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Want to buy a “long live the tea party” bumper sticker online? Soon, the state government in Colorado could know that you purchased it, what you paid for it, where it was shipped, what billing address you used, and a few other details.

A plan requiring that consumers’ online purchases be tracked, compiled into lists and reported annually has been launched in the state, and now a lawsuit is challenging the constitutionality of the Big Brother look into credit-card records.

The Direct Marketing Association’s lawsuit is over the state’s law that now gives “out-of-state retailers” the option of demanding consumers pay to them the Colorado sales tax or complying with the information compilation and reporting requirements.

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“The Department’s tax-policy director has stated publicly that he believes most affected retailers would choose to collect Colorado sales tax to avoid the more unpleasant option of having to send tax notices to their customers,” the lawsuit alleges.

But there are threats to companies because of requirements that they keep consumers’ information private.

“The department was cited in a May 2008 report of the state auditor for its failure to take appropriate measures to protect the confidentiality of personally identifiable information that it maintains in its databases,” the complaint alleges.

The case in federal district court in Colorado challenges the state’s action as “an unprecedented invasion of consumer privacy” and alleges it “unfairly discriminates against interstate commerce, as the law is targeted solely at out-of-state retailers.”

“The new law and the regulations implementing it are an unconstitutional and blatant violation of Colorado consumers’ privacy,” said Jerry Cerasale, senior vice president for government affairs for the association.

“The law may have been passed in the hope of balancing the state budget through increased use-tax reporting by Colorado residents, but it has serious adverse consequences for consumers and businesses,” he said.

The complaint details how:

  • The law discriminates against interstate commerce;

  • The law exceeds the permissible scope of state regulatory authority over out-of-state companies;
  • The state would be violating the right to privacy of Colorado consumers;
  • The action infringes upon the free-speech and due-process rights of both consumers and retailers; and
  • The plan exposes confidential consumer information to the risk of unauthorized disclosure.

The association explains how the law would let state tax officials “pry into citizens’ purchasing behaviors and histories.”

The association “contends that the state has no business knowing where consumers shop or how much they spend. Tellingly, the law only applies to out-of-state sellers and does not require Colorado retailers to disclose similar customer information to the Department of Revenue,” the organization explained.

“The state’s attempt to force out-of-state companies to turn over confidential customer information, or, in the alternative, to forgo their constitutional rights and agree to collect Colorado sales tax, deserves to be abandoned in short order,” it said.

The law was adopted by the Democrat-controlled Colorado legislature in February and signed by a Democrat governor. It became effective in March. The details show it demands that out-of-state retailers with more than $100,000 in gross sales to Colorado consumers to: (1) inform customers they are required to self-report use tax on all nonexempt purchases on which the retailer does not collect sales tax; (2) send year-end statements to customers listing their purchases and warning them the information is being delivered to state authorities; and (3) turn over to the state Department of Revenue that information, including billing and shipping addresses and details of their purchases.

Already, the state has made plans to move against consumers, allocating state funding for “the development of an online tax-payment system for consumer’s use tax by customers of affected out-of-state retailers whose names and purchase information must be included in the Customer Information Reports,” the lawsuit said.

“A substantial majority of Colorado consumers who purchase from out-of-state retailers, when informed that an out-of-state retailer must report their names and the amount of their purchases to the department, consider such reporting an invasion of their privacy and will discontinue or decrease their purchases from such retailers as a result,” the complaint alleges. “Affected retailers who comply with the annual purchase summary requirements thus risk losing sales and alienating customers, and face substantial monetary penalties under the act if they do not comply.”

The Colorado requirement also would affect residents of other states if they travel to or through the state and have any reason to order an online product during their visit, with delivery in the state, the case alleges.

The complaint alleges discrimination against interstate commerce in violation of the Commerce Clause of the U.S. Constitution, improper regulation of interstate commerce, violation of the Constitution’s right to privacy, violation of free speech, violation of due process and “taking of property.”

“The Commerce Clause of the United States Constitution limits the power of the states, including Colorado, to regulate commerce. … Under the Commerce Clause, there must be a sufficient, minimum connection between an out-of-state retailer and a state, in the form of a physical presence, before the state may impose regulatory obligations on such retailers of the type imposed,” the lawsuit states.

“The state of Colorado has no interest, let alone a compelling interest, that justifies interfering with the free-speech rights of out-of-state retailers and consumers both within and outside of Colorado,” the complaint said.

The Direct Marketing Association is the leading global trade association of businesses and nonprofit organizations using and supporting multichannel direct-marketing tools and techniques. The association today represents companies from dozens of industries in the U.S. and 48 other nations, including nearly half of the Fortune 100 companies, as well as nonprofit organizations.

The organization reports, in 2009, marketers – commercial and nonprofit – spent $149.3 billion on direct marketing, more than half of all ad expenditures in the U.S.

The state has not responded yet to the new lawsuit.


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