Court Strikes Down Colorado Use Tax Reporting Law

by McGrath North Tax Group

(402) 341 3070

We have been  watching  with  interest (the interest only tax attorneys would have) the progress of a constitutional challenge to Colorado’s use tax reporting law. As enacted, the law had three requirements for out-of-state retailers who did not collect Colorado sales tax:

  1. Out-of-state retailers must inform their customers that the out-of-state retailer did not collect Colorado sales tax and that the customer was obligated to report and pay Colorado use tax on the purchase;
  2. Out-of-state retailers must give each Colorado customer an annual report listing that customer’s purchases from the retailer, informing the customer of his or her obligation to report use tax and informing the customer that the retailer would report the customer’s name and total purchases to the Colorado Department of Revenue; and
  3. Out-of-state retailers must give the Colorado Department of Revenue an annual report containing the retailer’s Colorado customers’ names, addresses, and total purchases.

Clearly, the point of this reporting requirement was to materially increase consumer compliance with Colorado’s use tax laws.

Upon a challenge from the Direct Marketing Association, the U.S. District Court in Colorado found that this law both placed an undue burden on interstate commerce and discriminated against interstate commerce. Consequently, the law was deemed unconstitutional.

This case has interest nationally, because Colorado’s approach for combating use tax avoidance may be adopted in other states. If you or a client has a use tax reporting issue, feel free to contact a McGrath North tax attorney to discuss this in more detail.

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