Since the U.S. Supreme Court agreed to hear South Dakota v. Wayfair Inc., Tax Analysts has heard from dozens of practitioners, academics, interested parties, and members of Congress. While there is a clear consensus that the Court did not take the case to simply reaffirm Quill, there is a wide range of opinion on just what the justices will do and how.
Here, in their own words, is their take.
Practitioners and Scholars
David Kall, head of McDonald Hopkins LLC’s multistate tax practice:
“I expect the Court to grapple with changing technology and the rise of e-commerce since it handed down the Quill decision in 1992. The context for this decision is much different than in Quill, because we are addressing online commerce rather than the direct mail industry. Today, shoppers have a very different experience than they did in 1992. They research items online, even through 'showrooming' on their phone while viewing the item in the store.”
During oral arguments, look for questions on whether the physical presence standard applies the same way to e-commerce as to the direct mail industry, Kall added.
“In doing so, they are going to be focused on the burden that state taxation has on interstate commerce. The crux of the dormant commerce clause doctrine is to avoid the 'Balkanization of the states' and the free flow of commerce.
“If the Court rules against South Dakota, it will be a huge setback for the states because the Court has not accepted a case challenging Quill since it was issued.
“If the Court rules in favor of South Dakota, and depending on how they explain their reasoning, we could see this as a huge boon to states and state coffers.”
Daniel Hemel, law professor at the University of Chicago School of Law:
“You would have a decent track record of predicting Supreme Court outcomes if you just bet on the petitioner every time. Petitioners win more than two-thirds of the cases.
“The Supreme Court wouldn’t have granted certiorari in a case where the only question is whether Quill should be overruled, if they weren’t interested in overruling Quill.
Hemel also pushed back on the notion that a broad overturn would result in states with different sales thresholds making life harder for companies.
“Compliance is pretty easy in a world with automated tax software.”
David Gamage, law professor at Indiana University’s Maurer School of Law:
“The likely scenario is that they will end up overturning Quill. It is not impossible that they took the case, intending to affirm and strengthen Quill and deal with a lot of the states' attempts to limit the Quill holding.
“If physical presence is no longer the limiting factor, will there be a limiting factor? Presumably the answer is yes. It is possible that they won’t answer that and leave open the question for future cases of what limits on states might be.”
Gamage said such a ruling would open the floodgates for further confusion and controversy.
“I would hope that they will specify in some way what they think the new limits on states’ abilities to impose limits on out-of-state companies might be.
“One way to limit the Quill holding without overturning it completely is to rule that states can impose sales tax collection obligations on out-of-state vendors so long as the states fully and adequately compensate for all the compliance costs thereby entailed.
"That is one way the court could effectively overturn Quill or at least limit Quill but without opening up past transactions to taxability.”
Alan Morrison, law professor at George Washington University Law School:
“This doesn’t give states open season to do anything they want in terms of creating unreasonable burdens on out-of-state merchants. I think the Court will make it clear that the dormant commerce clause is not irrelevant to these transactions, but it just doesn’t have the kind of effect that the Quill Court said it did.
“I think the Court will say that it is overruling Quill and it is no longer a requirement to have a physical presence in the state for it to impose a collection,” Morrison said. “It will say nothing further upon the conditions into which it may be improper or proper to do so.”
Kirk Stark, law professor at UCLA School of Law:
In the event Quill is reversed, “I think there would probably be some confusion and some uncertainty, and I think that anybody working in this field will be combing the opinion for guidance for how to resolve other disputes that are not necessarily before the Court in this particular case.
“It’s certainly a possibility that [justices] could draw specific attention to aspects of South Dakota’s statute and behavior, and strongly suggest that those are the reasons why they are upholding this particular imposition of the use tax collection obligation. . . . [But that’s] kind of more providing a framework for people to look to, which [justices] may or may not be inclined to do.
