(Bloomberg)—The U.S. Supreme Court let stand a Colorado law that imposes reporting requirements on internet retailers in an effort to get customers to pay the sales taxes they owe.
The justices Monday turned away an appeal by a retail-industry trade group that challenged the measure as violating the U.S. Constitution.
The case raised questions about a 1992 Supreme Court ruling that bars states from requiring merchants to collect taxes unless they have a physical presence in the state. States lose $23 billion every year in uncollected sales taxes from web and catalog purchases, according to a 2012 estimate by the National Conference of State Legislatures, the most recent figures available.
Although consumers are supposed to pay the taxes themselves, few do unless the seller collects the money.
The Colorado law requires internet retailers to turn over customers’ names, addresses and purchase amounts to tax authorities. Merchants also must notify consumers of their obligation to pay taxes and provide a purchase summary to people who spend more than $500 in a year.
The Direct Marketing Association contended unsuccessfully that the law violates the Constitution’s commerce clause because it applies solely to out-of-state companies. Prevailing federal law from 1992 requires online and catalog retailers to collect sales tax only in states where they have a physical presence such as an office or warehouse, also known as nexus. In recent years a handful of states, including Colorado, Alabama and South Dakota, have enacted sales tax collection laws at the state level, creating a patchwork of rules that can be complicated for e-retailers to follow.
Colorado officials urged the Supreme Court not to hear the case. The state told the justices that, if they wanted to intervene, they should also consider overruling the 1992 ruling, which Colorado says no longer makes sense given the growth of internet retailing.
The case is a familiar one to the justices, who ruled on a preliminary question in 2015. In that decision, Justice Anthony Kennedy wrote a separate opinion to say that the court should at some point revisit the 1992 case.
Steve DelBianco, executive director of NetChoice, a trade associations for catalog and online retailers, says the Court “just set the stage for a rude privacy shock to American consumers.”
Failing to take-up the Direct Marketing Association’s case means states will now be unrestrained in passing new “tattletale reporting” laws that “force online and catalog retailers to report personal information and purchase data to state tax collectors,” he said Monday. “That means state governments will receive data about residents’ purchases, including personal health products and politically-themed books and movies. American voters and privacy advocates are not going to stand still while ‘tattletale reporting’ laws move in state capitals. The Supreme Court is surely going to find this question right back on their doorstep next year.”
The American Catalog Mailers Association is “deeply disappointed” with the Supreme Court’s decision not to hear the case, which challenged “a troubling Colorado law designed to create undue reporting requirements on out-of-state sellers while delving into consumers’ personal privacy,” Hamilton Davison, president and executive director of the association said in a statement Monday.
The decision requires remote sellers to report to state tax collectors on the buying habits of their customers, including health care products, apparel or other sensitive items, Davison said. “Unless Congress steps in and addresses this matter, it’s an issue that’s only going to intensify, particularly as other states decide to follow Colorado’s lead. Remote sellers must make their voices heard. They should let policymakers at the federal and state level know that laws like these put an unfair burden on businesses and put personal privacy at risk while bringing government into the home and family,” he said.
The cases are Direct Marketing Association v. Brohl, 16-267, and Brohl v. Direct Marketing Association, 16-458.