By Lisa Soronen
In South Dakota v. Wayfair, South Dakota is asking the U.S. Supreme Court to overrule precedent and hold that states and local governments may require retailers with no in-state physical presence to collect sales tax.
NCSL estimated that states lost $23.3 billion in 2012 from being prohibited from collecting sales tax from online and catalog purchases.
In 1967, in National Bellas Hess v. Department of Revenue of Illinois, the Supreme Court held that under its Commerce Clause jurisprudence, states and local governments cannot require businesses to collect sales tax unless the business has a physical presence in the state.
Twenty-five years later in Quill v. North Dakota (1992), the Supreme Court reaffirmed the physical presence requirement but admitted that “contemporary Commerce Clause jurisprudence might not dictate the same result” as the court had reached in Bellas Hess.
Customers buying from remote sellers still owe sales tax but they rarely pay it when the remote seller does not collect it. Congress has the authority to overrule Bellas Hess and Quill but has not done so.
Even before oral argument, South Dakota could count three votes likely in favor of overturning Bellas Hess and Quill. In March 2015, Justice Anthony Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” While on the 10th U.S. Circuit Court of Appeals, then-Judge Neal Gorsuch wrote an opinion strongly implying that given the opportunity the Supreme Court should overrule Quill. Finally, while Justice Clarence Thomas voted North Dakota in Quill he has since rejected the concept of the dormant Commerce Clause, on which the Quill decisions rests.
At oral argument Kennedy and Gorsuch asked Wayfair’s attorney different lines of questions both of which indicated they remain anti-Quill. Thomas, as always, was silent. The most vocal champion of overturning Quill was Justice Ruth Bader Ginsburg. She said the court needs to take responsibility for overturning precedent it created, which is no longer appropriate in the current economy, instead of relying on Congress to act.
Justice Stephen Breyer was clearly torn about the case. He said he read both sides’ briefs and concluded both positions were “absolutely right.” He looked to the attorneys arguing for both sides to help sort out issues including exactly how much money is on the table, whether it really is easy and inexpensive to collect sales tax, and whether tax collection should be retroactive.
Justice Sonia Sotomayor lead the charge defending Quill, asking South Dakota’s attorney about many of the same issues Breyer raised—but taking a more certain approach that the answers were known and point to keeping Quill the law of the land. Justice Elena Kagan asked a number of questions expressing the view that Congress should overturn Quill, if it wants to, given that Congress can craft a more complicated solution than the court can. Justice Samuel Alito also didn’t seem particularly sympathetic to South Dakota’s position, suggesting that if Quill was overturned states would “grab everything they could” rather than exempt small businesses from having to collect.
Chief Justice John Roberts asked questions of both sides, something he has done more often since Justice Antonin Scalia died. His questions unfavorable to South Dakota focused on, among other things, the burden of requiring small businesses to collect sales tax and honoring Congress’s decision to leave things the way they are.
The Supreme Court will issue an opinion in this case by the end of June.
Lisa Soronen is executive director of the State and Local Legal Center and is a frequent contributor on jiudicial issues to the NCSL Blog.