Direct Marketing Association, The v. Huber

Filing 50

RESPONSE to 15 MOTION for Preliminary Injunction with Incorporated Memorandum of Law filed by Defendant Roxy Huber. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, Part 1, # 8 Exhibit 7, Part 2, # 9 Exhibit 7, Part 3, # 10 Exhibit 7, Part 4, # 11 Exhibit 7, Part 5, # 12 Exhibit 7, Part 6, # 13 Exhibit 7, Part 7, # 14 Exhibit 8, # 15 Exhibit 9, # 16 Exhibit 10, # 17 Exhibit 11, # 18 Exhibit 12, # 19 Exhibit 13, # 20 Exhibit 14, # 21 Exhibit 15, # 22 Exhibit 16, # 23 Exhibit 17)(Scoville, Stephanie)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 10-cv-01546-REB-CBS
The Direct Marketing Association,
Plaintiff,
v.
Roxy Huber, in her capacity as Executive Director,
Colorado Department of Revenue,
Defendant.
DEFENDANT’S RESPONSE IN OPPOSITION TO PLAINTIFF’S
MOTION FOR A PRELIMINARY INJUNCTION
Defendant, Roxy Huber, in her capacity as the Executive Director of the Colorado
Department of Revenue (“DOR”) submits this Response in Opposition to Plaintiff’s
Motion for Preliminary Injunction (“Motion”) filed on August 13, 2010 [Dkt.15].
I.

INTRODUCTION

DMA seeks a preliminary injunction to halt DOR’s enforcement of a bill signed
into law in February 2010, now codified at COLO. REV. STAT. § 39-21-112(3.5) (“HB
1193”), and its implementing regulations, 1 Colo. Code. Regs. § 201-1:39-21-112.3.5
(“Regulations”) (together, “the Law”), which provide an additional means for Colorado to
enforce its use tax. See Ex. 1, HB 1193 and Ex. 2, Regulations.
After states adopted sales taxes in the 1930s, they faced two concerns: 1) loss of
business to local merchants as customers made out-of-state purchases to avoid sales
tax liability, and 2) loss of revenue as a result of the diversion of sales outside the state.
See Jerome R. Hellerstein & Walter Hellerstein, State Taxation, vols. I and II, Part V,

Chapter 16, ¶16.01[2] (3d ed. 1998-2010). To address these concerns, states enacted
complementary use taxes on goods brought into the state for use. Id. Colorado
enacted a sales tax in 1935 and a use tax in 1937; the rate under each is 2.9%. See
COLO. REV. STAT. § 39-26-106(1)(a)(II), § 39-26-202(1)(b) (2010). As in many states,
the sales and use taxes are an integral part of Colorado’s budget. See Ex. 3, Saliman
Decl. ¶¶7-8. Given the current fiscal state of the State, collection of all revenue,
including sales and use tax, is absolutely essential. The Law, therefore, is intended to
be another tool in DOR’s toolbox to enforce the sales and use tax.
The Law imposes three regulatory requirements on retailers that do not collect
Colorado sales tax and imposes penalties for failure to comply. First, non-collecting
retailers must notify purchasers that although the retailer does not collect sales tax, the
purchase may be subject to Colorado’s use tax and state law requires purchasers to file
a use tax return (“Transactional Notice”). Ex. 2, Reg. 29-31-112.3.5(2); Ex. 4, Stevens
Dec., Ex. B (Transactional Notice Template). Retailers may use a variety of methods to
display the Transactional Notice, including putting the notice on a separate slip of paper
in a delivery box. Ex. 4, Stevens Dec., Ex. A (FYI Sales 79).1
Second, non-collecting retailers must send customers who purchase more than
$500 annually a statement listing the dates, general categories, and amounts of their
purchases and reminding them of their use tax obligations (“Annual Customer Report”).

1

This option is available as long as retailers do not suggest to the customer that no sales tax is due on
the purchase. Ex. 4, Stevens Dec., Ex. A (FYI Sales 79). If a retailer indicates during the purchase
process that no tax is due, the retailer must include the Transactional Notice at the time of purchase. Id.

2

Ex. 2, Reg. 29-31-112.3.5(3); Ex. 4, Stevens Dec. Ex. C (Sample Annual Customer
Notice).
Third, non-collecting retailers must send an annual report to DOR listing
customer names, addresses, and total amounts spent (“Annual Retailer Report”). Ex. 2,
Reg. 29-31-112.3.5(4). Although DMA repeatedly attempts to characterize the Law as
requiring disclosure of “individual customer transaction information,” "personally
identifiable purchase information," "private” or "sensitive purchasing information,"
(Motion, pp. 2, 9, 16, 21, 29), non-collecting retailers are prohibited from sending DOR
any information about the goods purchased by individuals. Ex. 2, Reg. 29-31112.3.5(4)(a)(iv). DOR allows retailers to submit the Annual Retailer Report in plain text
format using secure internet protocols to ensure that customer data is protected. Ex. 5,
Thompson Dec. ¶¶4, 6. DOR also has provided step-by-step instructions and samples
for smaller, less-sophisticated retailers. Id. at ¶6. Additionally, DOR employees must
strictly maintain the confidentiality of all tax documentation, and are subject to criminal
and civil penalties as well as termination for failure to do so. COLO. REV. STAT. § 39-21113(4)(a), -113(6) (2010).
The Law applies to all retailers who do not collect sales tax, regardless of their
location. Ex. 2, Reg. 29-31-112.3.5(1)(a). Because the Law exempts retailers with less
than $100,000 in gross annual sales in Colorado, the vast majority of retailers in the
country are not subject to the Law. Id.; Ex. 6, Gable Rpt., pp.5-6.
The Law is based on the widely-accepted principle that compliance with tax laws
dramatically increases when a third party reports taxable activity to the taxing authority.

3

Exs. 7-8, IRS Tax Gap Studies (relevant portions highlighted). The Law was driven by
Colorado’s extraordinary budget crisis and the sizeable tax “gap” between what is owed
in sales and use tax and what is actually paid.
II.

PRELIMINARY INJUNCTION STANDARDS.

