MATHESON, Circuit Judge.
When a neighborhood bookstore in Denver sells a book, it must collect sales tax from the buyer and remit that payment to the Colorado Department of Revenue ("Department"). When Barnes & Noble sells a book over the Internet to a Colorado buyer, it must collect sales tax from the buyer and remit. But when Amazon sells a book over the Internet to a Colorado buyer, it has no obligation to collect sales tax. This situation is largely the product of the Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904,
Faced with Quill, many states, including Colorado, rely on purchasers themselves to calculate and pay a use tax on their purchases from out-of-state retailers that do not collect sales tax. But few in Colorado or elsewhere pay the use tax despite their legal obligation to do so.
In 2010, Colorado attempted to address use tax non-compliance by enacting a law ("Colorado Law") that imposes notice and reporting obligations on retailers that do not collect sales tax. Plaintiff-Appellee Direct Marketing Association ("DMA")—a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the Internet—has challenged this law as violating the dormant Commerce Clause.
DMA argues the Colorado Law unconstitutionally discriminates against and unduly burdens interstate commerce. The district court agreed with both arguments, granted summary judgment to DMA, and permanently enjoined the Department from enforcing the Colorado Law. See Direct Mktg. Ass'n v. Huber, No. 10-cv-01546-REB-CBS, 2012 WL 1079175, at *10-11 (D.Colo. Mar. 30, 2012). Defendant-Appellant Barbara Brohl, Executive Director of the Department, appeals.
We have jurisdiction under 28 U.S.C. § 1291. We reverse because the Colorado Law does not discriminate against nor does it unduly burden interstate commerce.
Colorado has imposed a sales tax since 1935 and a use tax since 1937. The taxes are complementary. The sales tax is paid at the point of sale and the use tax is paid when property is stored, used, or consumed within Colorado but sales tax was not paid to a retailer. See Colo.Rev.Stat. §§ 39-26-104, -202, -204(1). In approving the sales-use tax system under the dormant Commerce Clause, the Supreme Court described it as follows:
Henneford v. Silas Mason Co., 300 U.S. 577, 581, 57 S.Ct. 524, 81 L.Ed. 814 (1937).
The methods for collecting sales and use taxes vary. In-state retailers subject to sales tax collection are tasked with assorted requirements—for example, obtaining a license, calculating state and local taxes, accounting for exemptions, collecting the tax, filing a return, remitting the tax to the state, and keeping certain records. In-state retailers are also liable for any sales taxes they do not collect and may be subject to fines or criminal penalties for non-compliance.
Because Colorado cannot compel out-of-state retailers without a physical presence in the state to collect taxes, the state requires purchasers themselves to calculate and remit use taxes on their purchases from out-of-state retailers. The regimes differ greatly in effectiveness—compliance with the sales tax is extremely high, and compliance with the use tax is extremely low.
To assist the state in collecting use tax from in-state purchasers, most seemingly unaware of their tax responsibility,
DMA filed a facial challenge to the Colorado Law in federal district court in 2010. Among other claims,
On March 30, 2012, the district court granted summary judgment to DMA on both grounds. Huber, 2012 WL 1079175, at *10-11. The court permanently enjoined the Department from enforcing the Colorado Law. Id.
On August 20, 2013, this panel held that the district court lacked jurisdiction to hear DMA's challenge under the Tax Injunction Act ("TIA"). See Direct Mktg. Ass'n v. Brohl ("Brohl I"), 735 F.3d 904, 906 (10th Cir. 2013); 28 U.S.C. § 1341. We remanded the case to the district court to dismiss DMA's claims and dissolve the permanent injunction. Brohl I, 735 F.3d at 921. The Tenth Circuit rejected a request for en banc review. Direct Mktg. Ass'n v. Brohl, No. 12-1175 (10th Cir. Oct. 1, 2013) (unpublished).
On December 10, 2013, the district court dismissed DMA's claims and dissolved the permanent injunction. Shortly thereafter, it dismissed the remainder of DMA's eight claims without prejudice.
DMA then sued the Department in state court. It also petitioned for certiorari to the Supreme Court, seeking review of the Tenth Circuit's dismissal of its claims based on the TIA.
On February 18, 2014, the state district court preliminarily enjoined enforcement of the Colorado Law based on DMA's argument that it facially discriminated against interstate commerce in violation of the dormant Commerce Clause. Direct Mktg. Ass'n v. Colo. Dep't of Revenue, No. 13CV34855, at 1, 22-23 (Dist.Ct.Colo. Feb. 18, 2014) (unpublished). It rejected DMA's argument that the Colorado Law placed an undue burden on interstate commerce, declining to extend Quill's holding regarding tax collection to regulatory measures. Id. at 24-30.
On July 1, 2014, the Supreme Court granted DMA's petition for certiorari. In response to this development, the Colorado state court stayed its proceedings and did not resolve the parties' cross-motions for summary judgment. On March 3, 2015, the Supreme Court held the TIA did not strip the federal courts of jurisdiction to hear DMA's challenge and reversed Brohl I. Brohl II, 135 S.Ct. at 1131. It remanded the case for further proceedings.
In the wake of Brohl II's determination that the TIA's jurisdictional bar is inapplicable, we are now squarely presented with the two dormant Commerce Clause challenges decided by the federal district court before our decision in Brohl I. The parties have submitted supplemental briefs, and we heard oral argument on September 29, 2015.
Our discussion proceeds in three parts. First, we present an overview of the dormant Commerce Clause doctrine. Second, we analyze the bright-line rule recognized in Quill and determine it is limited to tax collection. Third, we review DMA's dormant Commerce Clause claims and conclude the Colorado Law does not discriminate against or unduly burden interstate commerce.
