In This Issue: Supreme Court to Hear Tax Injunction Act Case Tax Court Approves Use of Predictive Coding During ESI Discovery Illinois Appellate Court Finds Chicago Bears Ticket Holder Amenities TaxableSupreme Court to Hear Tax Injunction Act Case by Arthur R. Rosen and Charles C. Capouet On August 20, 2013, in Direct Marketing Association v. Brohl, the U.S. Court of Appeals for the Tenth Circuit held that the federal Tax Injunction Act (TIA) prohibited the U.S. District Court for the District of Colorado from ruling on the Direct Marketing Association’s (DMA) challenge to Colorado’s use tax notice and reporting requirements. 735 F.3d 904 (10th Cir. 2013). The Supreme Court of the United States has granted certiorari and will hear the case during its October 2014 term.State Court Bias and the Tax Injunction Act Among state and local tax practitioners there exists the perception that state court judges, despite their sincere efforts, have difficulty remaining unbiased when hearing state tax cases.
§ 201-1:39-21-112.3.5.Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (2013). Id.Direct Marketing Ass’n v. Brohl, 575 U.S. __ (2015).
5Direct Marketing Ass’n v. Huber, 2012 WL 1079175 (Mar. 30, 2012). 6 Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (2013). 7 28 U.S.C. § 7421(a).
On appeal, however, the Tenth Circuit overturned the injunction and held that the TIA barred DMA’s challenge in federal court. Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (2013). In a footnote, the Tenth Circuit also held that even if the TIA did not apply, “comity” prevents the federal courts from hearing DMA’s case.
On December 8, 2014, the United States Supreme Court will hear oral argument in a case that could have significant implications for the ability to use the federal courts to challenge state attempts to tax remote sellers of goods. In Direct Marketing Association v. Brohl, 735 F.3d 904 (10th Cir. 2013), the Tenth Circuit Court of Appeals found that the Direct Marketing Association’s (DMA) challenge to a Colorado revenue statute was barred by the federal Tax Injunction Act (TIA). Current Commerce Clause precedent bans a state from requiring a retailer with no in-state presence from collecting sales or use taxes, seeQuill Corp. v. North Dakota, 504 U.S. 298 (1992), an important shield against state taxation of remote online and catalogue sellers of goods.
It is expected that the Court’s decision will clarify protections provided by the TIA and be instructive to out-of-state taxpayers on nexus issues. Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (10th Cir. 2013); cert. granted U.S. Dkt.
While it remains to be seen how the Supreme Court will rule in Direct Marketing, it is highly unlikely that the doors to federal courts for litigants seeking to challenge state taxes will be opened widely. 735 F.3d 904 (10th Cir. 2013). Colo. Rev. Stat. § 39-21-112(3.