May 272015
Illinois sales tax

Illinois litigation examines tax on shipping questions

When purchasing goods online from an out-of-state retailer, you may be liable for sales tax not just on the cost of the items, but also any shipping and handling fees. The courts in many states have struggled with when to tax such costs. The issue also spawned an unusual lawsuit recently decided by an Illinois appeals court.

Kean v. Wal-Mart Stores, Inc.

Before discussing that case, it is important to understand the previous approach taken by Illinois courts to this subject. In 2009, the Illinois Supreme Court unanimously held out-of-state shipping charges are subject to the state’s sales tax. This decision arose from a class action filed by a disgruntled Wal-Mart customer who objected to paying sales tax on an $8 shipping charge included in a $23 trampoline purchase. Wal-Mart included the shipping charges in assessing sales tax, which the customer argued was illegal under Illinois law. The Illinois administrative code states that shipping charges are excluded from sales tax only if they are separately contracted.

The Illinois Supreme Court disagreed and dismissed the lawsuit. The court agreed with Wal-Mart’s interpretation of the law, which held the shipping “was an inseparable link in the chain of events leading to completion of the sale,” and thus subject to tax. In other words, the customer did not enter into a separate agreement with respect to shipping (which would not be subject to sales tax); the shipping was part of a “single sale and purchase,” and therefore Wal-Mart properly assessed tax on the entire sales price.

The People ex rel. Schad, Diamond and Shedden, P.C. v. QVC, Inc.

Sales tax bounty hunters

Attorneys have the ability to file lawsuits on behalf of a state such as one recently filed in Illinois against QVC seeking a portion of uncollected sales tax on shipping charges. Such “qui tam” actions are essentially a legal form of bounty hunting.

Based on the Supreme Court’s 2009 decision, a law firm in Chicago sued retailer QVC in 2011, alleging it had failed to collect sales tax on shipping charges paid by Illinois customers over a period of several years. The law firm filed what is known as a “qui tam” action, where it claims to be acting on behalf of the State of Illinois. Qui tam lawsuits are essentially a legal form of bounty hunting. The private litigant initiates and oversees the lawsuit, and if any damages are recovered, it gets to keep a portion of the proceeds as a reward.

The flip side is the state can choose to intervene and prosecute the qui tam action itself. Which is exactly what happened here – the Illinois Attorney General intervened and decided to dismiss the complaint against QVC. The law firm objected, but a judge granted the state’s motion to dismiss and declined to award the law firm a bounty.

The law firm appealed. In an April 21, 2015, decision, a three-judge panel of the Illinois Court of Appeals upheld the trial court’s decision. Justice P. Scott Neville, Jr., writing for the panel, said the state was well within its rights to seek dismissal of the law firm’s complaint. He noted in 2006 – before the Supreme Court’s decision in the Wal-Mart case – Illinois tax officials audited QVC and told the company it did not have to collect sales tax on shipping charges. Shortly after the law firm brought its lawsuit in 2011, QVC began collecting and paying such taxes. But this decision did not retroactively invalidate the state’s 2006 determination. To the contrary, Neville said, “The State considered and approved all of QVC’s practices, including its explicit practice of not charging use taxes on shipping and handling charges for merchandise shipped to Illinois.”

The law firm nonetheless claimed it was entitled to a share of the taxes QVC began collecting in 2011, arguing it was a direct consequence of the qui tam action. But Neville said the court “cannot construe the payment QVC voluntarily started to make on sales after the filing of this lawsuit as part of the proceeds of this lawsuit.” In a qui tam action, the private litigant must first obtain a court judgment in order to collect. A private litigant receives no award when, as here, the state chooses to dismiss the lawsuit after a defendant voluntarily alters its conduct.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

May 152015

Is sales tax due on casual sales?

Not every sale is subject to sales or use tax. If it were, then anyone holding a garage sale would be liable for collecting and remitting sales tax. That is why states typically exempt “casual” sales from taxation – that is, private sales that are not made in the ordinary course of the seller’s business.
use tax exemption

Tax collectors, of course, want to maximize revenue, so they make every effort to reclassify casual sales as taxable. One issue the courts then have to sort out is where to place the burden of proof. Does the state have to prove a sale is taxable, or does the taxpayer have to prove it’s not? The Mississippi Supreme Court recently addressed this question and ultimately ruled in favor of the taxpayer.

