must notify their Colorado customers that the
retailer does not collect Colorado sales tax and, as a result, the purchaser
is obligated to self-report and pay use tax to the Colorado Department of
Revenue (Transactional Notice); and
B. that a retailer must provide to each of its Colorado customers an
annual report detailing that customers purchases from the retailer in the
previous calendar year, informing the customer that he or she is obligated
to report and pay use tax on such purchases, and informing the customer
that the retailer is required by law to report the customers name and the
total amount of the customers purchases from that retailer to the Colorado
Department of Revenue (Annual Purchase Summary); and
C. that a retailer must provide the Colorado Department of
Revenue with an annual report concerning each of the retailers Colorado
customers stating the name, billing address, shipping addresses, and the
total amount of purchases from the retailer by each of the retailers
21
Colorado customers (Customer Information Report);
5. That this injunction SHALL LIMIT the enforcement of the Act and the
Regulations against retailers who sell to customers in Colorado, but who have no
physical presence in the State of Colorado and whose only connection to the State of
Colorado is by common carrier or the United States Mail; and
6. That the court will address in a separate order the parties request that the
court certify this order as a final judgment under FED. R. CIV. P. 54(b).
Dated March 30, 2012, at Denver, Colorado.
BY THE COURT:
22
GeneraI Information
Docket Number 12-01175
Status Closed
Court United States Court of Appeals for the Tenth Circuit
Nature of Suit Constitutionality of State Statutes
Date FiIed 2012-04-30 00:00:00
Direct Marketing Association v. Brohl, Docket No. 12-01175 (10th Cir. Apr 30, 2012), Court Docket
2013 Bloomberg Finance L.P. All rights reserved. Terms of Service
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