DMA filed suit seeking to enjoin DOR from enforcing the Law, claiming it violates
several provisions of the U.S. Constitution. The Motion is limited to DMA’s claims that
the Law violates the dormant Commerce Clause.
Preliminary injunctions are “extraordinary remed[ies],” and “the right to relief must
be clear and unequivocal.” Aid for Women v. Foulston, 441 F.3d 1101, 1115 (10th Cir.
2006) (internal quotations omitted). In assessing the effect of a requested injunction,
courts “should pay particular regard for the public consequences in employing the
extraordinary remedy of injunction.” Winter v. Natural Res. Def. Council, ___ U.S. ___,
129 S.Ct. 365, 376-77 (2008) (internal citation omitted).
To obtain a preliminary injunction, Plaintiff must establish: (1) a substantial
likelihood of success on the merits, (2) that Plaintiff will suffer irreparable injury if the
preliminary injunction is denied, (3) that the threatened injury to Plaintiff outweighs the
injury to Defendant caused by the preliminary injunction, and (4) that an injunction is not
adverse to the public interest. Aid for Women, 441 F.3d at 1115. Plaintiff bears the
burden of proof to demonstrate that each factor tips in its favor. Heideman v. S. Salt
Lake City, 348 F.3d 1182, 1188-89 (10th Cir. 2003). DMA cannot demonstrate to the
degree required these four factors.

4

III.

DMA MEMBERS WILL NOT SUFFER IRREPARABLE HARM IN THE
ABSENCE OF A PRELIMINARY INJUNCTION.2

DMA has not met its burden to demonstrate that complying with the Law will
result in certain and great harm to its members. In order to meet its burden on the
irreparable harm factor, DMA must establish that the injury to its members is “both
certain and great,” and not “merely serious or substantial.” Dominion Video Satellite,
Inc. v. Echostar Satellite Corp., 356 F.3d 1256, 1262 (10th Cir. 2004). The burden to
demonstrate irreparable harm is “not an easy burden to fulfill.” Greater Yellowstone
Coalition v. Flowers, 321 F.3d 1250, 1258 (10th Cir. 2003).
A.

A Violation of Commerce Clause Rights Is Not Irreparable
Injury Per Se.

DMA’s first contention that a violation of the Commerce Clause is sufficient
irreparable harm to warrant an injunction is misplaced. To the extent DMA has not
demonstrated a likelihood of success on the merits, the Court need not consider this
issue. In any event, DMA’s contention is misplaced.
DMA relies primarily on ACLU v. Johnson, 194 F.3d 1149, 1163 (10th Cir. 1999),
where the court found that the plaintiffs had demonstrated irreparable harm due to the
curtailment of their free speech rights. Without any additional analysis, the court
included a citation to Am. Libraries Ass’n v. Pataki, 969 F. Supp. 160, 168 (S.D.N.Y.
1997), which found that a violation of Commerce Clause rights constitutes irreparable
injury. Pataki, however, is part of a split among district courts as to whether the

2

Because the discussion of the alleged harm also bears on the analysis of whether the Law unduly
burdens interstate commerce, DOR addresses the first two preliminary injunction factors in reverse order.

5

irreparable harm factor is satisfied when any violation of Constitutional rights is alleged.
A number of district courts have concluded that this factor may be automatically
satisfied when there is a violation of an individual’s constitutional rights, but that a
violation of “structural” constitutional rights – such as under the Commerce Clause –
does not result in a presumption of irreparable harm. See, e.g., Prof’l Towing &
Recovery Operators v. Box, 2008 WL 5211192, at *12-13 (N.D. Ill. Dec. 11, 2008); N.Y.
State Restaurant Ass’n v. N.Y. City Bd. of Health, 545 F. Supp. 2d 363, 367 (S.D.N.Y.
2008); Alliance of Auto. Mfr. v. Hull, 137 F. Supp. 2d 1165, 1173 (D. Ariz. 2001)
(refusing to find a presumption of irreparable harm based on an alleged violation of the
dormant Commerce Clause); Atl. Coast Demolition & Recycling, Inc. v. Bd. of Chosen
Freeholders, 893 F. Supp. 301, 308-09 (D.N.J. 1995); Grand Cent. Sanitation, Inc. v.
City of Bethlehem, 1994 WL 613674, at *2 (E.D. Pa. 1994); Am. Petroleum Inst. v.
Jorling, 710 F. Supp. 421, 431-32 (N.D.N.Y. 1989); Norfolk S. Corp. v. Oberly, 594 F.
Supp. 514, 522 (D. Del. 1984).
Although the Tenth Circuit has not definitively resolved this issue, this Court has
held that not all constitutional claims are entitled to a presumption of irreparable harm.
S.W. Shattuck Chem. Co. v. City & County of Denver, 1 F. Supp. 2d 1235, 1238-39 (D.
Colo. 1998) (noting a presumption arises only when fundamental rights are implicated
or when a future injury is demonstrated that cannot be compensated by monetary
damages alone). Because DMA has not unequivocally demonstrated irreparable harm
beyond the assertion of a Commerce Clause violation, it has not met its burden.

6

B. The Alleged Economic Harm to DMA’s Members is Speculative
and Does Not Constitute Irreparable Harm.
DMA has not met its burden of proof to show harm that is great and more than
speculative. To obtain a preliminary injunction, DMA must demonstrate that irreparable
injury is likely. Winter, ___ U.S. ___, 129 S.Ct. at 375. The harm must be actual, not
theoretical. Heideman, 348 F.3d at 1189. Speculative harm will not amount to
irreparable injury. Greater Yellowstone Coalition, 321 F.3d at 1258. Moreover,
economic loss generally in and of itself does not constitute irreparable harm. Id.; see
also Am. Republic Ins. Co. v. Great-West Life & Annuity Ins. Co., 2010 WL 582368, at
*5 (D. Colo. Feb. 17, 2010). DMA has asserted its members will be irreparably harmed
by 1) incurring costs to comply with the Law and 2) losing customers as a result of the
Law. Each of these contentions, however, is based on DMA’s experts’ opinions, whose
methodology is flawed, resulting in vastly overstated harm.
1. The Alleged Compliance Costs Are Unsupported and Do Not
Constitute Irreparable Harm.
Courts across the country have rejected the notion that the cost of complying
with government regulations constitutes irreparable harm.3 The Third Circuit explained
the rationale as follows:

3

See, e.g., Freedom Holdings, Inc. v. Spitzer, 408 F.3d 112, 115 (2d Cir. 2005) (“ordinary compliance
costs are typically insufficient to constitute irreparable harm.”); Am. Hosp. Ass’n v. Harris, 625 F.2d
1328,1331 (7th Cir. 1980) (injury from compliance with government regulation ordinarily is not irreparable
harm); IMS Health Inc. v. Sorrell, 631 F. Supp. 2d 429, 432 (D. Vt. 2009) (“Spending money to comply
with the law is simply a fact of doing business.”); Pennsy Supply, Inc. v. Susquehanna River Basin
Comm'n, 2007 WL 551573, at *3-4 (M.D. Pa. Feb. 20, 2007) (rejecting argument that irreparable injury
exists simply because the interim costs of compliance with new regulations are not recoverable against
the governmental entity if the regulations are later declared invalid).