A. Dormant Commerce Clause
The Constitution does not contain a provision called the dormant Commerce Clause.
If Congress is silent—neither preempting nor consenting to state regulation—and a state attempts to regulate in the face of that silence, the Supreme Court, going back to Gibbons v. Ogden, 22 (9 Wheat) U.S. 1, 231-32, 238-39, 6 L.Ed. 23 (1824) (Johnson, J., concurring), and Cooley v. Bd. of Port Wardens, 53 U.S. (12 How.) 299, 318-19, 13 L.Ed. 996 (1851), has interpreted the Commerce Clause to limit state regulation of interstate commerce by applying the negative implications of the Commerce Clause—"these great silences of the Constitution," H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 535, 69 S.Ct. 657, 93 L.Ed. 865 (1949); see White v. Mass. Council of Constr. Emp'rs, Inc., 460 U.S. 204, 213, 103 S.Ct. 1042, 75 L.Ed.2d 1 (1983). Accordingly, the Commerce Clause is both an express grant of power to Congress and an implicit limit on the power of state and local government. See Comptroller of the Treasury of Md. v. Wynne, ___ U.S. ___, 135 S.Ct. 1787, 1794, 191 L.Ed.2d 813 (2015); Kleinsmith v. Shurtleff, 571 F.3d 1033, 1039 (10th Cir. 2009).
The focus of a dormant Commerce Clause challenge is whether a state law improperly interferes with interstate commerce. The primary concern is economic protectionism. See W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 192, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994) (quotations omitted) ("Th[e] `negative' aspect of the Commerce Clause prohibits economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors."); City of Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978) ("The crucial inquiry, therefore, must be directed to determining whether [a state law] is basically a protectionist measure, or whether it can fairly be viewed as a law directed to legitimate local concerns, with effects upon interstate commerce that are only incidental."); Kleinsmith, 571 F.3d at 1039 ("The Supreme Court's jurisprudence under the dormant Commerce Clause `is driven by concern about economic protectionism.'" (quoting Dep't of Revenue of Ky. v. Davis, 553 U.S. 328, 337-38, 128 S.Ct. 1801, 170 L.Ed.2d 685 (2008))).
As to the state regulation at issue in this case, up to now Congress has been silent—it has not preempted or consented to the Colorado Law.
The Supreme Court has produced an extensive body of dormant Commerce Clause case law.
Nondiscriminatory state laws also can be invalidated when they impose an undue burden on interstate commerce. See Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520, 529, 79 S.Ct. 962, 3 L.Ed.2d 1003 (1959). "Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). "State laws frequently survive this Pike scrutiny. . . ." Davis, 553 U.S. at 339, 128 S.Ct. 1801.
Finally, the Supreme Court has adapted its dormant Commerce Clause jurisprudence to review state taxes on interstate commerce. In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), the Court stated that a tax on interstate commercial activity is constitutional if it " is applied to an activity with a substantial nexus with the taxing State,  is fairly apportioned,  does not discriminate against interstate commerce, and  is fairly related to the services provided by the State." Id. at 279, 97 S.Ct. 1076. As discussed more fully below, Complete Auto does not apply here because this case involves a reporting requirement and not a tax.
Scope of Quill
The outcome of this case turns largely on the scope of Quill. We conclude it applies narrowly to sales and use tax collection. The following discussion explains how we arrive at this conclusion, which affects both DMA's claim for discrimination and for undue burden.
In National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753, 87 S.Ct. 1389,
In Quill, the Supreme Court revisited the holding of Bellas Hess. The Court addressed whether North Dakota could "require an out-of-state mail-order house that has neither outlets nor sales representatives in the State to collect and pay a use tax on goods purchased for use within the State." 504 U.S. at 301, 112 S.Ct. 1904. Quill sold office supplies "through catalogs and flyers, advertisements in national periodicals, and telephone calls." Id. at 302, 112 S.Ct. 1904. The Supreme Court of North Dakota had determined that this requirement was constitutional because "the tremendous social, economic, commercial, and legal innovations of the past quarter-century have rendered" the holding of Bellas Hess "obsolete." Id. (quotations omitted). The Supreme Court disagreed.
In Quill, the Supreme Court applied the four-part test from Complete Auto Transit, 430 U.S. at 279, 97 S.Ct. 1076. The test focuses on a statute's "practical effect" rather than its "formal language," and, as noted above, sustains a tax under the dormant Commerce Clause when the tax: (1) "is applied to an activity with a substantial nexus with the taxing State," (2) "is fairly apportioned," (3) "does not discriminate against interstate commerce," and (4) "is fairly related to the services provided by the State." Id. The Court decided Quill based on the first step of the Complete Auto test. 504 U.S. at 311-15, 112 S.Ct. 1904.
In Brohl II, the Supreme Court characterized Quill as establishing the principle that a state "may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the [state]." 135 S.Ct. at 1127 (emphasis added). Justice Kennedy's concurrence in Brohl II, 135 S.Ct. at 1135, echoed the numerous commentators who have criticized Quill's bright-line physical presence test.
