by Lisa Soronen, executive director, State and Local Legal Center

In South Dakota v. Wayfair, South Dakota is asking the Supreme Court to overrule precedent and hold that local and state governments may require retailers with no in-state physical presence to collect sales tax. The National Conference of State Legislatures 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 per its Commerce Clause jurisprudence, local and state governments could not 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 sale 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 thus far 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 Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” While on the Tenth Circuit, then-Judge Gorsuch wrote an opinion strongly implying that given the opportunity the Supreme Court should overrule Quill. Finally, while Justice Thomas voted against North Dakota in Quill, he has since rejected the concept of the dormant Commerce Clause, on which the Quill decision rests.

At oral argument, Justices Kennedy and Gorsuch asked Wayfair’s attorney different lines of questions, and both indicated they remain anti-Quill. Justice Thomas, as always, was silent. The most vocal champion of overturning Quill was Justice 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 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 Sotomayor lead the charge defending Quill, asking South Dakota’s attorney about many of the same issues that Justice Breyer raised but taking a more certain approach that the answers were known and point to keeping Quill the law of the land. Justice 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 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 Roberts asked questions of both sides, something he has done more often since Justice 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.    

Related Content

SLLC Files Supreme Court Amicus Brief in Internet Sales Tax Case. This 2018 blog post reviews the arguments that SLLC used in its amicus brief on behalf of state and local government organizations in the Wayfair case.  

Leadership and Innovation: Encouraging Residents to Vote for a Tax Increase. In this blog post from 2018, ICMA looked at how three communities have dealt with tough financial environments by asking residents to vote for tax increases. 

Tax Bill: What You Should Know. This blog post from 2017 details how the changes made in the 2017 federal tax bill will affect local governments.   


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