New Colorado Sales Tax Law Poses Significant Threat To

Summary

April 9, 2010
In This Issue
 Special Focus: New Colorado Sales Tax Law Poses Significant Threat
to Internet, Catalog Retailers
 Linda Goldstein and Tom Morrison Join Faculty of Upcoming
Advertising Litigation Conference
 15 Years Later, FDA Rules on Tobacco to Take Effect in June
 Lawmakers to Consider Two Bills with Advertising Impact
Recognized for Excellence in the
 Companies Violated TCPA by Sending Free, Unsolicited Text
Messages areas of Advertising, Marketing
 First Lady Addresses Grocery Manufacturers Association and Media
 Vermont Considers Law Banning Hospital Advertising
 Manatt to Host the PMA's Entertainment Law Summit in Los Angeles
Special Focus
New Colorado Sales Tax Law Poses
Significant Threat to Internet, Catalog
Retailers
Named a Top Practice Nationally
Author: Michael A. Lehmann
for Marketing and Advertising
On February 24, 2010, the governor of Colorado signed into law
H.B. 10-1193, which requires retailers not having a physical
presence in Colorado (such as Internet and catalog sellers) and
that do not otherwise collect Colorado state sales taxes on sales
to Colorado residents (which is likely to be most out-of-state
retailers) to notify Colorado customers that the customers owe
the Colorado tax on their purchases. The law applies to retailers
with more than $100,000 in annual sales

Practice leaders included among
Although the Supreme Court‟s 1992 decision in Quill v. North Dakota the prestigious Best Lawyers in
means that retailers with no physical presence in a state are not
the country
required to collect state sales tax on sales to residents in such state, in
most states the residents still owe the state tax – typically through a
“use tax” that is parallel to the sales tax. Apart from the case of UPCOMING EVENTS
registration of motor vehicles purchased out-of-state, where states can
collect use tax at the time of registration, use taxes tend to be widely
April 9, 2010
ignored or even unknown

Palo Alto Area Bar Association
States ever hungrier for tax revenue have been setting their sights on
online and catalog sales to their residents, with such purchases & Manatt, Phelps & Phillips
generally being sales-tax-free. Such attempts must deal with the
Topic: "Enforcement Actions By
constitutional limitations of Quill. Quill essentially held that the
commerce clause of the U.S. Constitution prohibits a state from State Attorney Generals: Are You
imposing a sales tax on a retailer with no “nexus” with the state, and Prepared?"
that “nexus” exists only where the retailer has some kind of physical Speaker: Clay Friedman
presence in the state. For many years physical presence was viewed as
Palo Alto, CA
requiring a store, warehouse, office, distribution center or other facility
of the retailer itself. Recently New York, North Carolina and Rhode Office of Manatt, Phelps & Phillips
Island have enacted taxes that treat “affiliates” of retailers (such as for more information
utilized by Amazon.com, Overstock.com and other Internet retailers) as
providing the requisite physical presence. The validity of the New York
April 14-15, 2010
statute is currently the subject of litigation. Other states, including
American Conference Institute
California, Connecticut, Hawaii, Illinois, Iowa, Maryland, Minnesota,
New Mexico, Tennessee, Vermont, Virginia and Wisconsin, have Advertising, eMarketing &
considered and – for the time being – rejected such “Amazon” taxes. Promotions for the
While originally drafted in a fashion similar to the New York law, the Pharmaceutical Industry
enacted version of Colorado's law takes a different approach in that it is Speaker: Linda Goldstein
formally structured as primarily a notice and reporting regime rather
Philadelphia, PA
than a direct tax collection regime. Out-of-state retailers need not
The Union League
collect sales taxes on sales to Coloradans, but must (i) include a notice
on each invoice to Colorado customers informing them that their for more information
purchase is subject to Colorado sales tax (unless otherwise exempt
under Colorado law), and (ii) send a report to customers in January of
April 21-23, 2010
each year detailing all of their purchases in the preceding year and the
ABA Antitrust Law Spring
amount of sales tax owed. The notice must state that the retailer is not
obligated to (and does not) collect Colorado sales taxes, the purchase Conference
is not exempt merely because it is made over the Internet (or by other Topic: "Mock Trial 2010: A Jury
remote means), the State of Colorado requires that sales or use tax be
Review of Exclusionary Conduct"
paid on the purchase (unless otherwise exempt under Colorado law)
Speaker: Tom Morrison
and that the retailer is obligated to provide a year-end summary to its
Colorado customers to assist them with filing their tax returns. In Washington, DC
addition, out-of-state retailers must also provide the purchaser‟s for more information
information annually to the Colorado Department of Revenue. Failure to
comply with the customer notice requirement will result in a fine of $5
May 19, 2010
per violation. Failure to comply with the Colorado Department of
Revenue notice requirement will result in a fine of $10 per violation, Beverly Hills Bar Association
with an additional penalty of $10 per customer omitted from the notice. Entertainment Law Committee
Regulations recently issued under H.B. 10-1193 provide that due to the Topic: "Brand Integration"
short period of time between enactment and the March 1, 2010
Speaker: Jordan Yospe
effective date, if a retailer begins to provide notices by May 1, 2010, it
will not be subject to penalties for prior failures. Beverly Hills, CA
for more information
Wholly apart from the compliance burdens raised by H.B. 10-1193,
there are unsettling privacy considerations. The notice that out-of-state
retailers must provide to the Colorado Department of Revenue includes June 10-12, 2010
specific information about their customers‟ purchases. The State will Natural MarketPlace 2010
now know that particular individuals have purchased items that many Topic: "The Claim Game- Vegas
consumers would view as highly sensitive