199 F.3d 1241, 1255 (10th Cir. 2000) (quoting Quill, 504 U.S. at 316, 112 S.Ct. 1904) (citations omitted).
DMA argues the Supreme Court has cited Quill in three cases reviewing state laws that did not impose a tax collection obligation, but these decisions merely describe points of law in Quill and do not actually extend its holding to other contexts. See Polar Tankers, Inc. v. City of Valdez, 557 U.S. 1, 11, 129 S.Ct. 2277, 174 L.Ed.2d 1 (2009) (invoking Quill's due process analysis in a Tonnage Clause case to support the assertion that "a nondomiciliary jurisdiction may constitutionally tax property when that property has a substantial nexus with that jurisdiction, and such a nexus is established when the taxpayer avails itself of the substantial privilege of carrying on business in that jurisdiction" (quotations omitted)); Mead-Westvaco Corp. v. Ill. Dep't of Revenue, 553 U.S. 16, 24-25, 128 S.Ct. 1498, 170 L.Ed.2d 404 (2008) (invoking Quill to support
None of the foregoing cases actually invokes Quill's dormant Commerce Clause analysis—only its due process analysis and discussion of congressional authority—and they do not demonstrate that Quill extends beyond the actual collection of taxes by out-of-state retailers. Indeed, the cases cited by DMA suggest that Quill has not been extended beyond that context.
In sum, we conclude Quill applies narrowly to and has not been extended beyond tax collection. The district court erred in holding otherwise. In the following section, we address how this conclusion affects DMA's claims.
The district court granted summary judgment on two grounds: the Colorado Law (1) impermissibly discriminates against and (2) unduly burdens interstate commerce. As to both grounds, we review a district court's grant of summary judgment de novo, evaluating the evidence "in the light most favorable to the non-moving party." Sabourin v. Univ. of Utah, 676 F.3d 950, 957 (10th Cir. 2012) (quotations omitted). We also review challenges to the constitutionality of a statute de novo. Shivwits Band of Paiute Indians v. Utah, 428 F.3d 966, 972 (10th Cir. 2005).
When, as here, the target of state regulation alleges discrimination and undue burden, the analysis proceeds as follows:
Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986) (citations omitted).
We turn first to DMA's discrimination claim. A state law generally violates the dormant Commerce Clause if it discriminates—either on its face or in its practical effects—against interstate commerce. Hughes, 441 U.S. at 336, 99 S.Ct. 1727.
a. District court order
The district court determined the Colorado Law discriminates against interstate commerce in violation of the Commerce Clause. It determined that "the Act and the Regulations directly regulate and discriminate against out-of-state retailers and, therefore, interstate commerce." Huber, 2012 WL 1079175, at *4.
The district court recognized that, although the Colorado Law refers only to "any retailer that does not collect Colorado sales tax," Colo.Rev.Stat. § 39-21-112, the combination of state law and Quill guarantees that this provision applies only to out-of-state retailers. Huber, 2012 WL 1079175, at *4-5. The court concluded, "the veil provided by the words of the Act and the Regulations is too thin to support the conclusion that the Act and the Regulations regulate in-state and out-of-state retailers evenhandedly." Id. at *4.
Although the Department pointed out that some out-of-state retailers voluntarily collect and remit Colorado sales tax and therefore are not subject to the Colorado Law, the district court determined the Department "may not condition an out-of-state retailer's reliance on its rights on a requirement that the retailer accept a different burden, particularly when that burden is unique to out-of-state retailers." Id. (citing Bendix Autolite Corp. v. Midwesco Enters., Inc., 486 U.S. 888, 893, 108 S.Ct. 2218, 100 L.Ed.2d 896 (1988)).
The district court therefore subjected the law to strict scrutiny, at which stage "the burden falls on the State to justify [the statute] both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interests at stake." Id. at *6 (quoting Hughes, 441 U.S. at 336, 99 S.Ct. 1727). The court briefly canvassed the interests identified by the Department and the proposed non-discriminatory alternatives identified by DMA, and ultimately concluded "[t]he record contains essentially no evidence to show that the legitimate interests advanced by the defendant cannot be served adequately by reasonable nondiscriminatory alternatives." Id. The court concluded the Department failed to carry its burden on the discrimination analysis and granted summary judgment to DMA. Id. at *7.
A statute may discriminate against interstate commerce on its face or in practical effect. See C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 402, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994). "The burden to show discrimination rests on the party challenging the validity of the statute. . . ." Hughes, 441 U.S. at 336, 99 S.Ct. 1727. If the party challenging the state law meets its burden to show that the statute is discriminatory, the law "is virtually per se invalid." Or. Waste, 511 U.S. at 99, 114 S.Ct. 1345. When the Colorado Law is properly viewed in its factual and legal context, DMA has not carried its burden of showing discrimination against interstate commerce.
We consider: (1) whether the Colorado Law facially discriminates against interstate commerce, and (2) whether the Colorado Law's direct effect is to favor in-state economic interests over out-of-state interests.
i. The Colorado Law Does Not Facially Discriminate Against Interstate Commerce
The Colorado Law is not facially discriminatory. It applies to certain retailers that sell goods to Colorado purchasers but do not collect Colorado sales or use taxes. Colo.Rev.Stat. § 39-21-112(3.5)(c)(I); 1 Colo.Code Regs. § 201-1:39-21-112.3.5(1)(a)(i). On its face, the law does not distinguish between in-state and out-of-state economic interests. It instead imposes differential treatment based on whether the retailer collects Colorado sales or use taxes. Some out-of-state retailers are collecting retailers, some are not.
