GFOA Files Amicus Briefs in Important Tax-Related Cases

Tuesday, November 18, 2014

The GFOA joined the State and Local Legal Center and several other national associations representing states and local governments in filing amicus, or “friend-of-the-court,” briefs before the Supreme Court in two important tax-related cases. Decisions in both cases are expected this spring.
In the case of Direct Marketing Association (DMA) v. Brohl, the court is asked to consider the appropriateness of certain state efforts to facilitate the collection of sales and use taxes from remote sellers. DMA is challenging Colorado’s law requiring remote sellers to inform Colorado purchasers annually of their purchases and to send the same information to the Colorado Department of Revenue. Colorado intends to use the information reported to more accurately assess and collect the applicable use tax from its resident purchasers.

The GFOA/Legal Center amicus brief, filed on behalf of the state of Colorado, familiarizes the court with the effects the enormous growth in electronic commerce has had on state and local tax revenues, the inequities it has created for Main Street vendors, and long-standing efforts by the GFOA and others to address these issues through the Marketplace Fairness Act, legislation that would provide states and local governments the specific authority necessary to collect sales and use taxes from out-of-state catalog and Internet vendors.

In the case of Alabama Department of Revenue v. CSX Transportation, the court is also asked to consider an important tax question; whether Alabama’s requirement that railroads pay a 4% sales tax on diesel fuel, while trucks pay a 19 cent per gallon excise tax, and water carriers pay no tax, violates the Railroad Revitalization and Regulatory Reform Act (the 4-R Act), which prohibits states from taxing railroads in a discriminatory manner.

The GFOA/Legal Center amicus brief sets forth both legal and policy arguments for a narrow reading of the 4-R Act. The brief argues that the case has significant implications around the country; at least 10 other states, as well as some local governments within those states, charge railroads a sales tax on diesel fuel. These tax schemes could potentially be found to violate the 4-R Act if the Supreme Court rules against Alabama. Moreover, many other interest groups (e.g., the telecommunications industry, the hotel industry, and the rental car industry) advocate for tax preemptions like the one found in the 4-R Act. To preserve state and local taxing authority, the brief maintains that it is essential for the Court to interpret “discriminatory taxation” very narrowly.