“If Wayfair is decided in a manner to give the states more latitude, I think pressure will build in Congress for Congress to act — perhaps through adopting some version of the Marketplace Fairness Act, or other limitations. The problem for the past 26 years is that Quillhas been the ultimate excuse for Congress not to act. So I think it’s going to require . . . sort of gutting Quill in order to provoke congressional attention [and] action.”
Darien Shanske, professor of law at the University of California, Davis:
“I think different aspects of the issue will probably appeal to different justices. Clearly, Justice [Anthony M.] Kennedy has already indicated that he will be moved, among other things, by the change in circumstances from when Quill was decided. . . . [Justice Clarence] Thomas clearly and [Justice Neil] Gorsuch . . . are not enamored of the dormant commerce clause as a grounds for a federal court to strike down state action.
“The fact that [Quill] was probably wrong when decided [and] hasn’t aged well — these are factors the Court has historically looked to when deciding to overturn one of its precedents.
“The Court could rule, I suppose, that Quill is overturned and [South Dakota’s] statute clearly passes muster. But it would seem better practice, given that there isn’t fact-finding [in South Dakota’s case], to remand the case for fact-finding as to whether this law passes Pike-balancing, which is the test that should have been used to begin with.”
Jamie Yesnowitz of Grant Thornton LLP:
“The hope is that the Supreme Court both weighs in on the method by which the South Dakota legislation originally made its way to the Supreme Court, and comes to a clear decision to give some level of certainty to businesses and practitioners throughout the United States — through an endorsement or rejection of the Quill physical presence rule, or a middle path that outlines a clear set of parameters governing when a remote seller is subject to a state’s collection and remittance responsibilities."
Stephen Kranz of McDermott Will & Emery LLP:
“Congress’s inability to act has forced the states to turn to the judiciary.
“The organizations who opposed simplification and federal legislative efforts to address the issue should be concerned that they wasted their best and last opportunity to rationalize the rules. We will see whether the court thinks that Quill should be upheld or if it fashions a new nexus rule for the modern technological era.”
Clark Calhoun of Alston & Bird LLP, author of amicus brief on behalf of Americans for Tax Reform:
“By agreeing to take on South Dakota v. Wayfair Inc., SCOTUS will revisit its 1992 decision in Quill Corp. v. North Dakota. As we wrote on behalf of the Americans for Tax Reform, we’re concerned that the long-standing rules that protect out-of-state retailers from sales tax collection are under attack.
“It was almost 50 years ago the that U.S. Supreme Court determined that retailers without a physical presence in a state were not required to collect use tax on sales delivered to customers in that state,” Calhoun said in a statement. “Under its power to regulate interstate commerce, Congress should be the body to revisit Quill — just as the Supreme Court instructed in 1992.”
Harley Duncan, Tax Managing Director, State and Local Tax, at KPMG LLP:
“I am personally more than a little surprised that the Court took the case. But this represents a significant step forward by the judiciary in addressing this long-standing issue. It may actually result in renewed attention in Congress or other venues.”
Richard Pomp, Alva P. Loiselle Professor of Law at the University of Connecticut:
“The nine-hundred-pound gorilla that should be in the room is the issue of retroactivity. South Dakota very cleverly passed legislation that would only apply prospectively, thus trying to take the retroactivity issue off the table.”
Additionally, Pomp said, “the Court should be concerned with the plight of the very small, remote vendor — South Dakota addressed that with a $100,000 exemption. The Court should say something for an exemption and may even suggest the criteria for incorporating an exemption into state statute.”
Arthur R. Rosen, partner at McDermott Will and Emery:
“I would hope that if the Supreme Court reaffirms the physical presence test, that it would make it even more clear why this complex area, with the need for many details, is better left to Congress.”
However, Rosen said that “my guess is four justices would not have agreed to hear this case just to tell the states to leave it alone. . . . It seems logical that four justices are already inclined to remove the physical presence requirement.”
