A Pinch of Salt, April 2010- Colorado’s End Run: Clever, Coercive, and Unconstitutional


Venturing into new territory in the states’ quest to circumvent Quill v. North Dakota,1 Colorado Gov. Bill Ritter (D) signed legislation on February 24, 2010, imposing a set of potentially unconstitutional use tax notice and reporting requirements on retailers with no physical presence in Colorado. The law’s reporting regime is tantamount to requiring sales tax collection, because it includes tax collection features such as audits and penalties for failure to comply. Although information reporting from out-ofstate retailers may not be as burdensome as enforcing tax collection responsibilities, Colorado’s law goes too far. Colorado’s information reporting requirement is excessive — and perhaps results in a reporting regime that is ironically more burdensome than the tax collection obligation struck down in Quill. Colorado, while crafty, cannot escape the Constitution.

HB 1193 was originally drafted and introduced as click-through nexus legislation, but in response to opposition from in-state associates, the bill morphed into a set of mandatory reporting requirements applicable to all out-of-state retailers selling to Colorado customers. Because the new law does not directly impose a collection requirement on out-of state retailers, some may presume that it escapes scrutiny under the Quill commerce clause regime. Not only does the new law create commerce clause problems, but it also may run afoul of other constitutional protections as well. This article evaluates HB 1193’s reporting requirements under the U.S. Constitution as a tax collection and reporting scheme, a regulation of interstate commerce, and a regulation of commercial speech. It concludes that this new law, while admittedly unique, is unconstitutional under the dormant commerce clause and the First Amendment.

I. Colorado HB 1193 — What Does It Do?

HB 1193 amends the Colorado sales tax law to impose new notification and reporting requirements on each ‘retailer that does not collect Colorado sales tax’ and is designed to aid the state in collecting use tax revenues from Colorado residents who purchase taxable items from remote retailers.2 This farreaching law attempts, at its essence, to commandeer private out-of-state retailers to do the collection work for which the state does not devote its own resources.

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