SALT Blawg – State and Local Tax Blog
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Just a few months after the U.S. Supreme Court declined to review the decision of the Tenth Circuit in Direct Mktg. Ass’n v. Brohl -- which upheld Colorado’s sales tax notice and reporting requirements for out-of-state retailers -- a Pennsylvania lawmaker has reintroduced a bill requiring online retailers to notify Pennsylvania purchasers when sales and use tax is due on their purchases.
In 2010, the Colorado legislature enacted a statute which requires a remote retailer that sells products to Colorado customers, but does not collect Colorado sales tax, to notify those customers that sales or use tax is due on certain purchases made from the retailer and that Colorado requires those customers to file sales or use tax returns. Colo. Rev. Stat. § 39-21-112 (3.5)(c)(I). Failure to provide that notice subjects the retailer to a penalty of five dollars ($5.00) for each such failure, unless the retailer shows reasonable cause for such failure. Colo. Rev. Stat. § 39-21-112 (3.5)(c)(II).
In addition, the statute requires that such retailers must send a notification to each Colorado customer by January 31 of each year showing, among other information, the total amount paid by the customer for Colorado purchases made from the retailer in the previous calendar year. Colo. Rev. Stat. § 39-21-112 (3.5)(d)(I)(A). Failure to send that notification subjects the retailer to a penalty of ten dollars ($10.00) for each such failure, unless the retailer shows reasonable cause for such failure. Colo. Rev. Stat. § 39-21-112 (3.5)(d)(III)(A).
The statute further requires that such retailers file an annual statement for each Colorado customer with the Department of Revenue showing the total amount paid for Colorado purchases by such customers during the preceding calendar year, to be filed on or before March 1 of each year. Colo. Rev. Stat. § 39-21-112 (3.5)(d)(II)(A). Failure to file that annual statement subjects the retailer to a penalty of ten dollars ($10.00) for each purchaser that should have been included in the statement, unless, again, the retailer shows reasonable cause for such failure. Colo. Rev. Stat. § 39-21-112 (3.5)(d)(III)(B).
The Data & Marketing Association (“DMA,” formerly the Direct Marketing Association), challenged the above Colorado notice and reporting requirements in federal court, claiming that those requirements violated the Interstate Commerce Clause of the U.S. Constitution by imposing burdens on out-of-state retailers that were not imposed upon in-state retailers. In 2011, a preliminary injunction was issued by the federal district court, which, in 2012, also concluded that the Colorado statute violated the Commerce Clause. In 2013, the Tenth Circuit dissolved the injunction and reversed the decision of the district court -- holding that the district court did not have jurisdiction pursuant to the Tax Injunction Act -- only to, in turn, have its decision reversed by the U.S. Supreme Court on March 3, 2015, in Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015). On remand, the Tenth Circuit again reversed the district court, holding that the Colorado statute did not violate the Commerce Clause. On December 12, 2016, the U.S. Supreme Court denied DMA’s petition for a writ of certiorari.
Meanwhile, after the Tenth Circuit had dissolved the preliminary injunction in 2013, DMA had filed for, and had obtained, another injunction in Colorado state court.
But, on February 23, 2017, DMA and the State of Colorado settled the case, thereby dissolving the state court injunction and finally ending the litigation. As part of that settlement, the Department of Revenue agreed that the litigation involving DMA over the constitutionality of the statute had constituted reasonable cause for non-compliance with the statute, and that, therefore, the Department would not require compliance with the statute and its accompanying regulations before July 1, 2017, and that it would waive any penalties for failure to comply with the statute and the regulations before that date.
Subsequent to the U.S. Supreme Court’s refusal to review the Tenth Circuit’s decision, a number of states have introduced bills to create notice and reporting requirements similar to those of Colorado. In particular, in Pennsylvania, on February 17, 2017, Rep. W. Curits Thomas introduced H.B. 542 -- a bill substantially similar to the one which he had introduced in 2015, only to have it die in committee when the legislative session adjourned.
H.B. 542 imposes more modest requirements than the Colorado statute. For instance, H.B. 542 does not require that annual notifications be sent to purchasers, or require that an annual statement be filed with the Pennsylvania Department of Revenue. Instead, the proposed statute requires that a seller or a remote seller “conspicuously provide” to a Pennsylvania purchaser, on each separate sale of tangible personal property or taxable services via an Internet website operated by that seller or remote seller, the following notice:
Unless you paid Pennsylvania sales tax on this purchase, you may owe a Pennsylvania use tax on this purchase based on the total sales price of the purchase in accordance with the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971. Visit www.revenue.state.pa.us for more information. If you owe a Pennsylvania use tax on this purchase, you must report and remit the tax on your Pennsylvania income tax form.
H.B. 542 § 279(a). The proposed statute provides no guidance regarding what constitutes a sufficiently “conspicuous” notice.
A failure by the seller to provide such notice will subject the seller to a fine of “not less than” five dollars ($5.00) for each such failure. H.B. 542 § 279(b). The proposed statute would be applicable only to transactions occurring more than sixty (60) days after its enactment.
In light of this proposed statute, and those like it introduced in other states, remote sellers should be alert to any newly imposed notice and reporting requirements in each of the states in which they sell their products.
The text of H.B. 542 is available here.