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Perspectives

Direct Marketing v. Brohl—son of Quill?

Inside Deloitte

In this edition of Inside Deloitte, the authors contend that the long road traveled by Direct Marketing Association v. Brohl—from the Tenth Circuit to the US Supreme Court and back again—has created two approaches for states seeking to challenge the Quill Bellas Hess sales and use tax physical presence standard.

Introduction

The authors contend that the long road traveled by Direct Marketing Association v. Brohl1—from the Tenth Circuit Court of Appeals to the US Supreme Court and back to the Tenth Circuit again—has created two approaches for states seeking to challenge the Quill/Bellas Hess2 sales and use tax physical presence standard: One that seeks to see the standard overturned, and one that seeks to render its applicability moot. Are we witnessing the pending end of Quill either way? Direct Marketing Association's (DMA) application for certiorari to the Supreme Court was filed August 29 in what has already become one of the most important state tax cases in recent memory.

Statutory Background

On February 24, 2010, then-Colorado Gov. Bill Ritter signed into law HB 10-1193,3 which established Colorado’s then-unique sales and use tax notice and reporting regime by amending Colo. Rev. Stat. section 39-21-112 to include a new subsection. The statute and its accompanying regulations require each remote seller that does not collect and remit Colorado sales tax and that has at least $100,000 in sales to Colorado customers4 to do the following:

  • Notify its Colorado customers that sales or use tax are due on some purchases and that the state of Colorado requires the purchaser to file a sales or use tax return.5
  • Provide to its Colorado customers who have more than $500 in annual purchases an annual report detailing their purchases for the previous calendar year.The report must also notify the customer that sales or use tax are due on certain taxable purchases and that the customer is required to self-report and pay use tax to the Colorado Department of Revenue.6
  • Provide to the DOR an annual report listing each of the retailer’s Colorado customers. The report must include each customer’s name, billing address, shipping address, and total purchases.7

The statute and regulations also provide for the assessment of strict and potentially costly penalties on those retailers that fail to comply with those requirements.8

Direct Marketing Association v. Brohl, 735 F.3d 904 (10th Cir. 2013); Direct Marketing Association v. Brohl, 135 S. Ct. 1124 (U.S. 2015); Direct Marketing Association v. Brohl, 814 F.3d 1129 (10th Cir. 2016).

Quill Corp. v. North Dakota, 504 U.S. 298 (1992); National Bellas Hess Inc. v. Department of Revenue, 386 U.S. 753 (1967).

HB 10-1193, ch. 9, p. 55, section 2.

Colo. Code Reg. section 39-21-112.3.5(1)(a)(iii).

Colo. Rev. Stat. section 39-21-112(3.5)(c)(I).

Colo. Rev. Stat. section 39-21-112(3.5)(d)(I)(A); and Colo. Code Reg. section 39-21-112.3.5(2)(b), (3)(a).

7 Colo. Rev. Stat. section 39-21-112(3.5)(d)(II)(A),(B); and Colo. Code Reg. section 39-21-112.3.5(2)(c)(iii) and (4)(a).

Retailers failing to provide transactional notices to Colorado customers are subject to a penalty equal to $5 for each transaction for which they fail to send the requisite notice. Colo. Rev. Stat. section 39-21- 112(3.5)(c)(II). Retailers failing to provide annual reports to their Colorado customers are subject to a penalty equal to $10 for each report they fail to send. Colo. Rev. Stat. section 39-21-112(3.5)(d)(III)(A). Retilers failing to provide an annual report to the DOR are subject to a penalty equal to $10 for each purchaser that should have been in the report. Colo. Rev. Stat. section 39-21-112(3.5)(d)(III)(B).

​If you have questions regarding this edition of Inside Deloitte, please contact:

David M. Vistica, managing director, Deloitte Tax LLP

Jeremy Sharp, senior consultant, Deloitte Tax LLP

The authors thank Tom Cornett for his contributions to and review of this article.

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