Although the title of the statute—An Act Concerning the Collection of Sales and Use Taxes on Sales Made by Out-Of-State Retailers—mentions out-of-state retailers, the Supreme Court has cautioned that "[t]he title of a statute cannot limit the plain meaning of the text. For interpretive purposes, it is of use only when it sheds light on some ambiguous word or phrase." Pa. Dep't of Corr. v. Yeskey, 524 U.S. 206, 212, 118 S.Ct. 1952, 141 L.Ed.2d 215 (1998) (quotations and alterations omitted). Here, the words of the statute are not ambiguous. The text refers to "[e]ach retailer that does not collect Colorado sales tax," which distinguishes between those entities that collect Colorado sales tax and those that do not. See Colo. Rev.Stat. §§ 39-21-112(c)(I), (d)(I)(A), (II)(A). We will not rely on the statute's title to limit the plain meaning of the text.
Moreover, when the Supreme Court has concluded a law facially discriminates against interstate commerce, it has done so based on statutory language explicitly identifying geographical distinctions. See, e.g., General Motors Corp. v. Tracy, 519 U.S. 278, 307 n. 15, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997) ("[I]f a State discriminates against out-of-state interests by drawing geographical distinctions between entities that are otherwise similarly situated, such facial discrimination will be subject to a high level of judicial scrutiny even if it is directed toward a legitimate health and safety goal."). For example, the Court said the statute at issue in Oregon Waste was facially discriminatory because it imposed a higher surcharge on disposal of solid waste "generated out-of-state" than solid waste generated in-state. 511 U.S. at 96, 99-100, 114 S.Ct. 1345. The Colorado Law makes no such geographic distinction. See, e.g., Exxon Corp. v. Governor of Md., 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91 (1978) (concluding a statute did not facially discriminate by prohibiting producers or refiners of petroleum products from operating retail service stations in Maryland, even though no producers or refiners were located in the state); Hunt v. Wash. State Apple Advert. Comm'n, 432 U.S. 333, 352, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977) (finding facially neutral a law requiring "all closed containers of apples sold, offered for sale, or shipped into the State bear no grade other than the applicable U.S. grade or standard" (quotations omitted)). As explained above, the Colorado Law distinguishes between those retailers that collect Colorado sales and use tax and those that do not.
ii. The Colorado Law Is Not Discriminatory In Its Direct Effects
A state law may violate the dormant Commerce Clause "when its effect is to favor in-state economic interests over out-of-state interests." Brown-Forman, 476 U.S. at 579, 106 S.Ct. 2080. In this inquiry, "the critical consideration is the overall effect of the statute on both local and interstate activity." Id. We conclude the Colorado Law does not favor in-state economic interests and is not discriminatory in its effects.
We have previously said, "`The Supreme Court has not directly spoken to the question of what showing is required to prove discriminatory effect where, as here, a statute is evenhanded on its face,'" Kleinsmith, 571 F.3d at 1040 (quoting Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 36 (1st Cir. 2007)). But we have held "the party claiming discrimination has the burden to put on evidence of a discriminatory effect on commerce that is `significantly probative, not merely colorable.'" Id. at 1040-41 (quoting All. of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 40 (1st Cir. 2005)). The party claiming discrimination must show that the state law benefits local actors and burdens out-of-state actors, and the result must "alter the competitive balance between in-state and out-of-state firms." Id. at 1041 (quotations omitted).
1) DMA's arguments on differential treatment
As a preliminary matter, DMA is incorrect that (a) "any differential treatment" between in-state and out-of-state entities establishes a violation of the dormant Commerce Clause, and (b) the Colorado Law should be viewed in isolation. Three principles are instructive.
First, the Supreme Court has repeatedly indicated that differential treatment must adversely affect interstate commerce to the benefit of intrastate commerce to trigger dormant Commerce Clause concerns. In that regard, "`discrimination' simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter." Or. Waste, 511 U.S. at 99, 114 S.Ct. 1345; Kleinsmith, 571 F.3d at 1040 ("Discriminatory laws are those that `mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.'" (quoting Granholm v. Heald, 544 U.S. 460, 472, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005))). For that reason, differential treatment that benefits or does not affect out-of-state interests is not a violation of the dormant Commerce Clause. North Dakota v. United States, 495 U.S. 423, 439, 110 S.Ct. 1986, 109 L.Ed.2d 420 (1990) ("A regulatory regime which so favors the Federal Government
In light of the Colorado consumers' preexisting obligations to pay sales or use taxes whether they purchase goods from a collecting or non-collecting retailer, the reporting obligation itself does not give in-state retailers a competitive advantage. We further note the Supreme Court has upheld differential tax reporting obligations and apportionment formulas for non-resident corporations, see, e.g., Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 118-20, 41 S.Ct. 45, 65 L.Ed. 165 (1920); Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 169-70, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983), and administrative mechanisms to facilitate tax collection, see, e.g., Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 460 (1920).
Second, equal treatment requires that those similarly situated be treated alike. See City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 439, 105 S.Ct. 3249, 87 L.Ed.2d 313 (1985) (stating that under the Equal Protection Clause, "all persons similarly situated should be treated alike"). Conversely, disparate treatment is not unequal treatment or discrimination if the subjects of the treatment are not similarly situated. This basic principle of equal protection law applies to whether a state law discriminates against out-of-state actors relative to in-state actors. In General Motors Corp. v. Tracy, 519 U.S. 278, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997), the Supreme Court upheld an Ohio statute that exempted local natural gas distribution companies ("LDCs") from sales and use tax while out-of-state producers and marketers had to collect it. Id. at 281-82, 117 S.Ct. 811. The Court said the in-state and out-of-state companies were not similarly situated and did not have to be treated the same. Id. at 298-99, 310, 117 S.Ct. 811. Here, the non-collecting out-of-state retailers are not similarly situated to the in-state retailers, who must comply with tax collection and reporting requirements that are not imposed on the out-of-state non-collecting retailers.
