After years of litigation, injunctions, and a U.S. Supreme Court decision, the controversy between Data & Marketing Association (“DMA”) (formerly Direct Marketing Association) and the State of Colorado has come to a conclusion. On February 22, 2017, DMA and the Colorado Department of Revenue (the “Department”) entered into an agreement (the “Settlement Agreement”) resolving the dispute in Direct Mktg. Ass’n v. Colo. Dep’t of Revenue, Colo. Dist. Ct., No. 13-CV-34855, which involved a challenge to the Colorado use tax reporting requirements enacted in 2010.  (The Settlement Agreement is available at  Under the Settlement Agreement, the Department agrees that compliance with those use tax reporting requirements will not be required until July 1, 2017 and agrees to waive any and all penalties for non-collecting retailers who failed to comply with the use tax reporting requirements prior to July 1, 2017.  So on July 1, 2017, a new day of use tax notification and reporting enforcement will dawn in Colorado – and it would not be surprising if other states follow suit.

Nearly everyone keeping an eye on state tax developments is familiar, to some extent, with the DMA saga. (For full coverage of the DMA controversy’s history, see here:  In short, Colorado’s statute and the regulations thereunder (collectively, the “Colorado Law”) imposes customer notification and Departmental reporting requirements on retailers that do not collect Colorado sales tax and that have at least $100,000 of gross sales in Colorado (“Remote Sellers”).  The Colorado Law also provides for the imposition of penalties on non-compliant Remote Sellers.

Shortly after the Colorado Law was enacted, DMA challenged it on the grounds that it unconstitutionally discriminated against interstate commerce and unduly burdened out-of-state businesses, relying in part upon the “physical presence nexus” standard set forth in Quill v. North Dakota, 504 U.S. 298 (1992).  In 2012, the Colorado District Court issued a permanent injunction preventing enforcement of the Colorado Law, but this injunction was dissolved on December 10, 2013 when the Tenth Circuit Court of Appeals ruled that the District Court lacked jurisdiction over DMA’s claims under the Tax Injunction Act.  DMA also filed a motion for preliminary injunction of the Colorado Law in Colorado state court on November 5, 2013, and a Denver District Court judge issued this injunction on February 8, 2014.  Then, in 2015, the Tenth Circuit’s determination was reversed by the U.S. Supreme Court, with Justice Kennedy notably advocating in a concurring opinion for the opportunity to revisit Quill.  The case was remanded to the Tenth Circuit for a decision on the merits, and the court held that the Colorado Law was constitutional in February of last year.  Finally, on December 12, 2016, the U.S. Supreme Court denied DMA’s petition for a writ of certiorari to review the Tenth Circuit’s decision.

Weeks after the Supreme Court denied DMA’s cert petition, DMA and the Department executed the Settlement Agreement. Although the only two signatories to the Settlement Agreement were DMA and the Department, the Settlement Agreement impacts all Remote Sellers making sales into Colorado.  According to the Settlement Agreement, the resolution was being reached, in part, because the DMA litigation had “prevented enforcement of [the Colorado Law] for nearly seven years, and [had] created uncertainty for retailers[.]”  Due to the uncertainty caused by the DMA litigation and the delayed enforcement of the Colorado Law, the Department found that there was “reasonable cause for non-compliance with” the law.  Therefore, the Department agreed not to require compliance with the Colorado Law until July 1, 2017, and agreed to waive any and all penalties for Remote Sellers who have not complied with the Colorado Law before that date.

While the DMA case has now been laid to rest, its impact will live on.  Most directly, Remote Sellers must be aware that the Colorado Law will become fully effective on and after July 1, 2017 and penalties will not be waived as of that date, with the first summary of purchases due to be mailed to customers by January 31, 2018 and customer information reports due to be filed with the Department by March 1, 2018.  Furthermore, given that the groundwork has been laid in Colorado regarding the constitutionality of the notice and reporting requirements, other states may be reasonably anticipated to move forward with efforts to enact their own use tax notification and reporting requirements.  In fact, several states have already proposed such measures in their current legislative sessions.

The finality of the Colorado decision should also impact the Multistate Tax Commission (“MTC”), which began a project in 2011 to adopt a model sales and use tax notice and reporting statute that was expressly based on the Colorado Law. Work on the MTC project was suspended pending the outcome of the DMA litigation; now that the case has gone final, the success of the Colorado Law will certainly provide support for those MTC members desiring to revive this project from its suspension.

While the DMA case did not ultimately resolve whether physical presence is still required for sales and use tax collection (as opposed to use tax notification and reporting), Justice Kennedy’s call to action has been heard by the states. Alabama, South Dakota, Tennessee and other states have recently enacted either statutes or regulations that expressly violate Quill by eliminating the physical presence requirement for sales and use tax imposition and collection.  (For more coverage, see Both the relevant Alabama regulation and South Dakota statute are the subject of pending litigation in their respective jurisdictions, and on March 6, 2017, the South Dakota Sixth Judicial Circuit court ruled that the state’s economic nexus sales tax statute is unconstitutional, noting that, as a state circuit court, it was bound by U.S. Supreme Court precedent “even when changing times and events clearly suggest a different outcome.” South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (Mar. 6, 2017).  The South Dakota Wayfair case moves closer to the U.S. Supreme Court, and all eyes in the state tax community will be on it if the U.S. Supreme Court decides to hear this case.

Contact the Author: Nicole Ford