The Take of the Competing Parties
George Isaacson of Brann & Isaacson and counsel for Wayfair:
“We believe that the Supreme Court, as it undertakes careful consideration of the state’s arguments, will recognize that South Dakota’s demand that Quill be overruled is without merit.
“We fully expect the Court will conclude once again, as it did in Quill, that Congress is the proper body to address the complex question of sales tax collection on internet, catalog, and other remote sales, and defer to Congress’s exercise of its commerce clause powers to enact legislation that requires simplification of state taxes as a condition for any expansion of state taxing authority. Congressional action to protect the free flow of interstate commerce is critical to the health of the national economy. We look forward to briefing the issues for the Court.”
South Dakota State Senator Deb Peters (R):
“States are losing tens of billions of dollars per year in uncollected sales taxes.
“We are pleased the process is moving forward quickly and anticipate the U.S. Supreme Court will ultimately restore fairness to Main Street businesses and states,” Peters said.
View From the Hill
Rep. Kristi Noem, R-S.D.:
“In the wake of today’s announcement, the need for legislative action on e-fairness is more urgent than ever before. If the Supreme Court rules in South Dakota’s favor, it could become a marketplace free-for-all.
“The reality is that bricks-and-mortar retailers, which provide thousands of jobs in our hometowns, have been closing at an alarming rate. State and local governments are similarly imperiled. Facing budget crises due to out-of-state retailers avoiding sales tax collection, states and localities are forced to raise taxes or consider levying new taxes, even after dramatically reducing spending."
Sen. Michael B. Enzi, R-Wyo.:
“I applaud the Supreme Court for its choice to review its 25-year-old decision which has put bricks-and-mortar retailers at an unfair disadvantage compared to online and out-of-state competitors who don’t have to collect sales and use taxes.
“Since that time, we have also seen state and local governments deprived of tens of billions of dollars over the years. I hope Congress will take this opportunity to act on a bipartisan, bicameral basis to remedy the situation for states and towns and level the playing field for local businesses.”
Sen. Heidi Heitkamp, D-N.D., and North Dakota tax commissioner who litigated Quill:
“When I first brought this case to the Supreme Court in 1992, catalog retailers had an unfair advantage over bricks-and-mortar retailers because they weren’t required to collect sales tax. Since then — with the explosion of online retail — the problem has only gotten worse, and North Dakota’s small businesses are hurting as a result.
“The Supreme Court’s decision to heed my call and revisit this case is welcome news for the small businesses that create jobs and are the lifeblood of our communities.”
House Judiciary Chair Bob Goodlatte, R-Va.:
“Now that it has taken up this case, it is my hope that the Supreme Court will uphold the bright-line physical presence test, so that businesses will continue to be regulated only by their own state and local legislatures and not those of their competitors. It is crucial that businesses have direct recourse to their regulators in order to maintain a check against overly aggressive state and local governments exporting burdensome regulations on businesses to which those governments have no accountability.
“In the meantime, I remain committed to protecting citizens from the effects of such cross-border reach and ensuring accountability between the regulator and the regulated.”
Rep. F. James Sensenbrenner Jr., R-Wis.:
“I hope that the Supreme Court upholds the Quill decision and leaves this debate to Congress.
“I have introduced the No Regulation Without Representation Act to address this issue and protect small businesses from unlawful state overreach.”
Sen. Jeanne Shaheen, D-N.H.:
“The Supreme Court should uphold its decision in Quill Corp. v. North Dakota and reaffirm a principle that has protected Granite State small businesses and online retailers from costly red tape and helped them thrive through e-commerce.
“A reversal by the Court would be especially damaging to New Hampshire, where our small businesses have no experience collecting sales taxes and should not be forced to become tax collectors for other states. I will closely monitor the Court’s deliberations and continue to vigorously oppose efforts in Congress that make it harder for New Hampshire companies selling products online to compete with big-box stores and giant e-retailers.”