According to the Supreme Court decision in Quill Corp. v. North Dakota, a state may not require a retailer with no physical presence in the state to collect and remit sales tax on sales made in the particular state. Many states, including Colorado, rely on purchasers to calculate and pay sales tax. Understandably, few in Colorado, or across the United States pay the sales tax.
In 2010, to combat the tax non-compliance, the state of Colorado passed a law that would require any retailer with $100,000 or more of sales to customers in Colorado on which it does not collect and remit Colorado sales tax to send the Colorado Department of Revenue a report containing customer names, addresses, and total amounts spent. The Direct Marketing Association (DMA), a group of businesses and organizations that market products directly to consumers challenged the new tax law, contending that it was unconstitutional under the Commerce Clause.
DMA presented two arguments. First, that the Colorado Law discriminated against interstate commerce, and, second, that it unduly burdened interstate commerce. The District Court agreed with both of DMA’s arguments and granted DMA summary judgment, permanently enjoining the Department of Revenue from enforcing the Colorado Law.
CHIEF JUDGE MATHESON The district court determined the Colorado Law discriminates against interstate commerce in violation of the Commerce Clause.
It determined that “the Act and the Regulations directly regulate and discriminate against out-of-state retailers and, therefore, interstate commerce.” It noted that under state law, “all retailers doing business in Colorado and selling to Colorado purchasers must obtain a sales tax license and must collect and remit the sales tax applicable to each sale,” and face civil and criminal penalties for non-compliance. It further noted that Quill precludes the state from imposing these requirements and penalties on out-of-state retailers without a physical presence in Colorado. Id.
The district court recognized that, although the Colorado Law refers only to “any retailer that does not collect Colorado sales tax,” the combination of state law and Quill guarantees that this provision applies only to out-of-state retailers. The court concluded, “the veil provided by the words of the Act and the Regulations is too thin to support the conclusion that the Act and the Regulations regulate in-state and out-of-state retailers evenhandedly.”
Although the Department [of Revenue] pointed out that some out-of-state retailers voluntarily collect and remit Colorado sales tax and therefore are not subject to the Colorado Law, the district court determined the Department “may not condition an out-of-state retailer’s reliance on its rights on a requirement that the retailer accept a different burden, particularly when that burden is unique to out-of-state retailers.”
The district court therefore subjected the law to strict scrutiny, at which stage “the burden falls on the State to justify [the statute] both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interests at stake.” The court briefly canvassed the interests identified by the Department and the proposed non-discriminatory alternatives identified by DMA, and ultimately concluded “[t]he record contains essentially no evidence to show that the legitimate interests advanced by the defendant cannot be served adequately by reasonable nondiscriminatory alternatives.” The court concluded the Department failed to carry its burden on the discrimination analysis and granted summary judgment to DMA.
…The Colorado Law is not facially discriminatory. It applies to certain retailers that sell goods to Colorado purchasers but do not collect Colorado sales or use taxes. On its face, the law does not distinguish between in-state and out-of-state economic interests. It instead imposes differential treatment based on whether the retailer collects Colorado sales or use taxes. Some out-of-state retailers are collecting retailers, some are not.
Although the title of the statute—An Act Concerning the Collection of Sales and Use Taxes on Sales Made by Out-Of-State Retailers—mentions out-of-state retailers, the Supreme Court has cautioned that “[t]he title of a statute cannot limit the plain meaning of the text. For interpretive purposes, it is of use only when it sheds light on some ambiguous word or phrase.” Here, the words of the statute are not ambiguous. The text refers to “[e]ach retailer that does not collect Colorado sales tax,” which distinguishes between those entities that collect Colorado sales tax and those that do not. We will not rely on the statute’s title to limit the plain meaning of the text.
Moreover, when the Supreme Court has concluded a law facially discriminates against interstate commerce, it has done so based on statutory language explicitly identifying geographical distinctions. For example, the Court said the statute at issue in Oregon Waste was facially discriminatory because it imposed a higher surcharge on disposal of solid waste “generated out-of-state” than solid waste generated in-state. The Colorado Law makes no such geographic distinction.
As explained above, the Colorado Law distinguishes between those retailers that collect Colorado sales and use tax and those that do not As a preliminary matter, DMA is incorrect that