Castigliola v. Mississippi Department of Revenue

In the case of Castigliola v. Mississippi Department of Revenue, a Mississippi resident went to Florida and purchased a boat from a private seller. The seller was not a broker or dealer in boats, but he did employ a yacht broker to provide limited marketing services. By purchasing the boat through the broker, the sale was exempt from Florida’s sales tax.

But Mississippi tax officials argued the buyer should then be liable for paying use tax in his home state.  The Mississippi Department of Revenue argued the seller’s use of a broker meant the sale was not “casual,” and therefore taxable under Mississippi law. The department subsequently imposed a $7,500 use tax bill against the buyer, who appealed to the courts.

Although a trial-level court ruled in favor of the department, the Mississippi Supreme Court unanimously reversed in an April 30 decision. Chief Justice William L. Waller, Jr., writing for the court, said there were two issues here. First, was the burden on the buyer to prove he was entitled to a “casual-sale” exemption from use tax; and second, whether the purchase itself was subject to use tax.

The distinction between use tax exemption and use tax exclusion

On the first question, the chief justice said the trial court improperly placed the burden of proof on the buyer, rather than the department. Because the buyer argued his purchase was “beyond the State’s taxing authority,” he was claiming an “exclusion” rather than an “exemption” from use tax. This was not merely a semantic argument, the chief justice said, but an important legal distinction. Under Mississippi law, the burden is on the state to prove “a particular transaction falls within its statutory power to tax.” Only after the state establishes this power does the burden shift to the taxpayer to prove he is entitled to an exemption under some specific statute or rule.

Here, the chief justice said, “the casual-sales exception to sales and use tax is an exclusion and not an exemption.” This means the burden was on the state to prove the purchase of the boat was not a casual sale. Any ambiguity on this point must be resolved in favor of the taxpayer. The department’s only basis for arguing the transaction here was not a casual sale was the involvement of the third-party broker. But the chief justice said that argument “is erroneous, if not disingenuous.” There was no question the buyer purchased the boat from the private seller, not the broker. The use of a third-party marketing agent did not convert a casual sale into a taxable event.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

May 122015
Texas sales tax relief

Sales tax relief is on the agenda for the state’s legislature with two bills presently under consideration. The first would lower the general sales tax rate for the first time in the state’s history, while the other would provide a unique tax “holiday” for hunters and gun enthusiasts.

Texas House Bill 32

On April 29, the Texas House of Representatives unanimously passed House Bill 31, which would reduce the statewide sales tax rate from 6.25% to 5.95%. This is only a floor, as individual cities, counties, transit authorities and other “special purpose districts” may impose additional sales tax. Under current law, the maximum sales tax in any Texas jurisdiction is 8.25%, according to the Texas Comptroller of Public Accounts.

If agreed to by the Texas Senate and signed into law by, House Bill 31 would take effect on January 1, 2016. The House concurrently passed a separate bill reducing the state’s franchise tax on business receipts. Texas Rep. Mark Keogh, a principal sponsor of both bills, said taxpayers would save nearly $5 billion if the two bills become law. “[S]ales and franchise tax cuts passed by the house will allow all Texans to retain more of their liquid cash in the immediate while extending tax cuts permanently into the future.”

Texas sales tax relief

The Texas Senate has proposed a “Second Amendment Sales Tax Holiday” for August 29 – 30 this year that, if passed, would repeal the general sales tax from firearms and hunting supplies.

Texas Senate Bill 228

Meanwhile, the Texas Senate passed its own, narrower sales tax break on April 30. Dubbed the “Second Amendment Sales Tax Holiday Act,” Senate Bill 228 proposes an annual two-day lifting of the state’s sales tax for purchases of firearms and “hunting supplies,” which would include “ammunition, archery equipment, hunting blinds and stands, hunting decoys, firearm cleaning supplies, gun cases and gun safes, hunting optics, and hunting safety equipment.” The tax holiday would take place on the final full weekend of August – this year, that would be August 29-30 – and is timed to coincide with the start of hunting season in Texas on September 1.

A Senate report argued the tax holiday is necessary because “retailers in East and Southeast Texas have been at a competitive disadvantage as it relates to their Louisiana counterparts.” Louisiana already has a sales tax holiday for firearms and hunting supplies during the first weekend of September. Mississippi and South Carolina also have similar holidays, according to the National Rifle Association. If signed into law, the Texas sales tax holiday is expected to reduce state revenues by about $3.6 million annually.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Apr 302015

Sales and/or use tax rates have changed in Zip2Tax products in Alabama and South Carolina since March 2015.