Third, despite DMA's myopic view to the contrary, the Supreme Court has repeatedly stressed that laws are not to be understood in isolation, but in their broader context. In West Lynn Creamery, the Court expressly declined to "analyze separately two parts of an integrated regulation," and said it is "the entire program. . . that simultaneously burdens interstate commerce and discriminates in favor of local producers." 512 U.S. at 201, 114 S.Ct. 2205; see also Ala. Dep't of Revenue v. CSX Transp., Inc. ("CSX II"), ___ U.S. ___, 135 S.Ct. 1136, 1143, 191 L.Ed.2d 113 (2015) ("It is undoubtedly correct that the `tax' (singular) must discriminate—but it does not discriminate unless it treats railroads differently from other similarly situated taxpayers without sufficient justification.");
The broader context helps determine whether a law "alters the competitive balance between in-state and out-of-state firms." Kleinsmith, 571 F.3d at 1041 (quotations omitted). Here, the reporting requirements are designed to increase compliance with preexisting tax obligations, and apply only to retailers that are not otherwise required to comply with the greater burden of tax collection and reporting. DMA has not shown the Colorado Law imposes a discriminatory economic burden on out-of-state vendors when viewed against the backdrop of the collecting retailers' tax collection and reporting obligations. And as discussed more fully below, even if we limit our comparative analysis to the notice and reporting obligations imposed on collecting and non-collecting vendors, DMA has failed to show the Colorado Law unconstitutionally discriminates against interstate commerce.
2) Quill and discriminatory effect
Whether the Colorado Law works a discriminatory effect on interstate commerce turns on the reach of Quill. The Department contends the law is not discriminatory because out-of-state retailers can either (a) comply with the notice and reporting requirements or (b) collect and remit taxes like in-state retailers. DMA contends this argument fails because Quill protects out-of-state retailers from having to collect and remit taxes, making the Colorado Law's only function to impose new notice and reporting responsibilities on out-of-state retailers that in-state retailers need not perform.
As an initial matter, we disagree with the Department that out-of-state retailers' having the option to collect and remit sales taxes makes the Colorado Law nondiscriminatory. Quill unequivocally holds that out-of-state retailers without a physical presence in the state need not collect sales tax. See Quill, 504 U.S. at 301-02, 112 S.Ct. 1904. Quill privileges out-of-state retailers in that regard, and the possibility that they might choose to give up that privilege rather than comply with the challenged Colorado Law does not make the Colorado Law constitutional. Bendix, 486 U.S. at 893, 108 S.Ct. 2218.
But Quill applies only to the collection of sales and use taxes, and the Colorado Law does not require the collection or remittance of sales and use taxes. Instead, it imposes notice and reporting obligations. Those notice and reporting obligations are discriminatory only if they constitute "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter," Or. Waste, 511 U.S. at 99, 114 S.Ct. 1345, and thereby "alter the competitive balance between in-state and out-of-state firms," Kleinsmith, 571 F.3d at 1041 (quotations omitted). DMA has not produced significant probative evidence establishing such discriminatory treatment.
3) Comparative regulation and DMA's burden
Even if we limit our comparative analysis to the regulatory requirements imposed on in-state retailers and out-of-state retailers, DMA has not demonstrated the Colorado Law unconstitutionally discriminates against interstate commerce.
Of these notice and reporting requirements, in-state retailers can be compelled to collect and remit sales taxes while non-collecting out-of-state retailers cannot. Quill, 504 U.S. at 301-02, 112 S.Ct. 1904. But Quill does not establish that out-of-state retailers are free from all regulatory requirements—only tax collection and liability. See id. at 315, 112 S.Ct. 1904 ("Under Bellas Hess, . . . vendors [without a physical presence in the state] are free from state-imposed duties to collect sales and use taxes." (emphasis added)).
As the Supreme Court recently explained in CSX II:
135 S.Ct. at 1143 (citations omitted); see also Travis, 252 U.S. at 76, 40 S.Ct. 228 ("The contention that an unconstitutional discrimination against noncitizens arises out of the provision of section 366 confining the withholding at source to the income of nonresidents is unsubstantial. That provision does not in any wise increase the burden of the tax upon nonresidents, but merely recognizes the fact that as to them the state imposes no personal liability, and hence adopts a convenient substitute for it.").
DMA does not point to any evidence establishing that the notice and reporting requirements for non-collecting out-of-state retailers are more burdensome than the regulatory requirements in-state retailers already face. Because DMA has not carried its burden and identified significant probative evidence of discrimination, see Kleinsmith, 571 F.3d at 1040, it has not established that the Colorado Law discriminates in its direct effects.
* * *
Because we conclude the Colorado Law is not discriminatory, "it is [not] virtually per se invalid," and it need not survive strict scrutiny. Or. Waste, 511 U.S. at 99, 114 S.Ct. 1345. State laws that are not discriminatory must nevertheless not unduly burden interstate commerce. See Davis, 553 U.S. at 353, 128 S.Ct. 1801.
Whether a state law unduly burdens interstate commerce is a separate inquiry from whether a state law discriminates against interstate commerce. In Quill, the Supreme Court explained that the first step of the Complete Auto test—whether a tax "is applied to an activity with a substantial nexus with the taxing State"—the step on which the Quill decision was based, "limit[s] the reach of state taxing authority so as to ensure that state taxation does not unduly burden interstate commerce." 504 U.S. at 311, 313, 112 S.Ct. 1904.