(a) “any differential treatment” between in-state and out-of-state entities establishes a violation of the dormant Commerce Clause, and

(b) the Colorado Law should be viewed in isolation.
The Supreme Court has repeatedly indicated that differential treatment must adversely affect interstate commerce to the benefit of intrastate commerce to trigger dormant Commerce Clause concerns. In that regard, “‘discrimination’ simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” For that reason, differential treatment that benefits or does not affect out-of-state interests is not a violation of the dormant Commerce Clause.
In light of the Colorado consumers’ preexisting obligations to pay sales or use taxes whether they purchase goods from a collecting or non-collecting retailer, the reporting obligation itself does not give in-state retailers a competitive advantage. We further note the Supreme Court has upheld differential tax reporting obligations and apportionment formulas for non-resident corporations, and administrative mechanisms to facilitate tax collection.
…Whether the Colorado Law works a discriminatory effect on interstate commerce turns on the reach of Quill. The Department contends the law is not discriminatory because out-of-state retailers can either a comply with the notice and reporting requirements or

(b) collect and remit taxes like in-state retailers.
DMA contends this argument fails because Quill protects out-of-state retailers from having to collect and remit taxes, making the Colorado Law’s only function to impose new notice and reporting responsibilities on out-of-state retailers that in-state retailers need not perform.
As an initial matter, we disagree with the Department that out-of-state retailers’ having the option to collect and remit sales taxes makes the Colorado Law nondiscriminatory. Quill unequivocally holds that out-of-state retailers without a physical presence in the state need not collect sales tax. Quill privileges out-ofstate retailers in that regard, and the possibility that they might choose to give up that privilege rather than comply with the challenged Colorado Law does not make the Colorado Law constitutional.
…The district court determined the Colorado Law unduly burdens interstate commerce in violation of the dormant Commerce Clause. It noted Quill counsels looking beyond the formal language of a statute and considering its practical effect. Although Quill itself narrowly focused on sales and use taxes, the district court noted that the Colorado Law “require[s] out-of-state retailers to gather, maintain, and report information, and to provide notices to their Colorado customers and to the [Department],” and “[t]he sole purpose of these requirements is to enhance the collection of use taxes by the State of Colorado.” As a result, the district court concluded “that the burdens imposed by the Act and the Regulations are inextricably related in kind and purpose to the burdens condemned in Quill.” On that basis, the court determined the Colorado Law imposed an undue burden on interstate commerce.
…DMA relies solely on Quill for its undue burden claim, and the district court limited its analysis of undue burden to Quill. We conclude that the Colorado Law does not impose an undue burden on interstate commerce. Quill is not binding in light of Supreme Court and Tenth Circuit decisions construing it narrowly to apply only to the duty to collect and remit taxes.
…Applying the law to the record, we hold the Colorado Law does not violate the dormant Commerce Clause because it does not discriminate against or unduly burden interstate commerce. We therefore reverse the district court’s order granting summary judgment and remand for further proceedings consistent with this opinion. We conclude by noting the Supreme Court’s observation in Quill that Congress holds the “ultimate power” and is “better qualified to resolve”
the issue of “whether, when, and to what extent the States may burden interstate [retailers] with a duty to collect [sales and] use taxes.”
Judgment REVERSED in favor of Defendants.
CRITICAL THINKING:
Do you think the Colorado state government manipulated the definition of who the Colorado Law would apply to? Could the outcome have been different if its definition of affected retailers made a distinction between in-state and out-of-state retailers even though the Colorado Law in effect makes a distinction?
ETHICAL DECISION MAKING:
What do you think compelled DMA to challenge the Colorado Law? What benefits would DMA and its stakeholders gain from enjoining the Colorado Law?