In Alabama, tax rates changed for Five Points.

In South Carolina, tax rates changed for Colleton and Georgetown Counties.

There were 7 states with ZIP code changes effective after April 2015 including Georgia, Illinois, Kentucky, Maine, New York, Ohio, and Pennsylvania. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs

Angel Downs, Lead Tax Researcher



Apr 232015
Sales tax deduction

H.R. 622 would make the federal income tax deduction for state sales taxes permanent.

On April 16, the U.S. House of Representatives passed H.R. 622, a bill designed to make the federal income tax deduction for state sales taxes permanent. If you itemize deductions on your annual Form 1040, you are probably familiar with this provision of the tax code. Basically, you are allowed to deduct several types of state and local taxes from your federal taxable income. This includes any “general sales tax” or “compensating use tax.” The amount of the deduction is based either on your actual receipts showing the sales tax you paid, or an estimate based on a table published by the Internal Revenue Service.

The sales tax deduction, however, automatically expired on December 31, 2014. This means as the law currently stands, you will not be allowed to deduct sales taxes paid in 2015 on your 2016 returns. H.R. 622 would reinstate the sales tax deduction without setting a new automatic expiration date, thus making the deduction “permanent.”

Tax fairness or a deficit increase?

The sales tax deduction is elective; that is, you may deduct either your state income tax or sales tax, but not both. Nine states do not collect their own income tax, notably Florida and Texas. This means if you live in one of those states, you are out of luck if Congress does not extend or make permanent the sales tax deduction. Consequently, supporters of H.R. 622 argue their bill is about simple fairness: There is no reason to place taxpayers in states without an income tax at a disadvantage.

But opponents of H.R. 622 argued fairness may come at too high a price. Democratic members of the House Ways & Means Committee argued in a dissenting report the permanent extension of the sales tax deduction “would add more than $224 billion to the deficit.” The Democrats said there should at least be a “revenue offset” to compensate for the projected loss of revenue. They also complained the Republican majority failed to consider extending other tax deductions and credits supported by Democratic members.

Still, 34 Democrats joined all but one Republican in approving H.R. 622, which passed by a vote of 272 – 152. The bill must still be approved by the Senate and signed into law by President Barack Obama.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Apr 102015

Coupons, rebates, credits, deductions, discounts, trade-ins and payment terms may – or may not – change the tax base on a purchase

A customer pays sales tax on the purchase price of an item. But what if the price is reduced thanks to “trade-in” credit? A Louisiana court recently considered this question as applied to video games.

GameStop, Inc. v. St. Mary Parish Sales and Use Tax Department

GameStop is a Texas-based retail chain that sells video games and related items in over 6,600 stores worldwide. GameStop is well known for accepting previously used games from customers, who can either receive cash or apply a predetermined “trade-in” value to the purchase of a new game. If the customer chooses the trade-in, he or she can either receive the discount right away or use an “Edge Card” to apply the credit at a later date.

Taxability of discounts

This chart indicates whether or not a certain type of discount or refund is part of the tax base. N = Not taxable; Y = Taxable; Blank = Not Specified

When a customer purchases a game with an Edge Card, GameStop deducts the value of any credit from the price of the game before calculating sales tax. Thus, if a game costs $20 and a customer has $5 on his Edge Card, Game Stop only charges sales tax on $15.

St. Mary Parish, a county in Louisiana, audited the local GameStop store’s sales tax records for 2006 and 2007 and determined the company should have paid sales tax on the full, pre-discount prices of its games. The Parish’s Sales and Use Tax Department accordingly ordered GameStop to pay an additional $5,258 in sales taxes plus penalties and interest. GameStop paid the additional tax under protest and filed a lawsuit in Louisiana state court to overturn the Department’s decision.

A district court entered judgment for GameStop. The department appealed, but the Louisiana 1st Circuit Court of Appeals upheld the district court’s decision. Judge John Michael Guidry, writing for the appeals court, said under Louisiana law, sales tax is assessed on the “sales price” of an item. The law expressly states the “sales price” excludes “the market value of any article traded in.”