7

[T]he alleged injury was “unrecoverable costs and commitment of diverse
business resources.” Without intending to disparage the importance of
such an injury, we observe that all that is lost is profits. Any time a
corporation complies with a government regulation that requires
corporation action, it spends money and loses profits; yet it could hardly
be contended that proof of such an injury, alone, would satisfy the
requisite for a preliminary injunction. Rather, in cases like these, courts
ought to harken to the basic principle of equity that the threatened injury
must be, in some way, “peculiar”. These are not “small” corporations;
there is no contention that compliance with the [Law] would render any
appellee unable to meet its debts as they come due. Nor is there any
contention that the cost of compliance would be so great vis a vis the
corporate budget that significant changes in a company's operations
would be necessitated. Nor is this a case where compliance would
permanently injure the corporation's reputation, or its goodwill.
A.O. Smith Corp. v. FTC, 530 F.2d 515, 527-28 (3d Cir. 1976) (internal citations and
footnote omitted).
Even if compliance costs could be considered irreparable harm, DMA has not
come forward with reliable evidence demonstrating that compliance costs are great and
certain. The opinions of DMA’s expert on this issue, F. Curtis Barry, are not founded in
the scientific method and are wholly speculative. Mr. Barry did not perform any studies
to estimate the costs of compliance, did not refer to any published literature, and did not
obtain data of actual costs of compliance. Ex. 9, Barry Dep. 53:25-11; 63:14-64:4.4
Instead, Mr. Barry used his “best judgment,” working “in his head” to estimate what the
costs might be. See, e.g., id. at 32:9-33:16; 131:25-132:22.

4

Although Mr. Barry talked to 15 different retailers or software companies about the “process” for
complying with the regulations, he “didn’t do anything methodically.” Ex. 9, Barry Dep. 57:8-11; 58:14-19;
63:14-64:4. He did not ask them about their actual costs, keep any detailed records, and could not even
recall the names of any retailers to whom he spoke. Id.; see also 61:19-22; 65:16-25.

8

Based on current e-commerce data, DOR’s expert, Dieter Gable, concluded that
only “a relatively small number of retailers” will be subject to the Law. Ex. 6, Gable Rpt.,
p.5. Mr. Gable also concluded that all retailers are using computer automation to
conduct their businesses. Smaller businesses may have some initial costs, but those
costs likely would be wrapped up in software upgrades and may be ultimately absorbed
by software vendors. Id. at pp.7-10. Larger retailers will be sophisticated enough to
meet the Law with nominal effort as part of their regular technology enhancements, and
their costs are so inconsequential, particularly when viewed as a percentage of sales,
that they cannot be quantified. Id. at p.11.
a. Transactional Notice.5
Mr. Barry’s estimated “non-discretionary” costs for the Transactional Notice are
$10,000-$18,000 in the first year and an additional $1,500-$2,000 in later years. Ex. 10,
Barry Rpt., Ex. A and A.1.6 Up to $7500 of these costs are attributable to management
deciding how they want to comply with the regulation. Ex. 9, Barry Dep. 101:21-102:4.

5

When assessing irreparable harm, the Court may consider only future harm; harm that has already
occurred is not grounds for a preliminary injunction. Mountain Med. Equip., Inc. v. Healthdyne, Inc., 582
F. Supp. 846, 848 (D. Colo. 1984). Non-collecting retailers have been complying with the Transactional
Notice requirement for nine months. As a result, harm stemming from the Transactional Notice is relevant
only to the extent that it constitutes alleged ongoing harm.
6

Mr. Barry’s lack of methodology is illustrated in his progression of his estimated costs. Based on his
experience, Mr. Barry initially estimated the costs for an e-commerce retailer to modify an order path to
create a Transactional Notice as $30,000-$50,000. Ex. 9, Barry Dep. 103:22-105:23. Based on the
same experience and without doing any additional studies, Mr. Barry then estimated the same cost at
$15,000-$25,000, then $5,000-$10,000. Id. at 107:10-108:21; 109:2-13. Some of these revisions were
based on suggestions from DMA’s counsel who wanted the numbers to be conservative. Id. at 74:6-21;
75:25-76:17; 134:14-135:15. Mr. Barry went through a similar estimating and revision process with his
estimate for retailers to modify an invoice or packing slip, the number of call center inquiries that would be
generated, and the amount of professional assistance retailers would require. Id. at 114:18-117:18;
119:17-120:11; 122:7-22; 131:25-132:6; 132:15-22; 133:19-135:15.

9

As Mr. Barry admitted, his final numbers “are small numbers as estimates go for IT
changes. They may look big to a novice, but they’re not…” Id. at 106:16-25. Relying
on labor studies and market data, Mr. Gable put the maximum cost for the smallestaffected retailer at $263-$1038 in the first year, with customer service inquiries resulting
in an additional one time change of $735-$1470. Ex. 6, Gable Rpt., pp.11-12. Larger
retailers would not realize these costs. Id. at p.11.
Under either expert’s analysis, when viewed as part of retailers’ overall
information technology (IT) costs and their annual sales, the cost of compliance with the
transactional notice is very small. According to Mr. Barry, moderate to large retailers
(those Mr. Barry estimates would be subject to the Law) have total IT support costs that
range from $200,000 to up to 1-2% of total net sales. Ex. 9, Barry Dep. 37:4-21; 38:1523; 41:16- 42:10; 43:18-44:8; 55:12-20. Using Mr. Barry’s estimates, Amazon.com’s
total IT costs run around $50 Million. See Ex. 11, Internet Retailer Research, Top 500
Guide. When viewed as an additional cost of overall IT costs, the cost of a
Transactional Notice is a proverbial drop in the bucket. When normalized for gross
sales, the burden imposed on retailers by the Transactional Notice amounts to only
0.001%-0.017% of annual sales. See Ex. 6, Gable Rpt., Exh. A.1; see also p.10
(explaining why any costs should be viewed as incremental costs).7
The experts’ estimates are based on modifications to an electronic order path,
but there are a number of ways for retailers to comply with the Transactional Notice

7

When doing work for his own clients, Mr. Barry estimates costs as a percent of net sales. Ex. 9, Barry
Dep. 18:5-19:3.

