By Lisa Soronen
An internet retailer has filed suit against Alabama claiming its new rule requiring that all retailers who sell more than $250,000 in goods annually must collect sales tax—regardless of whether the retailer has a physical presence in the state—is unconstitutional.
This lawsuit is the second of its kind. Earlier this spring a lawsuit was filed challenging a similar law in South Dakota.
Last March, U.S. Supreme Court Justice Anthony Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this court to re-examine Quill.”
In Quill Corp. v. North Dakota, decided in 1992, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. Kennedy criticized Quill in Direct Marketing Association v. Brohl for many of the same reasons the State and Local Legal Center stated in its amicus brief.
Specifically, internet sales have risen astronomically since 1992 and states are unable to collect most taxes due on sales from out-of-state retailers.
Congress could overturn the Quill decision but has repeatedly refused to do so.
Alabama’s rule, which became effective on Jan. 1, was intended to contradict Quill and unsurprisingly generated a lawsuit.
The Alabama lawsuit was filed in the Alabama Tax Tribunal while the South Dakota lawsuit was filed in state court.
Regardless of the venue, until, and even at the time, either of these cases reach the U.S. Supreme Court, the states will face an uphill battle.
To rule in favor of the states, the administrative agencies or lower courts would have to abrogate Quill v. North Dakota, a step that any administrative agency or lower court would be more than reluctant to take. All administrative agencies and lower courts are required to follow rulings of the U.S. Supreme Court.
So it's likely South Dakota and Alabama will lose at every turn before either of the cases makes it to the Supreme Court. For Supreme Court review, four of the nine (currently eight) Supreme Court justices must agree to hear the case.
Lisa Soronen is the executive director of the State and Local Legal Center and writes frequently for the NCSL blog about the U.S. Supreme Court.