Edition"
Why it matters: Colorado has implemented an unusual approach to Speaker: Ivan Wasserman
the battle over collecting sales taxes from out-of-state retailers. While
Las Vegas, NV
it does not yet appear that anyone has brought a legal challenge to
H.B. 10-1193, but a challenge seems almost certain. As states Las Vegas Convention Center
continually seek new sources of revenue, it seems likely that Colorado for more information
will not be the last to make an aggressive attempt to tax remote
purchases

June 15-16, 2010
back to top American Conference Institute
Linda Goldstein and Tom Morrison Join Litigating and Resolving
Faculty of Upcoming Advertising Advertising Disputes
Litigation Conference Topic: "The Realities of Bringing
and Defending a Lanham Act case
Linda Goldstein, chair of Manatt's Advertising Division, and Tom
Morrison, partner in the firm's False Advertising Practice in Federal Court Part 2: Litigating
Group, will serve among the faculty of the American Conference and Proving the Case"
Institute’s "Litigating and Resolving" Advertising Disputes Speaker: Tom Morrison
Conference on June 15 and 16 in NYC

New York, NY
The event is a comprehensive 2-day program and will cover: challenges The Helmsley Park Lane Hotel
faced by in-house counsel, how to determine the appropriate forum for
for more information
competitive challenges, preparing effective strategy, proving the case,
utilizing the NAD, securing preliminary relief, the interplay between
regulatory activity and private litigation, taking the case to the TV June 15-16, 2010
networks, and effective settlement strategies. Also notable is a unique American Conference Institute
session titled "View From the Bench: Judicial Perspectives on
Litigating and Resolving
Advertising Litigation." Hon. Timothy Batten, USDC, Northern Dist of
GA; Hon. Faith Hochberg, USDC, Dist of NJ; and Hon. Warren Eginton, Advertising Disputes
USDC, Dist of CT are panelists. Topic: "Pushing the Envelope:
For more information, and to take advantage of Manatt's $300 discount Case Studies Examining
off the registration fee, click here. Advertising that has been the
Focus of Recent Adversarial
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Proceedings"
15 Years Later, FDA Rules on Tobacco to
Speaker: Linda Goldstein
Take Effect in June
New York, NY
The Food and Drug Administration issued its final rules on The Helmsley Park Lane Hotel
marketing cigarettes and smokeless tobacco to children, which
for more information
take effect June 22. The rules were first proposed in 1995, but
the U.S. Supreme Court struck them down in 2000 in Lorillard
Tobacco Co. v. Reilly, when it found a ban on outdoor tobacco
advertisements within 1,000 feet of any school or playground
unconstitutional. But as part of the Family Smoking Prevention Newsletter Editors
and Tobacco Control Act signed by President Barack Obama last Jeffrey S. Edelstein
Partner
June, the FDA is required to reissue the rules

