By Lisa Soronen
A state trial court judge in South Dakota has ruled that a South Dakota law requiring remote sellers to collect sales tax is unconstitutional. This ruling was expected for precisely the reason the judge stated—a lower court must follow U.S. Supreme Court precedent.
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. The South Dakota law directly contradicts this precedent.
In 2015 Justice Anthony Kennedy criticized Quill in Direct Marketing Association v. Brohl, noting that internet sales have risen astronomically since 1992 and states are unable to collect most taxes due on sales from out-of-state vendors. He stated the “legal system should find an appropriate case for this court to re-examine Quill.”
South Dakota v. Wayfair provides the Supreme Court the perfect opportunity to overturn Quill if the court is ready. Judge Mark Barnett seemed sympathetic to that outcome noting that he was bound by precedent “even when changing times and events clearly suggest a different outcome.”
Last year Supreme Court nominee Judge Neal Gorsuch ruled on Direct Marketing Association v. Brohl and (strongly) implied that given the opportunity the U.S. Supreme Court should overrule Quill.
South Dakota will certainly appeal this decision to the South Dakota Supreme Court, which will just as certainly rule against the state as well. The U.S. Supreme Court can then decide whether it wants to review South Dakota v. Wayfair.
Lisa Soronen is executive director of the State and Local Legal Center and a frequent contributor to the NCSL Blog on judicial matters.