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Colorado can enforce its ‘Amazon tax’ law – U.S. appeals court

(Reuters) – A federal appeals court endorsed a Colorado law designed to make it easier for the state to collect sales taxes on out-of-state purchases made over the Internet.

Monday’s decision by the 10th U.S. Circuit Court of Appeals in Denver reversed a lower court ruling that blocked Colorado from enforcing its so-called “Amazon tax” law, named for online retailer Inc.

The decision is a victory for states seeking to boost revenue by ensuring that online shoppers pay taxes.

It is a defeat for the Direct Marketing Association, a trade group that challenged the 2010 law, and which a year ago won U.S. Supreme Court permission to pursue its case.

The law requires retailers that do not collect sales taxes to report transactions to customers and state tax authorities, with a goal of encouraging online shoppers – many unaware of their responsibilities – to pay taxes.

In court papers, Colorado said the failure to pay cost more than $170 million of tax revenue in 2012, and law professors said the nationwide shortfall might top $11 billion.

The DMA claimed that the law violated the Commerce Clause of the U.S. Constitution.

A federal district judge agreed in 2012, citing a 1992 Supreme Court ruling that barred states from collecting taxes from retailers that had no local physical presence.

But in Monday’s decision, Circuit Judge Scott Matheson said that 1992 ruling, Quill Corp v North Dakota, applied “narrowly” to tax collections, and that the district judge was wrong to extend its reach to reporting obligations.

“Reporting requirements are designed to increase compliance with pre-existing tax obligations,” Matheson wrote. “DMA has not shown the Colorado law imposes a discriminatory economic burden on out-of-state vendors.”

Christopher Oswald, the DMA’s vice president of advocacy, said his group is reviewing the decision, which upheld requirements that “unduly break the bond of trust between marketers and their customers.”

Colorado Attorney General Cynthia Coffman called the decision an “important victory” that will make tax collection easier and help “level the economic playing field” for in-state businesses.

The 10th Circuit includes Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming. Amazon now charges sales tax on purchases by Colorado residents.

Last March, the Supreme Court ruled unanimously that federal courts could hear the DMA’s challenge, while Justice Anthony Kennedy in a concurrence called for the Quill ruling to be reconsidered.

Kennedy said Internet retailing has caused a “startling revenue shortfall in many States, with concomitant unfairness to local retailers and their customers who do pay taxes at the register.”

The case is Direct Marketing Association v. Brohl, 10th U.S. Circuit Court of Appeals, No. 12-1175.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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