The Regulations Restricting the Sale and Distribution of Cigarettes and [email protected]
212.790.4533
Smokeless Tobacco to Protect Children and Adolescents ban the sale of
all tobacco products to anyone under the age of 18. In addition, Linda A. Goldstein
tobacco companies are banned from sponsoring sporting and Partner
[email protected]
entertainment events, and prohibited from offering free samples and 212.790.4544
giveaways of non-tobacco items (a Marlboro t-shirt, for example). The
rules also require that vending machine sales be in adult-only facilities Terri J. Seligman
Partner
and outlaw the sale of packages with fewer than 20 cigarettes. [email protected]
212.790.4549
Advertising is also restricted under the rules. Audio ads for tobacco
products are prohibited from using music or sound effects; only words
Our Practice
can be used. And with the exception of periodicals with 85 percent or
Whether you‟re a multi-
more adult readership, print advertisements must be black text on a national corporation, an ad
white background. The rule also provides for federal enforcement for agency, a broadcast or cable
violations. company, an e-commerce
business, or a retailer with
The FDA is still considering one element of the prior rules, however: Internet-driven promotional
strategies, you want a law
outdoor advertising. firm that understands ... more
The agency released a notice of proposed rulemaking, seeking Practice Group Overview
comment on whether or not it should regulate the outdoor advertising Practice Group Members
of cigarettes and smokeless tobacco. Electronic or written comments
are due by May 18, 2010. Info, Resources & Links
Subscribe
Why it matters: The FDA has indicated that it expects a legal Unsubscribe
challenge to the rules. Several tobacco companies, including R.J. Newsletter Disclaimer
Manatt.com
Reynolds and Lorillard – the second and third biggest tobacco
manufacturers in the United States – already filed suit regarding the
Act after it went into effect last summer. Although regulation of
cigarette advertising and marketing has been in place for decades, the
companies argue that they already operate under the strictest regime
in the country and the new law goes too far. A number of ad groups –
such as the Association of National Advertisers, the American
Association of Advertising Agencies, and the American Advertising
Federation – filed an amicus brief on behalf of the tobacco companies,
expressing concern that the new law could establish a precedent of
restrictions on the marketing and advertising of other products (like
alcoholic beverages or prescription drugs)

back to top
Lawmakers to Consider Two Bills with
Advertising Impact
Federal legislators will soon be considering two different bills
that would impact online advertising: a privacy bill that could
restrict certain marketing practices and a financial reform bill
that contains language giving the Federal Trade Commission
greater rulemaking authority. Congressman Rick Boucher (D –
Va.), chair of the House Energy and Commerce Subcommittee
on Technology and the Internet, plans to introduce a consumer
privacy bill in the coming months

“Where I want to go with this is generally opt out,” Rep. Boucher told
reporters. “If I were [a publisher or advertiser], I would want Internet
users to have a sense that their experience is more secure, that they
know what information is collected about them, and they be given
much more control. They will be more trusting of electronic commerce

. . .it‟s good for business.”
The second proposed law, the Wall Street Reform and Consumer
Protection Act of 2009, would remove existing limits on the FTC‟s
rulemaking capability and expand its enforcement powers. The Senate
version of the bill does not contain these provisions, however

With its new authority, the FTC would be able to issue financial
penalties to violators and would also be able to hold companies liable
for aiding and abetting violations of the law

In response to the potential for increased authority, FTC Chairman Jon
Leibowitz said that the industry “needs to do a better job of ensuring
that consumers know what they are agreeing to with online advertising

The new rulemaking authority is really about hard-core fraud. It doesn‟t
make sense to initiate rule making where business practices and
consumer attitudes are still evolving like behavioral targeting. . . .We
prefer self-regulation.”
Why it matters: The recent passage of the health care bill means that
federal lawmakers will now turn back to other issues, such as privacy
and financial reform. Companies that advertise online should be aware
that new legislation is a possibility. Twenty-nine advertising industry
trade groups, such as the Interactive Advertising Bureau, the Direct
Marketing Association, and the Association of National Advertisers,
recently sent a letter to a Senate committee, expressing concern about
giving the FTC greater authority

back to top
Companies Violated TCPA by Sending
Free, Unsolicited Text Messages
A pair of U.S. District Courts recently held that SMS messages
sent to a consumer without the consumer’s consent could
violate the Telephone Consumer Protection Act – even though
the consumers were not charged for the messages

