Bloomberg Technology: Internet Tax Ruling Worth Billions Poised for Supreme Court Review, by Jef Feeley:
The South Dakota Supreme Court brought the question of whether online retailers should pay sales tax back into sharp focus.
The Mount Rushmore state’s highest court ruled Thursday that companies selling wares over the Internet can’t be forced to collect South Dakota’s 4.5 percent tax on purchases, laying the groundwork for a U.S. Supreme Court appeal that could change law across the country. A decision forcing online retailers to collect such taxes could be worth billions in revenue to state and local governments.The court backed an appeal by online retailers Overstock.com, Wayfair and NewEgg challenging a state law that required companies that do more than $100,000 worth of business in online sales in the state to collect sales taxes.
The law ran afoul of the U.S. Supreme Court’s 1992 decision in Quill Corp v. North Dakota, which forbade states from requiring retailers without a physical presence to collect sales tax. Justice Anthony Kennedy has suggested in later rulings that the court reconsider the decision.
Daniel Hemel (Chicago), The Common Law and the Commerce Clause
South Dakota’s highest court, in a unanimous decision released this morning, struck down a 2016 state law requiring out-of-state retailers to collect sales taxes on transactions with state residents.
The decision was entirely expected: the U.S. Supreme Court held in the 1992 case Quill v. North Dakota that under the Dormant Commerce Clause, states can collect sales taxes only from retailers with a “physical presence” in the state. South Dakota legislators knew when they passed the 2016 law that their state courts would strike it down, thus teeing up a case for the Supreme Court to reconsider its Quill precedent. The Justices will decide in a matter of months whether to take up South Dakota’s challenge.
The strongest argument for retaining the Quill precedent is just that: Quill is precedent. In fact, the 25-year-old Quill precedent was itself based on a decision 25 years earlier in National Bellas Hess, Inc. v. Department of Revenue of Illinois, in which the Court held that Illinois could not compel a mail-order merchandiser based in Missouri to collect taxes on sales across state lines.
In dormant commerce clause cases, like in antitrust cases, the Court has “felt relatively free to revise [its] legal analysis as economic understanding evolves and . . . to reverse . . . precedents that misperceived a practice’s competitive consequences.” In other words, the Court has followed a meta-precedent about its treatment of first-order dormant commerce clause precedents that differs from its meta-precedent in standard statutory contexts. Overruling Bella Hess and Quill would in this sense actually be consistent with the Court’s dormant commerce clause case law.
To be sure, the common law-like nature of the Supreme Court’s dormant commerce clause jurisprudence is not a sufficient reason for discarding Bella Hess and Quill. Critics of those decisions still bear the burden of showing why the first-order precedents are wrong on the merits. My more limited point is that stare decisis provides a very weak basis for adhering to those decision in light of the dormant commerce clause meta-precedent that the Supreme Court has developed over decades.