'Direct Marketing' decision may be a net loss for remote sellers

Inside Deloitte

​In this edition of Inside Deloitte, the Supreme Court’s decision in "Direct Marketing Association v. Brohl" and Justice Anthony M. Kennedy’s concurrence are used as platforms to discuss how Kennedy may view future questions on commerce clause sales and use tax nexus as applied to remote sellers and the likelihood of federal intervention in this area.

Impact of "Direct Marketing"

The Supreme Court recently issued a unanimous decision in Direct Marketing Association v. Brohl, reversing an earlier decision rendered by the US Court of Appeals for the Tenth Circuit.1 The Tenth Circuit had held that the Tax Injunction Act (TIA; 28 U.S.C. section 1341) deprived the US district court of jurisdiction to enjoin Colorado from enforcing its remote seller2 sales and use tax notice and reporting requirements.3 The Supreme Court held that the TIA did not bar the suit brought by the Direct Marketing Association (DMA)4 because the injunctive relief sought would not enjoin, suspend, or restrain the assessment, levy, or collection of Colorado’s sales and use taxes.5 In an environment in which states have made continued efforts to capture sales and use tax revenue attributable to remote seller transactions, the Court’s holding in Direct Marketing may be viewed as a victory for remote sellers insofar as it allows the DMA to pursue its federal suit to enjoin Colorado’s remote seller sales and use tax notice and reporting requirements.

As Colorado is one of only a small number of states that have enacted notice and reporting requirements specific to remote sellers, the actual decision in Direct Marketing may have a limited direct application in the ongoing state quest to collect sales and use taxes on remote seller transactions. However, the significance of the decision may extend beyond the Court’s holding as a result of a somewhat surprising concurring opinion authored by Justice Anthony M. Kennedy. Citing the ‘‘far-reaching systemic and structural changes in the economy,’’6 Kennedy strongly suggested that it was time for ‘‘a reconsideration of the Court’s holding in Quill,’’7 the case that had reaffirmed the physical presence requirement for sales and use tax nexus established in National Bellas Hess Inc. v. Department of Revenue of Illinois.8 Kennedy explained that ‘‘there is a powerful case to be made that a remote seller doing extensive business within a State has a sufficiently ‘substantial nexus’ to justify some minor tax collection duty, even if that business is done through mail or the Internet.’’9

In closing, Kennedy called on the legal system to ‘‘find an appropriate case for this Court to reexamine Quill and Bellas Hess.’’10 While Kennedy’s concurrence is the view of just one justice and is therefore not necessarily a reflection of the Supreme Court as a whole, his concurrence may have set the stage for a Supreme Court reexamination of Quill, thus potentially serving as a catalyst for significant change in state sales and use tax nexus as applied to remote sellers.

This article:

  • Provides an overview of Colorado’s sales and use tax reporting requirements and the resulting federal and state litigation in Direct Marketing
  • Analyzes Kennedy’s call for change
  • Speculates on how Kennedy may view commerce clause nexus in future proceedings
  • Summarizes federal legislative developments regarding the taxation of remote seller transactions

For a full list of references, download the PDF version of the column.

Supreme Court decision in "Direct Marketing" may be a net loss for remote sellers

If you have questions regarding this edition of Inside Deloitte, please contact either of the following Deloitte Tax professionals:


Laura Bath, senior consultant, Deloitte Tax LLP, Denver, +1 303 298 6709

Sarah Laszlo, manager, Deloitte Tax LLP, Denver, +1 303 298 6644

Jeffrey Maxwell, manager, Deloitte Tax LLP, Denver, +1 303 312 4784

Greg McClure, director, Deloitte Tax LLP, Denver, +1 303 312 4081

J. Snowden Rives, senior consultant, Deloitte Tax LLP, Washington, DC, +1 202 220 2753

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