Both cases were filed as putative class actions by consumers who
received “spam” text messages

In the first case, Sadat Abbas alleged that Selling Source, a company
that provides Web site design, hosting, Internet marketing, and e-
commerce services, violated the TCPA by sending him “numerous”
messages

In the second case, Victor Lozano claimed that Twentieth Century Fox
sent him a text message advertising the animated film Robots when it
was released on DVD, as well as other “spam” text ads

Both defendants moved to dismiss, arguing that the TCPA was not
intended to include SMS or text messages, and that the suits failed
because the Act requires that consumers pay for the spam messages
they receive. Both courts disagreed

“Congress was just as concerned with consumers‟ privacy rights and
the nuisances of telemarketing,” as it was with shifting the cost of
consumers having to pay for unwanted calls, Judge Joan B. Gottschall
wrote in Abbas. “Automated calls invade privacy and pose nuisances
regardless of whether the called party is charged for the call.” While the
TCPA does not define the term “call,” both courts determined that it
applied with equal weight to SMS and text messages. Although such
messages did not exist in 1991 when Congress enacted the TCPA, that
“does not preclude the application of the latter to the former,” Judge
Gottschall wrote

Judge Amy J. St. Eve agreed in Lozano. “[W]hile text messaging was
not a capability in 1991, the plain meaning of the term „call‟ at that
time includes communications by phone, and does not prohibit
application of the statute to text messaging. . . . [T]he legislative
history of the TCPA reflects that Congress anticipated future
technologies when it enacted the statute.”
Why it matters: The decisions make clear the importance of getting
express consent from consumers prior to sending SMS messages, even
if the messages are free. Marketers who send unsolicited text
messages without permission could face litigation

back to top
First Lady Addresses Grocery
Manufacturers Association
First Lady Michelle Obama recently spoke to the Grocery
Manufacturers Association and urged them to join the voluntary
labeling campaign that the Food and Drug Administration plans
to launch this fall. The First Lady spoke to the GMA at its annual
Science Forum and promoted her campaign against childhood
obesity, called Let’s Move! Her campaign has four major goals:
giving parents the support they need to make better food
choices, providing healthier food in schools, helping kids
become more physically active, and making healthy, affordable
food available in every part of the United States

The First Lady encouraged the members of the GMA to “share in the
responsibility.” “[W]e need you not just to tweak around the edges, but
to entirely rethink the products that you‟re offering, the information
that you provide about these products, and how you market those
products to our children,” she said

Mrs. Obama referenced a recent FDA survey which indicated that the
majority of Americans rely upon food labels to help them decide what
foods to buy. “But we know those labels aren‟t always as helpful as
they could be,” she said. “Parents shouldn‟t need a magnifying glass
and a calculator to make healthy choices for their kids.”
To that end, the First Lady encouraged the GMA to use “clear,
consistent, front-of-the-package labels that give people the information
they‟ve been asking for, in a format that they understand.” She also
encouraged the audience to join with the FDA, which will begin
pursuing voluntary agreements from various companies in the fall
regarding labeling. The First Lady also encouraged GMA members to
revamp or ramp up efforts to reformulate products, particularly those
aimed at kids, to decrease the amount of fat, salt, and sugar, and
increase nutrients

She also urged companies to limit advertisements for certain products
that are targeted at children. “Our kids didn‟t learn about the latest
sweets and snack foods on their own,” she said, telling a story about
daughter Sasha recently parroting a commercial for Honey Nut
Cheerios. “[W]hatever we believe about personal responsibility and
self-determination, I think we can all agree that it doesn‟t apply to kids

. . .I‟m asking you to actively promote healthy foods and healthy habits
to our kids,” the First Lady said

In a statement, Richard G. Wolford, Chairman, President and Chief
Executive Officer of Del Monte Foods Company and Chairman of the
GMA Board of Directors, said the industry is committed to working with
the FDA and USDA “to ensure that the industry makes the best use of
the front of the product label to provide clear and useful science and
fact-based nutrition information to parents and other consumers.”
Why it matters: While the First Lady acknowledged in her remarks
that childhood obesity can‟t be solved “by passing a bunch of laws in
Washington,” her multi faceted campaign focuses on labeling and
advertising issues. Childhood obesity will remain in the news: In
addition to Mrs. Obama‟s request for clearer labels and less marketing
to children, the FDA will be conducting a campaign this fall to solicit
companies to voluntarily change their labels

back to top
Vermont Considers Law Banning
Hospital Advertising
The Vermont legislature is considering a ban on hospital
advertising and marketing as part of an effort to control state
health costs. State Representative Steve Maier introduced H

