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Federal appeals court: lower court erred in striking Colorado Internet sales tax law

The US Court of Appeals for the Tenth Circuit [official website] ruled [opinion, PDF] Tuesday that federal district court surpassed its jurisdiction in 2011 by permanently blocking a law requiring online retailers to collect Colorado';s 2.9 percent sales tax on purchases. The law also required non-collecting online retailers whose gross sales in Colorado exceed $100,000 to mail annual notices to residents who purchased more than $500 in goods from them during the preceding calendar year. The law was intended to urge non-collecting retailers, such as Amazon.com, to start charging the tax. The Tenth Circuit based its decision on the Tax Injunction Act, which states that federal courts should not enjoin, suspend or restrain any state tax assessments or collections if the disputed matter can be resolved by lower courts. The decision also relied on a report stating that Colorado's state and local government stand to lose $172.7 million year last year due to the failure of residents to pay the 2.9 percent use tax on e-commerce purchases from out-of-state retailers.

The role of sales taxes has been a topic of frequent discussion lately. In May the US Senate approved [JURIST report] a bill that would subject online shopping, a traditionally tax-free frontier, to state sales tax. In March New York's top court ruled [JURIST report] that the state may impose a sales tax on out-of-state retailers that do business within the state.

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