10

requirement. Retailers could use a linking notice to a separate web page or the
company’s FAQ’s or policies page, a pop-up window, or other “work arounds.” Ex. 9,
Barry Dep. 93:9-94:6; 94:13-15; 95:10-20; 97:20-98:1. As long as retailers do not lead
customers to believe that no tax is due on the purchase, they even may put a slip of
paper with the Transactional Notice into packages for delivery. Ex. 4, Stevens Dec., Ex.
B (Transactional Notice Template). DOR has already created language that companies
may use for the notice. Id. Mr. Barry estimated that a simple packing insert costs less
than ten cents per package. Ex. 9, Barry Dep. 226:3-5.
b. Annual Customer Report and Annual Revenue Report.
The experts’ estimates for the Annual Customer Report and the Annual Revenue
Report are similarly slight. Mr. Barry estimated that Annual Customer Notices will cost
retailers $8,000-$20,000, plus an additional $2.00-$3.00 per customer. Ex. 10, Barry
Rpt., Ex. B and B.1.8 The $8,000-$20,000 is due solely to 225 hours of internal
computer programming costs (or 135 hours of external programming costs). Id. In
contrast, for the smallest retailers subject to the Act, Mr. Gable found one-time costs of
$1601-$3023, representing 0.027%-0.050% of annual sales, and ongoing yearly costs

8

Defendant further notes that Mr. Barry’s estimated costs on the Annual Customer Report and the Annual
Revenue Report suffered from the same methodological flaws as his cost opinions on the Transactional
Notice. Although Mr. Barry obtained some quotes from printing houses, he based the remainder of the
estimates on his general experience and did not conduct any studies or refer to any published research.
See, e.g., Ex. 9, Barry Dep. 191:2-7; 192:3-193:25. Mr. Barry also continually revised his numbers
downward, including after discussions with counsel. For example, Mr. Barry initially estimated the Annual
Revenue Report costs at $34,000-$46,000, then $28,000-$38,000, and finally, $8500-$13,000. Id. at
207:6-21.

11

of $354-$530, representing 0.006-0.009% of gross annual sales. Ex. 6, Gable Rpt.,
p.12. Many retailers’ costs would be far less than that. Id. at pp.7-10, 20.
As to the Annual Revenue Report, Mr. Barry estimated retailers will incur $8500$13,000 in costs. Ex. 10, Barry Rpt., Ex. C, C.1. Mr. Barry attributes $7,500-$10,000 of
these costs to management time trying to determine how to do the report. Ex. 9, Barry
Dep. 194:13-195:2. The remaining $1,000-$3,000 is expense to comply with DOR’s
privacy protocols. Ex. 10, Barry Rpt., Ex. C, C.1. Mr. Gable reviewed DOR’s
processes and found costs to comply with privacy protocols would be $0, and Mr. Barry
agrees that these costs may never materialize. Ex. 6, Gable Rpt., pp.14-15; Ex. 9,
Barry Dep. 190:7-191:1. Mr. Gable found that the Annual Revenue Report could cost
the smallest retailers $235-$470, or 0.004%-0.008% of annual sales, and that many
retailers’ costs would be far less. Ex. 6, Gable Rpt., p. 13. Particularly when
normalized for retailers’ annual sales and when compared to retailers’ overall IT
budgets, the costs of the annual reports are nominal.
Moreover, the data to create these reports already exists. Ex. 9, Barry Dep.
157:5-6; 158:5-16. Most retailers’ customers track customer data in very detailed ways,
including tracking what customers purchase, how much they spend, how long they
shop, which internet browsers or IP addresses they use, whether they visit after
receiving an email or special offer, and “endless” other benchmarks. Id. at 137:9-140:7.
Most retailers keep this data for more than one year. Id. at 147:5-7. Moreover, most
retailers “rent” their data to marketing service bureaus by providing customer names
and addresses, part of the same data set required for the Annual Customer Report and

12

the Annual Revenue Report. Id. at 46:1-49:3; 140:14-141:8. This is confirmed by
Defendant’s expert Dr. Lichtenstein, who notes that at least one company, Datalogix,
has data on 100% of customers 18 years and older, including personally identifiable
information and individual item purchases. Ex. 12, Lichtenstein Rpt., p.7. According to
Mr. Gable, given retailers’ constant tracking and manipulation of data, the additional
incremental effort required to create an Annual Customer Report and an Annual
Revenue Report is nominal. Ex. 6, Gable Rpt., pp.13-14.
The effort for the Annual Customer Report also should be viewed according to
the number of actual reports required. Given that the regulations require reports only
for customers who spend more than $500 annually, Mr. Barry estimated that retailers
would have to create annual reports for fewer than 20% of Colorado purchasers, and it
could be as low as 10%. Ex. 9, Barry Dep. 169:11-20; 170:3-5.
Given the lack of methodology employed by DMA’s expert and the small overall
costs to comply with the various reporting requirements, DMA has not met its burden to
show certain and great irreparable harm in the form of compliance costs.
2. Loss of Customers
DMA next asserts its members will suffer harm by a loss of customers. Although
customer loss or a loss of goodwill can constitute irreparable injury, DMA must
substantiate its assertion that customers or goodwill will, in fact, be lost. Am. Republic
Ins. Co., 2010 WL 582368, at *5. DMA must prove that the harm is more than
speculative. RoDa Drilling Co. v. Siegal, 552 F.3d 1203, 1210 (10th Cir. 2009).

13

DMA relies on a survey conducted by Dr. Thomas Adler and interpreted by Dr.
Kevin Keller. The survey purportedly demonstrated that 67% of Colorado residents will
decrease purchases from retailers who comply with the Law. Defendant retained an
expert, Dr. Donald Lichtenstein, to assess the survey and conclusions. Dr. Lichtenstein
concluded that DMA’s survey is “fatally flawed” in at least four respects, resulting in
flawed conclusions as well. Ex. 12, Lichtenstein Rpt., pp.5, 14.
First, the survey is flawed because it contained false information. Id. at pp.18-22.
One of the early questions asked respondents to agree whether they minded “the State
of Colorado knowing the kinds of products I buy, from whom I buy them, where I
have them shipped and how much I spend." (emphasis supplied). Id. at p.19. This
question was false because retailers are specifically prohibited from supplying this
information as part of the Annual Revenue Report. Id. at p.18. In addition to being
misleading, this question influenced answers to later questions, rendering the entire
survey unreliable. Id. at pp.18-22.
Second, the survey questions themselves suggested a response. Id. at pp.2224. Because the survey questions prompted a concern about invasion of privacy, the
results of the survey supposedly showed a large majority of respondents are concerned
with a loss of privacy. This “reactivity bias” makes the survey unreliable. Id.
Third, the survey did not follow accepted survey standards in offering
respondents enough information and “don’t know” as a possible response. Id. at pp.2427. Particularly given the subject of the survey, this omission calls into question the
entire survey. Id.