Here, the department argued the trade-in exclusion did not apply to the Edge Card, because it was a discount applied to a future purchase. Guidry said that did not matter. State law does not restrict the definition of “trade-in” to same-day discounts, and in Louisiana, sales tax exemptions must be construed “liberally” in favor of the taxpayer. “[T]o the extent that a trade in occurs when GameStop accepts a customer’s merchandise and stores the predetermined market value of the item and/or items on an Edge Card,” Guidry said, “we find the subsequent application of the market value of the trade in by the customer toward the purchase of a new item of tangible personal property at GameStop comes within the statutory exclusion from sales price.” The department must therefore refund GameStop the additional tax paid under protest.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Mar 312015

Sales and/or use tax rates have changed in Zip2Tax products in 17 states since March 2015. There have been changes in Alaska, Arkansas, California, Georgia, Kansas, Louisiana, Minnesota, Missouri, North Carolina, North Dakota, Nebraska, Ohio, Oklahoma, Texas, Utah, Washington and Wyoming.

In Alaska, tax rates changed for Sitka, Skagway, Seldovia and Whittier.

In Arkansas, tax rates changed for Barling, Cherry Valley, Dermott, Evening Shade, Higginson, Lead Hill, Lockesburg, Ward, Wilmot and Mississippi County.

In California, tax rates changed for Atascadero, Benicia, Coachella, El Cerrito, Guadalupe, Paradise, Pinole, Rancho Cordova, Red Bluff, Richmond, Sausalito, Stanton, El Cajon, and Alameda, Humboldt and Monterey Counties.

In Georgia, tax rates changed for the counties of Baker, Brooks, Chattahoochee, Clinch, Habersham, Liberty, Seminole and Twiggs.

In Kansas, tax rates changed for Eureka, Hoisington, La Harpe, Melvern, Shawnee, Wellington, and the counties of Dickinson, Gove, McPherson, Rooks, and Smith.

In Louisiana, tax rates changed for Epps, Terrebonne Parish, Delhi, Forest Hill, West Monroe, Colfax and Lafayette Parish.

In Minnesota, tax rates changed for the counties of Carlton, Saint Louis, and Steele.

In Missouri, tax rates changed for Ralls, Saint Francois, and Wright Counties, Park Hills, Brookfield, Liberty, Marshfield, Portageville, and Princeton.

In North Carolina, tax rates changed for the counties of Anson and Ashe.

In North Dakota, tax rates changed for Grafton, Jamestown, Killdeer, Kindred, Underwood and Williams County.

In Nebraska, tax rates changed for Benedict, Decatur, Elwood, Stanton, Upland, Utica, Bancroft, Bassett, Burwell, Duncan, Fairbury, Howells, Minden, Nebraska City, Norfolk, Rushville, Wayne, York and Dakota County.

In Ohio, tax rates changed for the counties of Hamilton, Lucas and Mahoning.

In Oklahoma, tax rates changed for Healdton, Nicoma Park, Elk City, Owasso and Grady County.

In Texas, tax rates changed for Lake Dallas, San Elizario, Bellevue, Ennis, Muchison, Progresso, Taft and Zapata County.

In Utah, tax rates changed for American Fork, Clearfield and Washington County.

In Washington, tax rates changed for North Bend, Seattle, Tonasket, Friday Harbor and Pacific County.

In Wyoming, tax rates changed for the counties of Crook, Johnson, Washakie, and Campbell.

There were 27 states with ZIP code changes effective after March 2015 including Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Maryland, Michigan, Minnesota, Missouri, North Carolina, Nebraska, New Jersey, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs

Angel Downs, Lead Tax Researcher

Mar 232015

Hawaiian hotelsAnother state has been thwarted in its efforts to extend sales taxes to online travel companies (OTCs). On March 17, Hawaii’s Supreme Court awarded OTCs a partial victory, unanimously holding Travelocity and other OTCs were not liable for Hawaii’s transient accommodations tax (TAT), although they do have to pay a general excise tax (GET). The decision is likely the first ruling from a state supreme court on this subject. Previously, intermediate appellate courts in Colorado and North Carolina rejected state efforts to collect lodging taxes, which are similar to Hawaii’s TAT.

In 2011, Hawaii’s director of taxation assessed nearly a dozen OTCs for unpaid excise and transient accommodation taxes. The excise tax is not a sales tax. Hawaii’s GET is a tax on the gross receipts of businesses. On most services the GET is 4% or 4.5%. A business may elect to pass the GET onto its customers, which makes it seem like a sales tax, but it is not required to do so.

