In an amicus brief to the United States Court of Appeals for the Tenth Circuit in the case Direct Marketing Association v. Brohl, retailers outlined how tax collection obligations applied disparately to businesses substantially disadvantage local business and communities. The brief was filed jointly by the Retail Litigation Center, the Retail Industry Leaders Association and the Colorado Retail Council.
The case relates to a market distortion reinforced by the 1992 U.S. Supreme Court decision in Quill v. North Dakota. The resulting loophole allows out of state retailers to avoid the obligation to collect and remit the sales tax due on every purchase. By absolving remote sellers of an obligation required of local retailers, the loophole creates the perception of a price advantage, which ultimately costs local retailers business.
For years retailers have pressed Congress to address this issue. In the 1992 Quill decision, the Court said “… that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”
While federal legislation remains under consideration, states, which have grown frustrated by a lack of action at the federal level, have passed laws aimed at addressing the inequity. However, each law is limited or faces constitutional challenges because of the precedent reiterated in Quill. In DMA v Brohl, DMA is challenging the constitutionality of a Colorado law that requires retailers that do not collect sales or use taxes to notify any Colorado customer of the state’s use tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue. As a matter of policy, RILAhas not supported statutes like the Colorado law, which could surprise consumers with unexpected tax bills while failing to resolve the disparity at the point of sale. However, as a matter of constitutional law, RILAunequivocally supports the power of the states to enact reasonable measures that promote evenhanded compliance with valid tax laws.
“In the absence of final congressional action, it’s no surprise that states are moving independently to ensure fair competition for local businesses and to collect taxes rightfully owed,” said RILA General Counsel and President of the Retail Litigation Center Deborah White. “Until a complete resolution is achieved either by a comprehensive federal solution or a clarification of Supreme Court doctrine, we believe that lower courts should narrowly interpret outdated Supreme Court decisions in order to uphold state remedies.”
According to the brief:
“Because use-tax non-compliance is so quotidian, local retailers effectively operate at a massive disadvantage to their out-of-state competitors—most of whom are currently online retailers rather than the mail-order catalogs the Supreme Court considered in Quill and Bellas Hess.” As the state and local amici explain, after the recent explosion in out-of-state, online retail, the best current estimate is that the uncollected use taxes nationwide exceed $23 billion per year. This is essentially a $23 billion subsidy from state governments to online retailers, allowing them to charge their consumers less money at the point of sale than a local retailer for the exact same goods.”
“Like water finding the lowest point, online sales seem to readily flow to whatever tax-free sources are available. Accordingly, every legal barrier that prevents Colorado from effectively enforcing its complementary use tax almost certainly harms local retailers who should be able to compete for that flow of sales on level ground.
“Not only is this system plainly unfair to local retailers, it is also a rather senseless way to organize a national economy.”
The brief concludes:
“Ultimately, as Colorado has demonstrated, applying the basic principles of dormant Commerce Clause jurisprudence to this case is simple: Even with the new notice and reporting regime in place, the only disadvantaged entities remain the local retailers, who face a tax collection obligation that their out-of-state counterparts do not. For that reason, it is impossible to conclude that interstate commerce has been the object of “discrimination” or placed under an “undue burden.”’
The brief, drafted by Goldstein & Russell, P.C. attorneys, Tom Goldstein and Eric Citron, can be read here.
The Retail Industry Leaders Association is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.
The Retail Litigation Center is a public policy organization that identifies and engages in legal proceedings which affect the retail industry. The RLC, whose members include some of the country's largest retailers, was formed to provide courts with retail industry perspectives on significant legal issues, and highlight the potential industry-wide consequences of legal principles that may be determined in pending cases.
Founded in 1966, the Colorado Retail Council is a not-for-profit professional trade organization that represents the retail industry throughout Colorado. CRC is comprised of a variety of retail establishments who wish to have a stronger voice in regulatory and legislative affairs.CRC’s mission is to encourage and protect a business-friendly atmosphere throughout Colorado through experienced and professional advocacy at the state legislature. CRC represents over 1500 retail locations throughout Colorado and includes six of the top-ten private employers in the state.