The Supreme Court, reversing a former decision, has now ruled that any state may require any business to collect sales taxes on its behalf. The 5-4 decision in South Dakota v. Wayfair was a ruling with strange judicial bedfellows, and it means that sellers of goods and services online will now be responsible for collecting and sending taxes to the places where the buyers of those goods reside. The decision will remove billions from Americans’ wallets, as politicians make everyone with a computer and something to sell their tax collectors.
South Dakota asked the Supreme Court to overrule their 1992 decision in a case called Quill. They ruled unanimously in that case that the Constitution prohibits states from imposing a sales tax on out-of-state retailers that do not have a brick-and-mortar presence in the state. The Court based its ruling in Quill on the Constitution’s Commerce Clause and declared that such taxes on entities outside a state’s jurisdiction amounted to a violation of due process rights required by the clause.
The Court now reverses itself, and even the dissenters seem to agree with the principle of the majority’s decision. Justice Kennedy wrote for the majority, joined by Thomas, Alito, Ginsburg, and Gorsuch:
The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency. The argument, moreover, that the physical presence rule is clear and easy to apply is unsound, as attempts to apply the physical presence rule to online retail sales have proved unworkable.
If the dissenters agree with that analysis, why did they dissent? Justices Breyer, Sotomayor, and Kagan signed on to Chief Justice Roberts’ dissent. I could summarize it thusly: Yes, we made a mistake in our earlier ruling, but it’s such a big deal, and if we reverse now we’ll upturn the apple cart. Let’s let Congress figure it all out. He wrote:
Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress. The Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago.
This is essentially a defense of “stare decisis,” a principle that courts should not reverse themselves. It’s not in the Constitution or a federal law, but a principle that many scholars believe is important. Kennedy addressed the issue in the majority opinion:
Stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power. If it becomes apparent that the Court’s Commerce Clause decisions prohibit the States from exercising their lawful sovereign powers, the Court should be vigilant in correcting the error.
South Dakota’s law provides some protection for the little guy, requiring submissions only from sellers whose receipts total more than $100K from their people, or have over 200 separate sale transactions there. So while you won’t be subject to this law for one eBay sale to the Mount Rushmore state, who knows what you will be accountable for. The Court does not go into detail on where any line will be drawn. Online sellers now have no idea whether they will be responsible for keeping track of the estimated 12,000 taxing jurisdictions, and their various requirements which often differ by product type sold, and sometimes the time of year when sold.
Here’s a helpful tip from Justice Kennedy: “Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope with these problems.” No worries then. Back in 1992, the court said “[t]he underlying issue here is one that Congress may be better qualified to resolve and one that it has the ultimate power to resolve.” Congress did not act then, but the Court again invites them to. “Congress may legislate to address these problems if it deems it necessary and fit to do so.”