The TAT is a 7.25% sales tax on hotel rooms. The “operator” of the hotel or accommodation is responsible for collecting the tax and remitting it to the state. OTCs, of course, do not own or operate hotel rooms. They contract with hotels to sell rooms online. The hotel charges the OTC a net rate for the room; the OTC then sells the room for a price above the net rate and keeps the difference.

Nobody disputes the hotels are liable for the GET and TAT on their respective share of the room sales. But the OTCs argued they should not have to pay either tax on their markups, as they neither physically conduct business within the state of Hawaii nor personally operate any hotel rooms. The Hawaii Supreme Court, following the leads of the intermediate courts in Colorado and North Carolina, agreed with the OTCs on the latter point. The court rejected the director of taxation’s efforts to expand the definition of “operator” under the TAT to OTCs.

Hawaii law imposes the TAT on businesses involved in the “actual furnishing of transient accommodations.” The word “actual” is key here, the court explained, because it indicates the Hawaii legislature only intended to tax a single “operator” per hotel room. The law “does not contemplate or allow for multiple operators when a transient accommodation is furnished.” This means only the hotels, and not the OTCs, are responsible for the TAT.

However, the OTCs are liable for the GET, because that is a tax on both the “operator” of a hotel and any travel agency or tour packager. In this context, the court said, OTCs are travel agencies. And even if they lack a physical presence in Hawaii, they remain subject to the excise tax because they “receive income by virtue of selling the right to occupy hotel rooms located in Hawaii.” Still, the court’s decision will significantly reduce the OTCs’ tax bill, which would have been over $250 million had the state prevailed on the TAT issue.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Mar 182015
prepared foods

While meals tax, or prepared food tax, advocates call it a “luxury tax,” detractors point out that it applies equally to cheap takeout well as fine dining thereby affecting the poor more dramatically than the rich.

Sales taxes are not always uniformly applied to all goods. Some states impose a “meals tax”, which is a type of additional sales tax applied only to prepared foods served in restaurants and similar establishments. According to a 2012 survey by the nonprofit Tax Foundation, localities in 15 states and the District of Columbia charge some form of meals tax. Among the 50 largest U.S. cities, Virignia Beach, Virginia, had the highest meals tax rate at 5.5%. This was in addition to Virginia’s then-statewide sales tax of 5%, for a combined rate of 10.5%. Only Minneapolis reported a higher combined rate at 10.775%. (Virginia Beach’s combined rate is actually higher now – 10.8% – as Virginia subsequently raised its base sales tax to 5.3%.)

Teachers and police v. small business owners

Virginia Beach is not the only Virginia city struggling with high meals tax rates. In Charlottesville, a small city of about 45,000 residents and home to the University of Virginia, the combined sales-and-meals tax rate is currently 9.3%. Last month city officials proposed adding another 1% to the meals tax, bringing the rate to 10.3%.

50 cities with high meals tax

Chart courtesy the Tax Foundation.
The top 50 cities ranked for high combined meals and general sales tax rates in 2012.

Charlottesville Mayor Satyendra Huja said the additional 1% would add $2.1 million to the city’s coffers, providing additional funds for the city’s schools and police without increasing property tax rates. City Council member Kristin Szakos added the meals tax “is not a tax on necessities, it’s a luxury tax.”

Several restaurant owners have circulated a petition in opposition to the proposed 1% increase, which the City Council is expected to vote on in mid-April. The owners argue their customers have been unfairly singled out and asked to pay nearly double the general sales tax rate. Restaurants must also pay a processing fee on each credit card transaction based on the entire amount of the sale, including any meals tax. This can have a significant impact on the already thin profit margins of smaller, independently owned restaurants.

Is that chicken a “meal”?

Although meals tax enthusiasts like Charlottesville’s Szakos claim it is a “luxury tax,” the Tax Foundation’s 2012 report argued otherwise. The tax applies just as much to cheap takeout as it does fine dining. As the Foundation noted, “One could say that it is a tax on individuals with less flexible schedules or who do not like to cook – rich or poor.”

