TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, October 7, 2016

Weekly SSRN Tax Article Review And Roundup

This week, Daniel Hemel (Chicago) reviews a new article by Edward A. Zelinsky (Cardozo), The Political Process Argument for the Supreme Court to Overrule Quill, 82 Brook. L. Rev. (forthcoming 2017).

HemelIn Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Supreme Court held that states cannot collect sales tax from out-of-state vendors who lack a “physical presence” within the state. While the constitutional justification for Quill’s holding was questionable from the outset, Quill’s future is suddenly in doubt as well. In a concurring opinion last year, Justice Kennedy called on the Court to reconsider Quill, and Alabama and South Dakota have both taken steps to generate a test case since then.

The pragmatic case for overruling Quill is clear. Quill drives a hole in state budgets: by one estimate, states lost more than $23 billion in sales tax revenue on transactions with out-of-state vendors in 2012 alone. Moreover, Quill puts vendors with a brick-and-mortar presence at a disadvantage vis-à-vis remote competitors, leading (arguably) to unfairness and (almost certainly) to inefficiency. Perhaps the best that can be said in Quill’s favor is that it’s up to Congress—not the courts—to fix this mess. Because Quill was decided under the dormant Commerce Clause, Congress has the power to overturn it via legislation. In a provocative new article, Edward Zelinsky considers whether Quill’s fate should be left to the political process.

Turning the political process argument on its head, Zelinsky argues that process considerations actually weigh in favor of judicial intervention in this instance. He says that “Quill effectively commandeers states to subsidize internet commerce” by not taxing it, and that states are left at a distinct disadvantage when they try to fight back. While members of Congress can extract campaign contributions and other favors from private interest groups, Zelinsky says that “federal legislators derive no political benefits from helping the states.” For this reason, Zelinsky argues that we can’t rely on Congress to correct the Court’s Quill mistake.

Like Zelinsky, I am sympathetic toward the states that are losing billions of dollars a year due to Quill—though perhaps less sympathetic than Zelinsky is. States are not forced to subsidize Internet commerce because they are not forced to tax sales at all. They could, for example, impose no sales tax and instead raise revenue through a progressive income tax (Oregon is perhaps the prime example of a state with a tax system of this sort). One might characterize Quill as a penalty imposed on states that choose to rely on regressive sales taxes for a large share of their revenue. It’s rough justice—and not an independent justification for Quill—but it’s worth remembering that states do have a choice here, and that a handful of states have chosen to implement progressive tax systems that encounter no obstacle in Quill.

Perhaps the stronger rebuttal to Zelinsky’s argument is that Quill’s proponents and opponents are close to evenly matched in the political process. Zelinsky frames the fight as between states, on the one side, and the “internet sales and mail order industries,” on the other. Let’s assume, arguendo, that the states are indeed powerless on Capitol Hill (notwithstanding Herbert Wechsler’s “political safeguards of federalism” and Larry Kramer’s more recent update to Wechsler’s claim). Still, it’s not clear to me that Zelinsky has the politics right. Aligned on the anti-Quill side are not just the states, but also the brick-and-mortar retailers whom Quill puts at a competitive disadvantage: Wal-Mart, Kroger, Home Depot, and Target all have joined the anti-Quill coalition. So too has Amazon, which now has a physical presence in more than two dozen states and has spent several million dollars lobbying lawmakers to abrogate Quill. On the pro-Quill side are eBay,, and an industry group named NetChoice that counts Facebook and Google among its members. All things considered, this looks like a pretty fair fight.

As Zelinsky notes, the anti-Quill camp came close to winning out in 2013, when the Senate passed the Marketplace Fairness Act by a 69-27 vote. That bill would have allowed states to collect sales taxes from vendors with total U.S. remote sales of $1 million or more, regardless of whether the vendor has an in-state physical presence. The legislation died in the House, and a re-introduced version is unlikely to make it through Congress this session. We’ll see whether an election and a new Congress bring a different result.

Zelinsky concludes that “[i]f Quill and its physical presence test are to be overturned, it is, as a matter of political process, the Supreme Court which must do the overturning . . . .” While I share Zelinsky’s antipathy toward Quill, I’m more optimistic that the anti-Quill camp can (eventually) succeed legislatively. But in any event, I’m more knowledgeable about the topic having read Zelinsky’s article, which makes a powerful case for judicial intervention. Download it while it’s sales tax-free.

Here’s the rest of this week’s SSRN Tax Roundup::

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