Federal Court Grants Preliminary Injunction Against Colorado’s Reporting Regime


On January 26, 2011, a U.S. District Court granted the Direct Marketing Association’s (DMA) motion for a preliminary injunction preventing the state of Colorado from enforcing its recently enacted sales tax notice and reporting regime. The Direct Marketing Association v. Roxy Huber, Civil Case No. 10-cv-01546-REB-CBS, Order Granting Motion for Preliminary Injunction (U.S. Dist.Ct. Colorado, January 26, 2011). The DMA had filed its motion in August requesting an expedited hearing process to get a ruling before January 31, when the reporting requirements were scheduled to take effect.

The court concluded that the DMA had established the four elements required to obtain a preliminary injunction: (1) the plaintiff has a substantial likelihood of success on the merits, (2) the plaintiff has an irreparable injury, (3) the injury to the plaintiff outweighs the injury to the defendant, and (4) that the preliminary injunction is in the best interests of the public. The DMA’s amended complaint asserted a number of grounds for relief, including violations of the Commerce Clause, the First Amendment, the Due Process Clause, and state privacy law.

Substantial Likelihood of Success on the Commerce Clause Claims

The DMA asserted two claims that the Colorado reporting regime violated the Commerce Clause: (1) the regime discriminates against out-of-state retailers, and (2) the regime imposes an undue burden on out-of-state retailers. The second claim relied heavily on the Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

First, the court determined that the impact of the regime was going to be felt only by out-of-state retailers, because in-state retailers are already required under other laws to collect and remit taxes. The court thus determined that, even though the statute did not target out-of-state retailers on its face, the DMA was likely to prevail that the statute was unconstitutionally discriminatory. The court also determined that there were other non-discriminatory methods to achieve the legislature’s goal of collecting tax on sales by out-of-state retailers, specifically, the alternative method of having taxpayers remit use tax on personal income tax returns. Thus the court concluded that the DMA is likely to succeed on the merits that the statute is discriminatory, and that there are non-discriminatory alternatives available to achieve the state’s goal.

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