District Court Order
The district court determined the Colorado Law unduly burdens interstate commerce in violation of the dormant Commerce Clause. It noted Quill counsels looking beyond the formal language of a statute and considering its practical effect. See Quill, 504 U.S. at 310, 112 S.Ct. 1904. Although Quill itself narrowly focused on sales and use taxes, the district court noted that the Colorado Law "require[s] out-of-state retailers to gather, maintain, and report information, and to provide notices to their Colorado customers and to the [Department]," and "[t]he sole purpose of these requirements is to enhance the collection of use taxes by the State of Colorado." Huber, 2012 WL 1079175, at *8. As a result, the district court concluded "that the burdens imposed by the Act and the Regulations are inextricably related in kind and purpose to the burdens condemned in Quill." Id. On that basis, the court determined the Colorado Law imposed an undue burden on interstate commerce. Id. at *9.
DMA relies solely on Quill for its undue burden claim, and the district court limited its analysis of undue burden to Quill. We conclude that the Colorado Law does not impose an undue burden on interstate commerce.
As explained earlier, Quill is limited to the narrow context of tax collection. In Brohl II, the Supreme Court not only characterized Quill as establishing the principle that a state "may not require retailers who lack a physical presence in the State to collect these taxes on behalf of the Department," 135 S.Ct. at 1127 (emphasis added), it also concluded that the notice and reporting requirements of the Colorado Law do not constitute a form of tax collection, id. at 1130-31. As the Court repeatedly stated in its TIA analysis, the Colorado Law does not require out-of-state retailers to assess, levy, or collect use tax on behalf of Colorado. Id.
As a result, Quill—confined to the sphere of sales and use tax collection—is not controlling. The Brohl II Court's logic for reversing Brohl I precludes any other result. It reversed the panel's TIA determination precisely because it determined the relief sought in this litigation—invalidating the Colorado Law—would not "enjoin, suspend or restrain the assessment, levy or collection of any tax under State law." Id. at 1127 (quoting 28 U.S.C. § 1341). The holding in Brohl II cannot be squared with the district court's determination that the Colorado Law functionally compels the collection of taxes, see Huber, 2012 WL 1079175, at *8. The Court's conclusion in Brohl II controls. DMA's success in Brohl II leads to the demise of its undue burden argument here.
Having determined Quill is not controlling in the instant case, we cannot identify any good reason to sua sponte extend the bright-line rule of Quill to the notice and reporting requirements of the Colorado Law. Because the Colorado Law's notice and reporting requirements are regulatory and are not subject to the bright-line rule of Quill, this ends the undue burden inquiry.
Applying the law to the record, we hold the Colorado Law does not violate the dormant Commerce Clause because it does not discriminate against or unduly burden interstate commerce. We therefore reverse the district court's order granting summary judgment and remand for further proceedings consistent with this opinion. We conclude by noting the Supreme Court's observation in Quill that Congress holds the "ultimate power" and is "better qualified to resolve" the issue of "whether, when, and to what extent the States may burden interstate [retailers] with a duty to collect [sales and] use taxes." 504 U.S. at 318, 112 S.Ct. 1904.
GORSUCH, Circuit Judge, concurring.
I agree with everything the court has said and write only to acknowledge a few additional points that have influenced my thinking in this case.
In our legal order past decisions often control the outcome of present disputes. Some criticize this feature of our law, suggesting that respect for judicial precedent invests dead judges with too much authority over living citizens. They contend, too, that it invites current judges to avoid thinking for themselves and to succumb instead in "judicial somnambulism." Jerome Frank, Law and the Modern Mind 171 (1930). But in our legal order judges distinguish themselves from politicians by the oath they take to apply the law as it is, not to reshape the law as they wish it to be. And in taking the judicial oath judges do not necessarily profess a conviction that
At the center of this appeal is a claim about the power of precedent. In fact, the whole field in which we are asked to operate today—dormant commerce clause doctrine—might be said to be an artifact of judicial precedent. After all, the Commerce Clause is found in Article I of the Constitution and it grants Congress the authority to adopt laws regulating interstate commerce. Meanwhile, in dormant commerce clause cases Article III courts have claimed the (anything but dormant) power to strike down some state laws even in the absence of congressional direction. See, e.g., Comptroller of Treasury of Md. v. Wynne, ___ U.S. ___, 135 S.Ct. 1787, 1808, 191 L.Ed.2d 813 (2015) (Scalia, J., dissenting); Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 614-17, 117 S.Ct. 1590, 137 L.Ed.2d 852 (1997) (Thomas, J., dissenting). And the plaintiffs' attempt in this case to topple Colorado's statutory scheme depends almost entirely on a claim about the power of a single dormant commerce clause decision: Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992).
Everyone before us acknowledges that Quill is among the most contentious of all dormant commerce clause cases. Everyone before us acknowledges that it's been the target of criticism over many years from many quarters, including from many members of the Supreme Court. See Maj. Op. at 1137 n. 14 (citing scholarly literature); Quill, 504 U.S. at 319-20, 112 S.Ct. 1904 (Scalia, J., concurring in part and concurring in the judgment); id. at 321-33, 112 S.Ct. 1904 (White, J., concurring in part and dissenting in part); Direct Mktg. Ass'n v. Brohl, ___ U.S. ___, 135 S.Ct. 1124, 1134-35, 191 L.Ed.2d 97 (2015) (Kennedy, J., concurring). But, the plaintiffs remind us, Quill remains on the books and we are duty-bound to follow it. And about that much the plaintiffs are surely right: we are obliged to follow Quill out of fidelity to our system of precedent whether or not we profess confidence in the decision itself. For while a court may in rare circumstances overrule a decision of its own devise, this court may of course never usurp the power to overrule a decision of the Supreme Court.
