A U.S. District Court halted the imposition of a new Internet sales tax law last week. The court granted a preliminary injunction against the law, arguing discriminates against out-of-state retailers and violates the Commerce Clause.

The case was brought by the Direct Marketing Association (DMA) following the passage of HB 1193 in last year's legislative session. The law enforces three obligations which violate the constitution. The bill requires out-of-state retailers that do not collect Colorado sales tax to notify Colorado customers of their requirement to remit taxes to the Department of Revenue. Retailers must also report the customer’s name and total amount of purchases to the Department of Revenue. Worst of all, retailers are required to send private customer information, including customer names, addresses, shipping information and other information to the state DOR.

In the ruling, Judge Robert Blackburn affirms the DMA’s claim stating, “the Act and the Regulations discriminate against out-of-state retailers who do not collect Colorado sales tax, because the Act and the Regulations impose on those retailers notice and reporting obligations that are not imposed on Colorado retailers.” He continues, “Under the law established in Quilland related cases, Colorado may not impose any duty to collect sales and use taxes on out-of-state retailers whose only connection to Colorado is by common carrier or the U.S. mail.” Blackburn argued that the law discriminates against out-of-state retailers because, “in practical effect, they impose a burden on interstate commerce that is not imposed on in-state commerce.”

The preliminary injunction came just five days before retailers were required to notify customers. It also follows a District Court decision halting a similar law in North Carolina last October. That court challenge focused more on First Amendment privacy violations that would result from the law.