State Tax Law Seems Unconstitutional? SCOTUS Says You Can Still Sue
E-commerce marketers were probably rejoicing on Wednesday about Tuesday's unanimous U.S. Supreme Court decision to allow federal cases relating to state tax laws to happen, because the Direct Marketing Association (DMA) sure was. The ability to sue in federal court about state tax laws that marketers think are unconstitutional was under threat by Colorado, which wanted to collect sales tax from its residents who buy online. The court ruled against Colorado (opens as a PDF).
DMA had already notified direct marketers about the ruling via a THE-DMA.org site post, a special edition of the "Direct From Washington" newsletter and the association's "3D" e-newsletter headline "DMA, Marketers Triumph in Supreme Court," DMA's VP for State Affairs Christopher Oswald tells Target Marketing via email Wednesday afternoon.
"We're encouraged that the reasoning behind the court's unanimous opinion follows closely the arguments the DMA presented in our brief," he says.
What had concerned the association most about DMA vs. Brohl was consumer privacy—Colorado was demanding marketers turn over data about purchases and buyers so the state could tax them for the transactions. Justice Clarence Thomas put those concerns to rest on Tuesday when he wrote the opinion for the court.
"We must decide whether the Tax Injunction Act, which provides that federal district courts 'shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law' … bars a suit to enjoin the enforcement of this law," he writes. "We hold that it does not."
The Tax Injunction Act Thomas mentions is a 1937 law that bars federal courts from restraining local and state tax collection efforts, unless it's impossible for a state court to handle them in a "plain, speedy and efficient" manner.
Thomas discusses the meaning of the word "restrain" in-depth and concludes that Colorado used the word too broadly and it should be considered more narrowly.