In 2010, the Democrats in Colorado, in violation of the state Taxpayers Bill of Rights, passed a variety of tax increases known as the Dirty Dozen.  The state’s highly politicized Supreme Court gave the tax increases a pass around TABOR’s requirement for a citizen vote, but the federal courts are frequently a different matter, and so it has proved with one of the measures, the so-called, “Amazon Tax.”  That tax applied the state sales tax to sales by Amazon affiliates in the state, on the dubious proposition that the presence of a person who either owns a website (which could be hosted anywhere in the world) or who sells web ads constitutes a significant physical presence in the state.

Now, a federal court has decided that the tax violates the US Constitution:

On Friday, the federal court in Denver declared the 2.9 percent tax on purchases unconstitutional on the ground it was tilted unfairly against out-of-state retailers, and that it put an undue burden on retailers to either collect the tax owed by consumers or report consumer purchases to the state.

Judge Robert Blackburn’s ruling noted the legal language of the tax didn’t distinguish between in-state and out-of-state businesses, but the practical effect of the tax did.

“I conclude that the veil provided by the words … is too thin to support the conclusion that the Act and the Regulations regulate in-state and out-of-state retailers even-handedly,” Blackburn wrote.

The court applied what is known as the “negative Commerce Clause,” the notion that if regulation of interstate commerce is explicitly delegated to the Federal government, then it cannot be exercised by state governments.  As Ramesh Ponnuru says in his review of Michael Greve’s The Upside-Down Constitution, 

Chief among the Court’s stratagems was its deployment of what has come to be known as the “dormant” or “negative” commerce clause: the inference that since the Constitution vests Congress with the power to regulate commerce among the states, it denies that power to states. That inference has long been controversial, not least among originalists, but Greve points out that without it the states would have at hand a ready means to circumvent the specific prohibitions on them that the Constitution spells out.

Ponnuru also notes that, “Several provisions of the Constitution block state governments from taxing economic activity outside their borders.”  Greve makes the case that since the 30s, courts have increasingly presumed that states can regulation out-of-state commerce, rather than placing the burden of proof on the states.  Today’s ruling is a small step back in the other direction.

Now, it remains to be seen if Amazon will restore its Colorado affiliates.

UPDATE: On the likelihood of an appeal, someone involved in the fight against the original measure comments:

The judge ruled that the state had violated the US constitution in two seperate and distinct ways- by violating the dormant commerce clause in discriminating against out of state retailers, and in imposing an undue burden on out of state retailers with the reporting requirements in the bill. Highly unlikely the state would appeal, as they would have to overcome both violations.

Attorney General John Suthers declined to defend the State on this case (which is his prerogative) and the Department of Revenue had to hire their own legal counsel. As such, it would have to be the Governor/ED of the Dept of Revenue that would decide to appeal. Hickenlooper was almost convinced last year to support the repeal bill after the judge had granted a temporary injunction. That failed when the State Senate killed off a bunch of Republican bills in the last few days of the session. Just don’t see Hick taking up this fight – remember this all happened under former Governor Bill Ritter, mainly as a ploy to raise a few dollars to ballance the budget. With the preliminary injunction, the state has never collected a dime on this law. The permanent injunction doesnt mean the state will lose any revenue they counted on-they just simply won’t be able to gain revenue they didnt plan on.