627, An Act Relating to Health Care Cost Containment, in an
attempt to cut down on spending by state hospitals

One piece of the bill includes a prohibition on the inclusion of
advertising and marketing expenses in hospital budgets. Rep. Maier
cited estimates that Vermont hospitals spend roughly $10 million each
year on advertising and marketing. “I think it‟s appropriate to question
whether our not-for-profit system needs to compete,” he said. “It‟s not
producing health care.”
While the bill includes an exception that allows hospitals to advertise
job openings, opponents have expressed concern that the ban creates
serious constitutional issues, violating First Amendment protections for
commercial speech

The proposed law defines marketing and advertising as “promotion or
any activity that is intended to be used or is used to influence
individuals seeking health care services to use a specific hospital to
attain those services.” It is unclear if hospitals could still budget for
informational releases – such as promoting educational programs,
services such as Alcoholics Anonymous, or announcing that a new
surgeon has been hired – or whether they too would be banned

Why it matters: An almost complete ban on advertising and
marketing would face a steep uphill battle if challenged in court. Under
the constitutional analysis, the government would need a compelling
reason for the law, which Rep. Maier has stated as controlling the cost
of health care. But opponents could argue that advertising spurs
competition, which can actually reduce costs

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Manatt to Host the PMA's Entertainment
Law Summit in Los Angeles
On April 29, Manatt will host an afternoon program on behalf of
the Promotion Marketing Association designed for executive-
level marketers and attorneys. Each session will outline
essential best practices, and the afternoon will conclude with a
networking cocktail reception. Topics include:
1. "Social Media: Will Buzz Make You or Break You?"
Featuring: Linda Goldstein, Esq. Partner, Manatt, Phelps & Phillips and
Chas Salmore, CEO, MWKS
2. Music Download: Talent, Labels and Numerous Rights Holders
Featuring: Evan Greene, Chief Marketing Officer, and Bobby
Rosenbloum, Esq, General Counsel, from The Recording Academy. And
Scott Perry, Founder, New Music TipSheet and MKTGideas
3. Branded Entertainment: Managing the Issues
Featuring: Jordan Yospe, Esq. Partner, Manatt, Phelps & Phillips,
Tammy Brandt, Esq. Managing Counsel, Toyota Motor Sales and Eric
Baum, SVP, Business & Legal Affairs, Sony Pictures Entertainment
Seating is limited, so be sure to register ASAP and take advantage of
Manatt's friend-of-the-firm discount of $100 off the member and non-
member rate. Enter promotion code: MAN-100 when you register here

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© 2010 Manatt, Phelps & Phillips, LLP. All rights reserved

H.B. 10-1193, which requires retailers not having a physical presence in Colorado (such as Internet and catalog sellers) and that do not otherwise collect Colorado state sales taxes on sales

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Frequently Asked Questions

Who is exempt from sales tax in colorado?

Any retailer who does not maintain a physical location in Colorado is exempted from state sales tax licensing and collection requirements if the retail sales of tangible personal property, commodities, and/or services made annually by the retailer into Colorado in both the current and previous calendar years are less than $100,000.

What is included in the colorado sales tax for packing and crating?

Packing and crating that is subject to Colorado sales tax is any tangible personal property furnished to prepare tangible personal property purchased at retail for delivery to a location designated by the purchaser.

Who is required to collect colorado state and local sales taxes?

The information in this publication pertains only to state and local sales taxes administered by the Colorado Department of Revenue. In general, any retailer making sales in Colorado is required to collect the applicable state and state-administered local sales taxes.

What is the sales tax rate in colorado for 2019?

Rule 39-26-713-1. Colorado state sales tax is imposed at a rate of 2.9%. Any sale made in Colorado may also be subject to state-administered local sales taxes. Tax rate information for state-administered local sales taxes is available online at Tax.Colorado.gov/how-to-look-up-sales-use-tax-rates.