In the ongoing saga over Colorado’s use tax reporting laws in Direct Marketing Association v. Brohl (DMA), the U.S. Court of Appeals for the Tenth Circuit ordered a full briefing on the Comity Doctrine and the Commerce Clause on April 13. The outcome of this case could have broad implications for states and taxpayers seeking to apply constitutional nexus limitations to state taxation.


The Court of Appeals’ recent order comes on the heels of several recent decisions. The decisions revolve around Colorado’s unique use tax reporting regime for out-of-state retailers. The statute and its regulations imposed three principal obligations on out-of-state retailers whose gross sales in Colorado exceed $100,000: they must (1) provide transactional notices to Colorado purchasers, (2) send annual purchase summaries to Colorado customers, and (3) annually report Colorado purchaser information to the Department.1

On March 3, 2015, the United States Supreme Court determined that Colorado’s reporting regime was not a “tax” and therefore the Tax Injunction Act did not bar the case from being heard in federal court.2 Following the Supreme Court’s decision, the Court of Appeals recalled its 2013 dismissal of DMA’s suit on April 7. A question left unanswered by the Supreme Court was whether comity stood as a bar to DMA’s suit in federal court.

On April 7, Colorado filed a motion in the Tenth Circuit waiving the comity argument. Comity limits a federal court’s review of state tax issues. The doctrine reflects “a proper respect for state functions, recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in separate ways.”3Colorado instead petitioned the court to schedule full briefing on the constitutionality of Colorado’s law under the Commerce Clause. Colorado argued that although the Commerce Clause was fully briefed nearly two-and-a half years ago, subsequent developments justify re-briefing the issue. It cites Justice Kennedy’s concurring opinion in DMA questioning the continuing applicability of the Supreme Court’s holding in Quill Corp. v. North Dakota.4 The motion also cites the importance of the Supreme Court’s recent decision in Ala. Dep’t of Rev. v. CSX Transp.,5 which Colorado suggests requires an examination of an overall state tax system and all burdens on competitors when measuring discrimination.

Commerce Clause Claims

In the district court, DMA raised two Commerce Clause claims against the Colorado regime. First, DMA argued that the laws and regulations discriminate impermissibly against interstate commerce. Second, DMA contends that the laws and regulations impermissibly impose undue burdens on interstate commerce. Under the dormant Commerce Clause, a law discriminates against interstate commerce if it imposes “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.”6 The district court held that the law created a geographic distinction between in-state and an out-of-state retailer “discriminates patently against interstate commerce. . . . that is true because the Act and the Regulations directly regulate and discriminate against out-of-state retailers and, therefore, interstate commerce. That discrimination triggers the virtually per se rule of facial invalidity.”7  

DMA’s second argument relied on the Quill physical presence standard. It argued that Colorado’s law imposed use tax reporting obligations on it even though it did not maintain a physical presence in Colorado. The district court agreed, holding:

[U]nder the standard established in Quill, a state law that imposes a use tax collection burden on a retailer with no physical presence in the state causes an undue burden on interstate commerce. The burdens imposed by the Act and the Regulations are inextricably related in kind and purpose to the burdens condemned in Quill. Thus, the Act and the Regulations impose an undue burden on interstate commerce.8

The district court is the only federal court to pass judgment on the constitutionality of Colorado’s use tax reporting regime.

Briefing Schedule

On April 13, the Tenth Circuit ordered the parties to provide full briefing to the court on both the Commerce Clause claims and whether the comity doctrine bars the suit in federal court. In so doing, the court denied Colorado’s attempt to waive comity and proceed solely with the Commerce Clause issue. The court’s order did not directly address Colorado’s effort to waive comity, instead denying that effort by ordering full briefing on the issue. Colorado must file its opening brief by May 13, 2015. Within 20 days of service of that brief, DMA must file a response brief.