14

Fourth and most importantly, the survey does not permit an inference of causality
because it contains a “confound.” Id. at pp.13-17. The survey conflated customer
privacy concerns with customer’s resistance to paying higher taxes. The survey did not
follow established methodologies for factoring out this confound. Id. at p.16.
Particularly given strong consumer resistance to paying higher prices in the form of
taxes, the survey’s failure to account for this confound rendered the survey “fatally
flawed.” Id. at pp.14-15.
Dr. Lichtenstein further explained how the conclusions drawn from the survey are
faulty. He examined academic data, which demonstrates that consumers’ stated
intentions are an unreliable predictor of their actual future behavior and that consumers
are particularly poor at predicting their behavior when privacy concerns are involved. Id.
at pp.10-11, 30-35. To the extent consumers ultimately change behavior based on the
Law, Dr. Lichtenstein concluded that changes in price (via higher taxes) account for the
change. Id. at p.6. Additionally, when all retailers are subject to the Law, the consumer
behavior may not result at all. Id. at pp.12, 27-29. Data disclosure to DOR also is not a
powerful enough factor to change the behavior (purchasing from a non-collecting
retailer) when the benefits of Internet shopping are considered. Id. Academic studies
show that customers are willing to trade privacy for products when they believe sellers
can be trusted. Id. at pp.8-9. As a result, Dr. Lichtenstein concluded that the Law
cannot account for the alleged consumer behavior. Id.
Finally, the survey and its conclusions are flawed because causality cannot be
found from a correlational study. DMA’s survey was correlational - it took an event (the

15

Law) and attempted to correlate behavior (customers stopping shopping) to it.
However, the survey was not designed as a causality survey. In this case, the Law’s
effect of higher prices/taxes may change consumer behavior. At most, the survey
shows a correlational, but not a causal, effect. Id. at p.17. In fact, Mr. Gable’s research
based on current e-commerce data shows that the Law will not materially impact the
rate at which customers abandon their shopping carts. Ex. 6, Gable Rpt. P.16.
Because DMA’s survey and the conclusions drawn from it are flawed, DMA has
not met its burden to demonstrate harm that is certain and great. DMA does not offer
any evidence from actual members who have lost sales attributable to the Law, does
not contend that any losses would be so serious as to jeopardize its members, and
does not offer other evidence detailing its losses.9 Accordingly, DMA has not met its
burden to demonstrate irreparable harm.
IV.

DMA HAS FAILED TO ESTABLISH A SUBSTANTIAL LIKELIHOOD OF
SUCCESS ON THE MERITS.

DMA has not demonstrated a substantial likelihood of success on the merits of its
Commerce Clause claims. The Law does not discriminate either facially or in effect
against interstate commerce (Count 1) and the limitations on state action set forth in
Quill Corp. v. North Dakota, 504 U.S. 298 (1992), do not apply (Count 2). Accordingly,

9

Mr. Barry estimated that the Law will lead 25-50% of customers to abandon their shopping carts, but he
did not base this on any data or studies and admitted he can’t “mathematically” quantify how much
retailers would lose. Ex. 9, Barry Dep. 195:12-197:25.

16

the Law should be reviewed and upheld in accordance with the test set forth in Pike v.
Bruce, 397 U.S. 137, 142 (1970).
The Commerce Clause establishes both an affirmative power in Congress to
regulate commerce amongst the states and also a dormant limitation on the power of
the states to enact laws that impose substantial burdens on such commerce.
Kleinsmith v. Shurtleff, 571 F.3d 1033, 1039 (2009). The modern law of the dormant
Commerce Clause is “driven by concern about economic protectionism- that is,
regulatory measures designed to benefit in-state economic interests by burdening outof-state competitors.” Dept. of Revenue of Ky. v. Davis, 553 U.S. 328, 337-338
(2008).10
When a state’s law is not motivated by protectionism, but rather serves a
traditional government function for the benefit of the public, the Supreme Court has
recently taken a more permissive approach in its Commerce Clause analysis. In United
Haulers Assoc., Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007),
the Court upheld a waste flow control ordinance that benefitted a public facility while
treating private companies the same. The Court reasoned that laws favoring local
government “may be directed toward any number of legitimate goals unrelated to
protectionism,” and cautioned that the dormant Commerce Clause “is not a roving
license for federal courts to decide what activities are appropriate for state and local

10

Economic protectionism is defined by laws that burden out-of-state businesses simply to give a
competitive advantage to in-state businesses, Granholm v. Heald, 544 U.S. 460, 472 (2005), or shield instate industries from out-of-state competition. Maine v. Taylor, 477 U.S. 131, 148 (1986).

17

government to undertake, and what activities must be the province of private market
competition.” Id. at 343. This hesitancy by the Court to interfere with states’ exercise of
traditional government functions resurfaced again recently in Davis. 553 U.S. at 341
(“[w]e should be particularly hesitant to interfere … under the guise of the Commerce
where a local government engages in a traditional government function”) (quoting
United Haulers, 550 U.S. at 344). The Court reiterated its approach in United Haulers
and confirmed that a government function is “not susceptible to standard dormant
Commerce Clause scrutiny owing to its likely motivation by legitimate objectives distinct
from the simple economic protectionism the Clause abhors.” Id. The key, therefore, is
whether the motivation of the law is “for the benefit of a government fulfilling
governmental obligations or for the benefit of private interests, favored because they are
local.” Id. at 341 n.9.
In United Haulers, the Court applied a truncated analysis under Pike. See 550
U.S. at 346 (analyzing the ordinances under the Pike test, but finding it “unnecessary to
decide whether the ordinances impose any incidental burden on interstate commerce
because any arguable burden does not exceed the public benefits of the ordinances”).
Finding that the ordinances allowed local governments to finance their waste disposal
systems, the Court determined that “[w]hile revenue generation is a not a local interest
that can justify discrimination against interstate commerce…it is a cognizable benefit for
purposes of the Pike test.” Id. (citing C & A Carbone, Inc. v. Town of Clarkstown, 511
U.S. 383, 393 (1994)).

