(Adds background on dispute, paragraphs 3-8)
By Lawrence Hurley
WASHINGTON, Dec 12 (Reuters) - The U.S. Supreme Court on Monday left in place a Colorado law dubbed the "Amazon tax" designed to make it easier for the state to collect sales taxes on out-of-state internet purchases, refusing to hear a challenge to it by an industry trade group.
The justices declined to take up the Direct Marketing Association's appeal of a February ruling by the 10th U.S. Circuit Court of Appeals in Denver upholding the law, whose nickname refers to huge online retailer Amazon.com Inc.
The action by the justices handed a victory to states seeking to boost revenue by ensuring that online shoppers pay state taxes on their purchases.
The 2010 law was enacted to encourage residents to pay the 2.9 percent sales tax on purchases they make out-of-state, including from online retailers. Companies operating within the state collect the sales tax themselves but out-of-state companies are not required to do so. The law requires them to notify consumers that they are required to pay the tax.
The Direct Marketing Association challenged the law on the grounds that it violated the U.S. Constitution's Commerce Clause, which prohibits undue burdens on interstate commerce.
In court papers, Colorado said the failure to pay cost the state more than $170 million of tax revenue in 2012. Law professors who examined the issue said the nationwide shortfall might top $11 billion.
A federal district judge blocked the law in 2012, citing a 1992 Supreme Court ruling that barred states from collecting taxes from retailers that had no physical local presence.
In a 2013 ruling, the Supreme Court ruled unanimously that federal courts could hear the Direct Marketing Association's challenge. But Justice Anthony Kennedy at the time wrote a concurring opinion casting into doubt the 1992 precedent that the challengers cited in support of their argument.
Reporting by Lawrence Hurley; Additional reporting by Jonathan Stempel; Editing by Will Dunham