US appeals court upholds Colorado online tax reporting law

DENVER – A federal appeals court has upheld a Colorado law requiring out-of-state Internet retailers to tell customers how much they owe in state sales taxes on their purchases.

The 10th U.S. Circuit Court of Appeals ruled the law doesn’t discriminate against interstate commerce, as online retailers claimed. The ruling was dated Monday.

The Direct Marketing Association, which challenged the statute, said it hasn’t decided whether to appeal to the Supreme Court, The Denver Post reported Tuesday (

The ruling could re-ignite a national debate over whether states can tax online sales. A 1992 Supreme Court decision bans states from forcing out-of-state retailers to collect taxes if they don’t have a physical presence in the state.

The Colorado law, passed in 2010, doesn’t require such retailers to collect taxes. It does require them to tell their customers if the customers owe state taxes on their purchases, and to report those purchases to state government.

Colorado law requires residents to pay taxes on such purchases, but it’s generally ignored. Some people argue that gives online retailers a competitive edge by making their goods cheaper.

Colorado Attorney General Cynthia Coffman called the ruling a victory for the state.

“The law we successfully defended will promote the collection of tax revenue owed to the state and level the economic playing field for businesses based in Colorado,” she said in a written statement.

The ruling could prompt other states to pass similar laws and could push Congress to address the issue nationally, said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities who has followed the Colorado case.

Consumers won’t want to self-report online purchases and pay sales tax each year, but they will want the retailers to take care of it, Mazerov said. “That could have the political effect of putting more pressure on legislators,” he said.


Information from: The Denver Post,