18

The Law is part of the State of Colorado’s approach to enforcing its sales and
use tax, a vital component of the State budget. See Ex. 3, Saliman Decl. ¶¶7-8. As
discussed supra Part IV, the Law does not discriminate against interstate commerce
and is not motivated by a protectionist purpose. Rather, the aim of the Law is to
improve collection of sales and use tax due to the State for the benefit of the public as a
whole. Revenue collection is a legitimate state interest and traditional government
function. The Supreme Court has consistently found that the levying of taxes is a
means of distributing the burden of the cost of government and is a fundamental
principle of government existing primarily to provide for the common good.
Commonwealth Edison Co. v. Mont., 453 U.S. 609, 622-623 (1981) (citing Carmichael
v. So. Coal & Coke Co., 301 U.S. 494, 521-533 (1937); see also Carbone, 511 U.S. at
429 (finding the protection of the public fisc to be a legitimate non-protectionist benefit);
Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the
Dormant Commerce Clause, 84 Mich.L.Rev. 1091, 1120 (May, 1986) (“[R]aising
revenue for the state treasury is . . . a federally cognizable benefit.”).
B. The Law Does Not Facially Discriminate Against Interstate Commerce.
DMA has failed to meet its burden to demonstrate that the Law discriminates
against interstate commerce. The burden to show discrimination falls on the party
challenging the statute. Kleinsmith, 571 F.3d. at 1040 (citing Hughes v. Oklahoma, 441
U.S. 322, 336 (1979)). If a law clearly discriminates against interstate commerce, the

19

state must demonstrate a legitimate local purpose that cannot be achieved through
reasonable nondiscriminatory alternatives. Hughes, 441 U.S. at 336-37 (1979).11
DMA makes much of the title of House Bill 10-119312 and incorrectly alleges that
the Law discriminatorily targets and applies solely to out-of-state retailers. This is not
the case. The plain language of the Law applies to all non-collecting retailers that sell to
Colorado purchasers. See, e.g., COLO. REV. STAT. §§ 39-21-112(3.5)(a) and (c)(I)
(referring to “any retailer that does not collect Colorado sales tax” and “each retailer that
does not collect,” respectively); Ex. 2, Regulations (referring throughout to “noncollecting retailers”). Retailers doing business in Colorado and selling to Colorado
purchasers must obtain a license and collect and remit the sales tax on sales of tangible
personal property. COLO. REV. STAT. §§ 39-26-103, -104 (2010). Any retailer that sells
11

Assuming discrimination and advocating a strict scrutiny standard, the DMA points to alternative tools
that the Department might employ in its enforcement and collection efforts. As discussed supra,
however, revenue collection and combating tax evasion are legitimate state interests that are unrelated to
a protectionist purpose. These interests cannot be successfully achieved through the alternatives DMA
suggests. For example, DMA suggests that Colorado include a line on the income tax return for reporting
use tax. For nearly a decade, the Department included a use tax return with its income tax return forms; it
ultimately discontinued this practice, however, because the amount of use tax collected did not justify the
expense of printing and including the use tax return with the income tax forms. See Ex. 13, Williams Dec.
¶3. Further, although DMA cites approximately $40 million collected annually by New York from the line
item approach, that figure includes both state and local tax remitted and thus includes revenue from
various localities with combined rates approaching 9%. See Ex. 14, Duran Dec. ¶4, Ex. C thereto, New
York State Sales and Use Tax Rates. Consequently, the Law would survive strict scrutiny analysis.

12

As initially introduced, HB 10-1193 was titled An Act Concerning the Collection of Sales and Use Taxes
on Sales Made by Out-of-State Retailers, and was substantively different than the Law at issue in this
case. The bill originally required online and remote retailers with affiliates within Colorado to collect sales
tax from Colorado residents. The bill was substantially amended and adopted in its current form; the title
of the bill, however, did not change with these amendments. DMA’s references to the bill title and fiscal
note therefore pertain to the bill as introduced and not the Law. The title of the bill is not part of the Law
itself and does not affect the plain meaning of the statute. See Johnston v. Comm’r of Internal Revenue,
114 F.3d 145, 150 (10th Cir. 1997) (noting that under general rules of statutory interpretation the title of a
statutory provision is not part of the law but may be used to interpret an ambiguous statute); State of
Okla. v. United States Civil Serv. Comm’n, 153 F.2d 280, 283 (10th Cir. 1946) (the title of an act may be
considered in construction but it “cannot add to or subtract from the plain meaning of the text”).

20

to Colorado purchasers and does not collect sales tax is subject to the notice and
reporting requirements and penalties of the Law. Thus it is of no import whether a
retailer is located within or without the state; the focus is solely upon collection of sales
tax. Further, retailers that do not meet the statutory definition of doing business in
Colorado may either voluntarily obtain a license and collect and remit sales tax, or,
comply with the notice and reporting requirements of the Law and Regulations. In fact,
many retailers with no physical presence in Colorado already voluntarily collect sales
tax. Ex. 15, Corujo Decl. ¶7.
DMA incorrectly concludes that because in-state retailers must collect and remit
Colorado sales tax or face criminal sanctions, retailers that do not collect by definition
must be located outside the state. The Law applies equally to all retailers that sell to
Colorado purchasers and do not collect sales tax. In fact, compliance agents within
DOR discover retailers each year, which are not licensed and/or not collecting sales tax
in accordance with Colorado law. See Ex. 16, Reiser Decl. ¶6. These in-state retailers
are equally subject to the Law, and arguably, are subject to a greater burden as they
must comply with the collection requirements.
C. The Law and Regulations Do Not Discriminate in Effect Against Out-ofState Retailers.
DMA further has failed to meet its burden of showing that the Law has the effect
of discriminating against interstate commerce. As the party claiming discrimination, the
DMA has the burden of putting on evidence of discriminatory effect that is “significantly
probative, not merely colorable.” Kleinsmith, 571 F.3d at 1039. This requires a showing

21

that local interests are favored and out-of-state interests are burdened; however, “[n]ot
every benefit or burden will suffice- only one that alters the competitive balance
between in-state and out-of-state firms.” Id. at 1041. Further, DMA must show a
discriminatory effect upon interstate commerce as a whole; evidence of a discriminatory
impact upon a single business or class of businesses is not sufficient. Id. at 1043.
The Supreme Court has long recognized that the Commerce Clause does not
“relieve those engaged in interstate commerce from their just share of state tax burden
even though it increases the cost of doing business. Even interstate business must pay
its way.” W. Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938) (noting that
businesses that engage in interstate commerce are regularly subjected to state
property, income, and franchise taxes). Retailers that avail themselves of profits from
the purchases of Colorado consumers must bear the incidental burden of complying
with the State’s laws. As outlined supra Part IV, revenue collection and tax compliance
are legitimate local concerns, and the Law has, at best, only incidental effects on
interstate commerce.
DMA’s argument that the effect of the Law is to redirect business away from outof-state merchants to the benefit of Colorado businesses is unsupported and incorrect.
First, as discussed supra Part III.B.2, DMA has failed to produce any credible evidence
on this point and instead relies upon unsubstantiated expert opinions and a fatally
flawed survey. Second, DMA incorrectly equates all non-collecting retailers with those
that are located outside of Colorado and the inverse, that collecting retailers are all

