DMA Lawsuit Re CO Dir. Comm. Tax Law; News On "Mainstreet Fairness Act"

DM News reports that The Direct Marketing Association  filed a lawsuit in federal court June 30 claiming a Colorado law requiring out-of-state marketers and multichannel merchants to charge state tax and deliver customer information to state officials (which we have reported on several times here) is unconstitutional.

“The law forces out-of-state marketers to keep records and contact every Colorado consumer at the end of the year with what they've purchased, and then send a report to state of Colorado listing names, addresses and how much each state residents spent in the previous year with that retailer,” said Jerry Cerasale, SVP of government affairs at the DMA. “From a consumer standpoint it violates privacy, because in some cases just the name of company will tell what was purchased. We see that as violation of consumers' privacy.”

The case was filed by Lewiston, ME-based law firm Brann & Isaacson, which Cerasale said has long handled the DMA's taxes,

“There are eight different counts in this complaint, and one of the counts is based upon the Quill vs. North Dakota standard that established limitations on the scope of the state's regulatory rights over out-of-state companies, specifically finding that in connection with sales and use taxes, the company must have a physical presence in a state before it can be subject to that regulation,” explained George S. Isaacson, tax counsel for the DMA and senior partner at Brann & Isaacson.

In addition to the 1992 Quill case, there is ample precedent for the other seven counts in Supreme Court case history, Isaacson said.

The current law, which became effective March 1 after it passed the Colorado General Assembly as part of the state's budget plan, also requires out-of-state marketers to send a list of purchases to Colorado residents detailing what each consumer bought, as well as a report to the state of Colorado with names, addresses and amount spent.

The suit is being funded in part by money raised by the DMA and the American Catalog Mailers Association.

Isaacson said the state has notified the firm that the case will be accepted tomorrow. At that time, the state of Colorado has 21 days to file a response to the complaint.

The bill's sponsor, state Sen. Rollie Heath, a Democrat, told the Associated Press in February that lawmakers are protecting in-state stores that contribute property taxes.

“There's no new tax,” Heath told the AP. “We're just collecting what's already on the books.”

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betanews reports that: On July 1 Rep. William Delahunt (D-MA) introduced the "Main Street Fairness Act" in Congress that would allow states to collect sales tax for online purchases. The bill, H.R 5660 is described as an attempt to "promote simplification and fairness in the administration and collection of sales and use taxes, and for other purposes."
The bill was praised by the National Conference of State Legislatures (NCSL) yesterday as an equalizer that creates a level playing field for all sellers, regardless of their status as a brick-and-mortar retailer or as a purely online seller.

"Congressman Delahunt's willingness to work with everyone involved in the sales tax simplification effort is to be commended," said Iowa Representative Christopher Rants, co-chair of the NCSL Task Force on State & Local Taxation of Communications and Electronic Commerce. "With the adoption of the Delahunt legislation, at a time when states are facing historic budget gaps, Congress can provide fiscal relief, $23 billion, for the states without a single penny of cost to the federal government."

Online retailer eBay today, however, aired its opposition to the legislation.

"Year after year supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and ecommerce entrepreneurs, which is sure to harm the economy and kill small business jobs," a statement from the online auction company said today. "At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small internet retailers and the consumers they serve from another Internet tax scheme."

To date, 24 states have enacted similar legislation that requires collection of sales tax records from all remote sellers not qualifying for the small business exception. Some of these are being challenged on the state level as well.
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CNet News has some good additional insights on this developing story.