With that much plain enough, the question remains what exactly Quill requires of us. Later (reading) courts faced with guidance from earlier (writing) courts sometimes face questions how best to interpret that guidance. And the parties before us today offer wildly different accounts of Quill. Most narrowly, everyone agrees that Quill's holding forbids states from imposing sales and use tax collection duties on firms that lack a physical presence in-state. And everyone agrees that Colorado's law doesn't quite go that far. While Colorado requires in-state brick-and-mortar firms to collect sales and use taxes, it asks out-of-state mail order and internet firms only to supply reports designed to enable the state itself to collect the taxes in question. Indeed, Colorado suggests that its statutory scheme carefully and consciously stops (just) short of doing what Quill's holding forbids.
But as the plaintiffs note, that is hardly the end of it. Our obligation to precedent obliges us to abide not only a prior case's holding but also to afford careful consideration to the reasoning (the "ratio decidendi") on which it rests. And surely our respect for a prior decision's reasoning must be at its zenith when the decision emanates from the Supreme Court. Indeed,
It's a reasonable argument, but like my colleagues I believe there's a reason it's wrong. The reason lies in the exceptional narrowness of Quill's ratio. If the Court in Quill had suggested that state laws commanding out-of-state firms to collect sales and use taxes violated dormant commerce clause doctrine because they are too burdensome, then I would agree that we would be obliged to ask whether Colorado's law imposes a comparable burden. But Quill's ratio doesn't sound in the comparability of burdens—it is instead and itself all about the respect due precedent, about the doctrine of stare decisis and the respect due a still earlier decision. See Quill, 504 U.S. at 317, 112 S.Ct. 1904; id. at 320, 112 S.Ct. 1904 (Scalia, J., concurring in part and concurring in the judgment); Brohl, 135 S.Ct. at 1134 (Kennedy, J., concurring).
This distinction proves decisive. Some years before Quill, in National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967), the Supreme Court held that states could not impose use tax collection duties on out-of-state firms. In Quill, the Court openly reconsidered that decision and ultimately chose to retain its rule—but did so only to protect the reliance interests that had grown up around it. Indeed, the Court expressly acknowledged that Bellas Hess very well might have been decided differently under "contemporary Commerce Clause jurisprudence" and cases like Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076 (1977). Quill, 504 U.S. at 311, 112 S.Ct. 1904; cf. Billy Hamilton, Remembrance of Things Not So Past: The Story Behind the Quill Decision, 59 St. Tax Notes Mag. 807 (2011). The Court also expressly acknowledged that states can constitutionally impose tax and regulatory burdens on out-of-state firms that are more or less comparable to sales and use tax collection duties. See Quill, 504 U.S. at 311-12, 314-15, 112 S.Ct. 1904. And the Court expressly acknowledged that this dichotomy—between (impermissible) sales and use tax collection obligations and (permissible) comparable tax and regulatory burdens—is pretty "artificial" and "formalistic." Id. Given all this, respect for Quill's reasoning surely means we must respect the Bellas Hess rule it retained. But just as surely it means we are under no obligation to extend that rule to comparable tax and regulatory obligations.
In fact, this much is itself a matter of precedent for this court and many others have already held Quill does nothing to forbid states from imposing regulatory and tax duties of comparable severity to sales and use tax collection duties. See, e.g., Am. Target Advert., Inc. v. Giani, 199 F.3d 1241, 1255 (10th Cir. 2000), cert. denied, 531 U.S. 811, 121 S.Ct. 34, 148 L.Ed.2d 14 (2000); KFC Corp. v. Iowa Dep't of Revenue, 792 N.W.2d 308, 324-28 (Iowa 2010), cert. denied, ___ U.S. ___, 132 S.Ct. 97, 181 L.Ed.2d 26 (2011) (mem.); Capital One Bank v. Comm'r of Revenue, 453 Mass. 1, 899 N.E.2d 76, 84-86 (2009), cert. denied, 557 U.S. 919, 129 S.Ct. 2827, 174 L.Ed.2d 553 (2009); Tax Comm'r v. MBNA Am. Bank, N.A., 220 W.Va. 163,
It may be rare for Supreme Court precedents to suffer as highly a "distinguished" fate as Bellas Hess—but it isn't unprecedented. Take baseball. Years ago and speaking through Justice Holmes, the Supreme Court held baseball effectively immune from the federal antitrust laws and did so reasoning that the "exhibition[ ] of base ball" by professional teams crossing state lines didn't involve "commerce among the States." Federal Baseball Club of Balt., Inc. v. Nat'l League of Prof'l Baseball Clubs, 259 U.S. 200, 208-09, 42 S.Ct. 465, 66 L.Ed. 898 (1922). Since then the Supreme Court has recognized that other organizations offering "exhibitions" in various states do engage in interstate commerce and are subject to antitrust scrutiny. E.g., United States v. Shubert, 348 U.S. 222, 230-31, 75 S.Ct. 277, 99 L.Ed. 279 (1955). But though it has long since rejected the reasoning of Federal Baseball, the Supreme Court has still chosen to retain the holding itself—continuing to rule baseball effectively immune from the antitrust laws, if now only out of respect for the reliance interests the Federal Baseball decision engendered in that particular industry. Toolson v. N.Y. Yankees, Inc., 346 U.S. 356, 357, 74 S.Ct. 78, 98 L.Ed. 64 (1953) (per curiam). And, of course, Congress has since codified baseball's special exemption. See 15 U.S.C. § 26b. So it is that the baseball rule now applies only to baseball itself, having lost every away game it has played.