22

within the State. From this fallacy, DMA proceeds to conclude that in-state retailers
benefit from the burdens of the Law upon out-of-state merchants. The reality is that
whether a retailer collects or does not collect sales tax is not a proxy for whether
interstate commerce is implicated. This is because there are many businesses that
collect Colorado sales tax that are not Colorado businesses per se. See Ex. 15, Corujo
Dec. For example, a retailer headquartered in Minnesota may have bricks and mortar
stores in Colorado and every other state in the nation. This retailer must collect
Colorado sales tax, but can hardly be placed in the category of Colorado businesses.
To the extent collecting retailers sustain any benefits from the Law, such benefits do not
implicate interstate commerce.
DMA’s argument that the Law seeks to regulate commerce that occurs wholly
outside Colorado is without merit. Because the Law is triggered only when there is a
sale to a customer located in Colorado or the goods are shipped to a Colorado address,
there is no concern for regulation of commerce that occurs entirely outside Colorado.
See Ex. 2, Reg. 39-21-112.3.5(1)(b) and (c) (defining Colorado Purchaser and Colorado
Purchase, respectively). Therefore, there is no extraterritorial control of commerce.
See Quik Payday, 549 F.3d at 1307-08 (noting that a statute is invalid per se if it has the
practical effect of controlling commerce occurring entirely outside the state).
Lastly, to the extent the Law impacts interstate commerce, it does not violate the
Commerce Clause because it is merely one enforcement mechanism of Colorado’s
lawful compensatory use tax. In Henneford v. Silas Mason Co., 300 U.S. 577 (1937),

23

the Supreme Court established the constitutionality of compensatory use taxes. The
Court upheld Washington’s use tax against a Commerce Clause challenge finding that
the use tax imposed a burden on out-of-state purchases that was identical to the burden
on in-state purchases subject to the state sales tax. Id. at 581. Here, the Law is but
one tool that the State may use in enforcing its use tax. See also COLO. REV. STAT. §
39-21-112(3.5)(a) (providing for DOR’s subpoena authority).
D. The Law Passes the Pike Test.
Since the Law does not discriminate facially and there is no protectionist purpose
by the State, it is properly assessed under the Pike balancing test. In Pike, the
Supreme Court established the following test for review of state laws against Commerce
Clause challenges:
When 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. If a legitimate local
purpose is found, then the question becomes one of degree. And the
extent of the burden that will be tolerated will of course depend on the
nature of the local interest involved, and on whether it could be promoted
as well with a lesser impact on interstate activities.
397 U.S. at 142. State laws frequently survive Pike scrutiny. Davis, 553 U.S. at 339.
The Law passes the Pike test. As discussed supra Part IV, the Law applies
equally to all non-collecting retailers and any alleged burden on out-of-state retailers is
incidental, at best. 13 The Law advances a legitimate local purpose: revenue collection

13

The reasoning and analysis regarding DMA’s alleged irreparable harm, supra Part III, overlaps with the
Pike burden analysis, therefore, it is incorporated herein. DMA has not established an undue burden
either through loss of customers or compliance costs. Further, the Tenth Circuit recognized more than

24

for the benefit of the public. See United Haulers, 550 U.S. at 346 (finding revenue
generation to be a cognizable benefit for purposes of the Pike test). The State of
Colorado has a strong interest in enforcing the sales and use tax, which represents one
third of the General Fund budget. See Ex. 3, Saliman Decl. ¶¶7-8. With the advent of
electronic commerce, state and local governments have sustained substantial losses in
sales and use tax revenue. Ex. 17, Fox Report, p.2. It is estimated that Colorado will
fail to collect $130.7 million in 2010 in state and local sales or use taxes due on
electronic commerce sales alone. Id. Therefore, the Law aims to improve collection of
the sales and use tax from Colorado purchasers and increase compliance. Given the
state of the State’s budget, it is absolutely vital that all taxes due are collected. See Ex.
3, Saliman Dec. ¶¶5, 7-9 (noting significant budget shortfalls and the importance of
sales and use tax collections to the State).
E. The Law is Not a Tax and Quill Does Not Apply.
DMA argues in Count II that Quill bars the State of Colorado from requiring
retailers with no physical presence to comply with the Law. The limitations, however, on
state action set forth in Quill do not apply to this case because the Law does not require
retailers to collect sales tax. The Tenth Circuit has recognized that Quill concerned the
levy of taxes upon out-of-state entities and has declined to extend that decision beyond
the area of sales and use taxes. Giani, 199 F.3d. at 1254-55 (declining to extend Bellas
Hess/Quill to state licensing and registration requirements); see also OLTRA, Inc. v.
thirty years ago that “[i]n the era of computers... [technical burdens]...would not be such an unreasonable
burden as compared to the local interest." Aldens, Inc. v. Ryan, 571 F.2d 1159, 1162 (1978).

25

Pataki, 273 F. Supp. 2d 275, 279 (W.D.N.Y. 2003) (finding the Quill line of cases has
been properly limited to the area of direct state taxation). Quill's physical presence
requirement is not a limitation on state authority under the dormant Commerce Clause
unless a tax is at issue. It therefore does not apply to the Law, which only imposes
nominal regulatory requirements.14
Further, DMA’s representation that the Commerce Clause limits the State of
Colorado’s authority to require compliance with the Law due to the need for national
regulation of the Internet is incorrect. Rather, the Tenth Circuit has rejected the
argument that the dormant Commerce Clause prohibits regulation of commercial
exchanges just because parties use the Internet to communicate. See Quik Payday,
Inc. v. Stork, 549 F.3d 1302, 1311-12 (2008) (upholding Kansas regulation of payday
loans over the Internet against Commerce Clause challenge). “[W]hen an entity
intentionally reaches beyond its boundaries to conduct business with foreign residents,
the exercise of specific jurisdiction by the foreign jurisdiction over that entity is proper.”
Id. at 1312 (citing Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp.1119, 1124 (W.D.
Pa. 1997).
V.

THE BALANCE OF THE EQUITIES FAVORS DOR.
On this factor, the Court must balance "the competing claims of injury and must

consider the effect on each party of the granting or withholding of the requested relief.”
14

DMA’s suggested “three-way quandary” is groundless, because Quill does not limit Colorado’s authority
to enforce its sales and use tax through the notice, reporting, and penalties of the Law. Therefore, the
Law does not force DMA’s members to “surrender their constitutional protection” (Motion, p.16); the
protections afforded by Quill do not apply here.

