Direct Marketing Assn. v. Brohl
Headline: Court allows federal challenge to Colorado’s rule requiring out-of-state online retailers to notify customers and report purchases, clearing the way to block enforcement of those notice and reporting requirements.
Holding:
- Allows federal lawsuits to challenge Colorado’s notice and reporting rules.
- Lets noncollecting online retailers seek to block enforcement in federal court.
- Leaves the constitutional merits undecided and returns the case to lower courts.
Summary
Background
The State of Colorado passed a 2010 law requiring retailers that do not collect Colorado sales or use tax to notify Colorado customers of their use-tax liability, send annual purchase reports to customers, and file lists of Colorado customers and purchase totals with the Colorado Department of Revenue. The Direct Marketing Association, a trade group for businesses that sell directly to consumers, sued in federal court in 2010 challenging those notice and reporting obligations. The District Court enjoined enforcement, the Tenth Circuit held the suit barred by the Tax Injunction Act, and the Supreme Court granted review.
Reasoning
The Court asked whether the Tax Injunction Act bars a federal suit that would enjoin enforcement of these notice and reporting requirements. Reading the TIA against federal tax law and history, the Court concluded that "assessment," "levy," and "collection" refer to later enforcement steps, while notices and private reports are an earlier information-gathering phase. The Court also interpreted "restrain" narrowly to mean stopping those specific enforcement acts. Because the statutory terms do not encompass Colorado’s notice and reporting rules, the TIA does not bar the challenge. The Court did not decide the merits or resolve the separate comity question.
Real world impact
The ruling lets a federal challenge to Colorado’s notice and reporting requirements proceed, so noncollecting online retailers and trade groups can seek to block enforcement in federal court. It does not resolve whether the rules are unconstitutional or whether federal courts should yield to state procedures; the case returns to the lower courts for further proceedings.
Dissents or concurrances
Justice Kennedy joined the opinion and urged reconsideration of the Court’s physical-presence rule for sales-tax collection, arguing it harms states. Justice Ginsburg (joined by Justice Breyer and partly by Justice Sotomayor) emphasized the TIA’s pay-then-sue concern and explained this suit does not fit that model.
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