Accepting at this point that Quill doesn't require us to declare Colorado's law unconstitutional, the question remains whether some other principle in dormant commerce clause doctrine might. For their part the plaintiffs identify (only) one other potential candidate, suggesting that Colorado's law runs afoul of the principle that states may not discriminate against out-of-state firms, a principle often associated with West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994). And to the extent that there's anything that's uncontroversial about dormant commerce clause jurisprudence it may be this anti-discrimination principle, for even critics of dormant commerce clause doctrine often endorse it even as they suggest it might find a more textually comfortable home in other constitutional provisions. E.g., Camps Newfound, 520 U.S. at 610, 117 S.Ct. 1590 (Thomas, J., dissenting).
But any claim of discrimination in this case is easily rejected. The plaintiffs haven't come close to showing that the notice and reporting burdens Colorado places on out-of-state mail order and internet retailers compare unfavorably to the administrative burdens the state imposes on in-state brick-and-mortar retailers who must collect sales and use taxes. If anything, by asking us to strike down Colorado's law, out-of-state mail order and internet retailers don't seek comparable treatment to their in-state brick-and-mortar rivals, they seek more favorable treatment, a competitive advantage, a sort of judicially sponsored arbitrage opportunity or "tax shelter." Quill, 504 U.S. at 329, 112 S.Ct. 1904 (White, J., concurring in part and dissenting in part).
Of course, the mail order and internet retailer plaintiffs might respond that, whatever its propriety, they are entitled to a competitive advantage over their brick-and-mortar competitors thanks to Bellas Hess and Quill. And about that much (again) I cannot disagree. It is a fact—if an analytical oddity—that the Bellas Hess branch of dormant commerce clause jurisprudence guarantees a competitive benefit to certain firms simply because of the organizational
But this result too seems to me, as it does to my colleagues, entirely consistent with the demands of precedent. After all, by reinforcing an admittedly "formalistic" and "artificial" distinction between sales and use tax collection obligations and other comparable regulatory and tax duties, Quill invited states to impose comparable duties. In this way, Quill might be said to have attached a sort of expiration date for mail order and internet vendors' reliance interests on Bellas Hess's rule by perpetuating its rule for the time being while also encouraging states over time to find ways of achieving comparable results through different means. In this way too Quill is perhaps unusual but hardly unprecedented, for while some precedential islands manage to survive indefinitely even when surrounded by a sea of contrary law (e.g., Federal Baseball), a good many others disappear when reliance interests never form around them or erode over time (e.g., Montejo v. Louisiana, 556 U.S. 778, 792-93, 129 S.Ct. 2079, 173 L.Ed.2d 955 (2009)). And Quill's very reasoning—its ratio decidendi—seems deliberately designed to ensure that Bellas Hess's precedential island would never expand but would, if anything, wash away with the tides of time.
I respectfully concur.
Moreover, the weight of state authority limits Quill's physical presence requirement to sales and use taxes, as opposed to other kinds of taxes. See, e.g., Lamtec Corp. v. Dep't of Revenue, 170 Wn.2d 838, 246 P.3d 788, 794 (2011) (en banc) (stating in dicta "[t]here is also extensive language in Quill that suggests the physical presence requirement should be restricted to sales and use taxes" as opposed to business and occupation taxes); KFC Corp. v. Iowa Dep't of Revenue, 792 N.W.2d 308, 328 (Iowa 2010) ("[W]e hold that a physical presence is not required under the dormant Commerce Clause of the United States Constitution in order for the Iowa legislature to impose an income tax on revenue earned by an out-of-state corporation arising from the use of its intangibles by franchisees located within the State of Iowa."); Geoffrey, Inc. v. Comm'r of Revenue, 453 Mass. 17, 899 N.E.2d 87, 94-95 (2009) (explaining "[t]he Supreme Court's decision in Quill discussed a `physical-presence' requirement under the commerce clause only in the context of sales and use taxes," not taxes on royalty income); Tax Comm'r v. MBNA Am. Bank, N.A., 220 W.Va. 163, 640 S.E.2d 226, 232 (2006) ("[W]e conclude that Quill's physical-presence requirement for showing a substantial Commerce Clause nexus applies only to use and sales taxes and not to business franchise and corporation net income taxes."); Lanco, Inc. v. Dir., Div. of Taxation, 188 N.J. 380, 908 A.2d 176, 176-77 (2006) (concluding Quill does not prohibit a state from imposing a corporation business tax on physically non-present businesses); Geoffrey, Inc. v. S.C. Tax Comm'n, 313 S.C. 15, 437 S.E.2d 13, 18 & n. 4 (1993) (concluding the physical-presence requirement of Bellas Hess and Quill applies only to sales and use taxes). But see J.C. Penney Nat'l Bank v. Johnson, 19 S.W.3d 831, 839 (Tenn. Ct.App. 1999) ("Any constitutional distinctions between the franchise and excise taxes presented here and the use taxes contemplated in Bellas Hess and Quill are not within the purview of this court to discern.").
These cases generally interpret Quill to apply exclusively to sales and use taxes for two reasons relevant here. First, they emphasize the language in Quill itself, which stated "we have not, in our review of other types of taxes, articulated the same physical-presence requirement that Bellas Hess established for sales and use taxes." 504 U.S. at 314, 112 S.Ct. 1904. Second, they highlight Quill's stare decisis rationale rooted in the mail order industry's reliance on Bellas Hess—a reliance interest absent in the context of other taxes. See KFC Corp., 792 N.W.2d at 324.