26

Amoco Prod. Co. v. Gambill, 480 U.S. 531, 542 (1987). That balance favors DOR, as
the State has an interest in enforcing a law that likely passes constitutional scrutiny.
The State has a legitimate and substantial interest in enforcing a statute that will
provide revenue to its strapped coffers to continue necessary programs. See United
Haulers, 550 U.S. at 346 (revenue generation is a cognizable benefit); Alamo Rent-ACar, Inc., v. Sarasota-Manatee Airport Auth., 825 F.2d 367, 373 (11th Cir. 1987)
(revenue raising is a legitimate and substantial government objective). Enforcement of
the tax laws is another important governmental interest that weighs in favor of DOR. St.
German of Alaska E. Orthodox Catholic Church v. United States, 840 F. 2d 1087, 1094
(2d Cir. 1988) (enforcement of tax laws is a compelling governmental interest); United
States v. Richey, 924 F.2d 857, 862 (9th Cir. 1990) (maintaining a workable tax system
is a compelling governmental interest); Schehl v. Comm’r of Internal Revenue, 855 F.2d
364, 367 (6th Cir. 1988) (promoting public compliance with the tax laws is a legitimate
governmental interest).
DMA's speculative compliance costs do not outweigh DOR 's interest in enforcing
the Law. See infra, § III B. 1. DMA also suggests that because its survey shows that
customers will not shop with non-collecting retailers because of the Law, the balance of
equities lies with it. Defendant first notes that DMA requests preliminary relief only on
the basis of the Commerce Clause and any argument regarding customers' privacy
rights should not be considered in their motion. Secondly, the survey and its results are
flawed (see infra § III B. 2), and therefore, any conclusions based on it are unreliable.

27

When balanced against the State’s interests in revenue raising and enforcement of the
tax laws, DMA’s asserted interests are not greater. Consequently the balance of
equities is in favor of the State.
VI.

THE PRELIMINARY INJUNCTION IS NOT IN THE PUBLIC INTEREST.

When a government entity is sued to enjoin enforcement of a statute,
consideration of the public interest overlaps with the balancing of equities. Midwest
Title Loans v. Ripley, 616 F. Supp. 897, 908 (S.D. Ind. 2009). This is especially true
here where the challenged statute addresses matters of great public concern - revenue
raising to ensure the fiscal well-being of the State and enforcement of the tax laws. See
Winter, ___U.S. ___, 129 S.Ct. at 376-377 (2008). (the Court should pay particular
regard for the public consequences when considering the extraordinary remedy of
injunction). If the Law does not likely violate the Constitution, the public certainly has
an interest that the law be enforced - particularly when that law is designed to ensure
that the State will have sufficient revenue to carry out functions for its citizens' benefit.
DMA suggests that the Court consider its privacy challenge to the Law in the
public interest analysis. Even if customers' privacy is considered, the public interest still
weighs against an injunction. DMA's privacy argument is based on a false premise.
DOR will not have a data repository of "an enormous amount of personal purchasing
information" or "purchasing profiles of thousands of Colorado consumers." Motion,
p.29. n.13. The Law specifies that no information identifying customers' purchases will
be given to DOR and DOR specifically advises to advise their customers of this fact.
2,Reg. 39-21-112.3.5(4)(a)(iv); Ex. 4, Stevens Decl. Exs. A, B, C.

28

As outlined in DOR's Motion to Dismiss, the names of stores where customers
shop and the amount of their purchases has not been recognized as information
deserving of protection under the Constitution. See Moore v. E. Cleveland, 431 U.S.
494, 503 (1977) (constitutionally protected right to privacy protects those fundamental
rights and liberties which are objectively deeply rooted in the nation's history and
tradition). Where one purchases goods and the amount one spends on goods is not a
fundamental right deeply rooted in history. With the Internet recognized as the
"dominant and perhaps the preeminent means in which commerce is conducted," Fair
Housing Council v. Roomates.com LLC, 521 F. 3d 1157, n.15, 1164 (9th Cir. 2008), no
right of privacy should be extended to the circumstances here. See Amazon.com, LLC
v. Lay, 2010 WL 4262266, at *10-11, 13 (W.D. Wash. Oct. 25, 2010) (finding no
violation of the First Amendment in the disclosure of customer names and amounts
spent).
With third party reporting as the best mechanism to enforce compliance with tax
laws (see Exs. 7-8,Tax Gap Studies; Ex. 4, Stevens Decl. ¶¶1-4), the notice and
reporting requirements of the Law are merely tools which allow DOR to enforce the
sales and use tax and the public interest weighs in favor of DOR.15
VII.

CONCLUSION

15

Because the use tax is a compensatory tax to the sales tax, and the Law and regulations are designed
to enforce the use tax, enjoining their enforcement could implicate the Tax Injunction Act (“TIA”), 28
U.S.C. § 1341, which provides that federal courts “shall not enjoin, suspend or restrain the assessment,
levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the
courts of such State.” See In re Pontes, 310 F. Supp. 2d 447, 450-452 (D.R.I. 2004) (discussion of origin
and purpose of the TIA).

29

For the foregoing reasons, DMA’s Motion should be denied.
Respectfully submitted this 19th day of November, 2010.
JOHN W. SUTHERS
Attorney General
s/ Melanie J. Snyder
MELANIE J. SNYDER, 35835*
Assistant Attorney General
JACK M. WESOKY, 6001*
Senior Assistant Attorney General
Business & Licensing Section
1525 Sherman Street, 7th Floor
Denver, Colorado 80203
Telephone: [phone] (Snyder)
Telephone: [phone] (Wesoky)
FAX: [phone]
E-Mail: [e-mail]
E-Mail: [e-mail]
STEPHANIE LINDQUIST SCOVILLE, 31182*
Senior Assistant Attorney General
Civil Litigation and Employment Law Section
Telephone: [phone]
FAX: [phone]
E-Mail: [e-mail]
*Counsel of Record
Attorneys for Defendant

30

CERTIFICATE OF SERVICE
I hereby certify that on November 19, 2010, I electronically filed the foregoing
Defendant’s Response in Opposition to Plaintiff’s Motion for a Preliminary
Injunction with the Clerk of the Court using the CM/ECF system which will send
notification of such filing to the following e-mail addresses:
[e-mail]
[e-mail]
Attorneys for Plaintiff

s/Stephanie Lindquist Scoville

cc: Via inter-office mail
Ms. Roxy Huber
Executive Director
Colorado Department of Revenue
1375 Sherman Street
Denver, Colorado 80261

31