The meals tax also creates some odd legal hair-splitting over what exactly constitutes a “meal.” Virginia law says the tax applies to any “prepared food (including, without limitation, sandwiches, salad bar items sold from a salad bar, and prepackaged single-serving salads consisting primarily of an assortment of vegetables) and beverages … offered or held out for sale by a restaurant or caterer for the purpose of being consumed by an individual or group of individuals at one time to satisfy the appetite.” This definition excludes most foods sold at grocery stores, although it does apply to certain types of prepared foods sold within such stores. For example, if you buy an already cooked rotisserie chicken from a grocery store deli counter, that item is subject to the meals tax. But frozen chicken you have to reheat is not.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog

Mar 052015

On March 3rd, the U.S. Supreme Court dealt a potentially crippling blow to Colorado’s efforts to force out-of-state retailers to assist the state’s efforts to collect use taxes on Internet and mail order purchases. While the court unanimously sided with retailers opposing Colorado on a key jurisdictional question, at least one justice expressed concern that states have been unfairly restrained in taxing Internet purchases.

Direct Marketing Association v. Brohl

Colorado legislators adopted a law in 2010 imposing a number of reporting requirements on out-of-state retailers who do not otherwise maintain a physical presence in the state. First, these retailers had to inform all of their Colorado customers they were liable for use tax on their purchases. Second, retailers had to send a specific notice to each Colorado customer who purchased more than $500 worth of goods during the previous year about their use tax liability. Finally, retailers had to provide the state’s Department of Revenue with the names, addresses and total purchase amounts for each of their Colorado customers.

click-through nexus

Justice Kennedy’s assertion that it may be time to do something about the outdated Quill decision is highlighted if you look at the number of states that have attempted to enact their own version of Internet sales tax legislation.

The Direct Marketing Association (DMA), a trade group representing Internet and mail-order businesses, asked a federal judge for an injunction to prevent Colorado from enforcing this law. The judge granted that injunction in March 2012, holding Colorado’s requirements violated the Commerce Clause of the U.S. Constitution. Under the landmark 1992 U.S. Supreme Court decision in Quill v. North Dakota, the Commerce Clause forbids a state from requiring retailers who do not maintain a “physical presence” within the state to collect its taxes. Here, the judge agreed with the DMA that the three reporting requirements “impermissibly imposed undue burdens on interstate commerce” and were therefore unconstitutional.

But in 2013, the U.S. 10th Circuit Court of Appeals reversed the trial judge’s decision. The appeals court did not address the merits of the DMA’s constitutional arguments. Rather, the three-judge panel said the federal courts lacked the jurisdiction to hear the case at all. In 1937, Congress passed a law prohibiting federal courts from issuing any injunction which interfered with a state government’s “assessment, levy or collection” of its own taxes. The 10th Circuit said that anti-injunction rule applied to Colorado’s reporting requirements.

The Supreme Court disagreed. In an opinion authored by Justice Clarence Thomas, the high court said the “notice and reporting requirements” in the Colorado law are not part of the tax “assessment” or “collection” process. In fact, Thomas said the reporting requirements precede both. For instance, the word “assessment” in the 1937 law refers to the act of recording a taxpayer’s liability; but Colorado’s law addresses efforts to gather information about the taxpayer’s liability. Thomas said the anti-injunction rule does not extend to such information gathering efforts.

Time to reconsider Quill?

In a separate opinion, Justice Anthony Kennedy wrote to express his personal belief the court should reconsider and overturn Quill v. North Dakota. Kennedy said requiring states to establish a physical presence (or “substantial nexus”) before imposing tax collection responsibilities on out-of-state retailers caused “extreme harm and unfairness to the States.” Kennedy said many states were struggling to collect use taxes on Internet and mail-order sales – Colorado alone loses about $170 million a year, he said – and given the “far-reaching and structural changes in the economy” caused by the online shopping revolution, he argued the time had come for the court to reconsider its position.

Kennedy acknowledged the DMA case was not the right time and place to address this issue, but he added, “The legal system should find an appropriate case for this court to reexamine” the Quill decision.

This may not be the last word

Although the Supreme Court said the anti-injunction law did not stand in the way of the trial court’s original decision in favor of the DMA, this case is not yet over. In a footnote to its 2013 opinion, the 10th Circuit suggested the legal principle of “comity” cautioned federal courts against interfering with Colorado’s tax collection policies. Comity basically means that even if a federal court has the legal right to hear a case, it should decline to do so out of courtesy to the state’s authority. Colorado officials did not actually present a comity as a defense – and Justice Thomas said he and his colleagues took no position on the issue at this time – but the 10th Circuit may revisit the question following the Supreme Court’s decision.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.