The US Supreme Court on April 17th heard oral arguments in the South Dakota v. Wayfaircase and the justices will now decide whether to overturn the Quill sales tax collection precedent. I attended the hearing and led a press conference afterwards on the courthouse steps explaining ACMA’s aggressive pro-Quill stance. The High Court is scheduled to render its decision in June, but for now we have reason for cautious optimism.
In a nutshell, I came away energized about our chances. Most of the Justices seem concerned about the implications of striking Quill, as they should be. After our press event, I attended a roundtable discussion hosted by a kill-Quill side law firm. When polled, the majority in the room thought Quill would be upheld and most then revealed they had changed their opinion based on today’s hearing.
Below are highlights of the key issues discussed including questions or opinions stated by the High Court’s justices. (You can click here for the hearing’s complete transcript. Also see a comprehensive list of links of additional media coverage at the bottom of this update.)
Ramifications of Overturning Quill
South Dakota’s counsel Marty J. Jackley and Deputy Solicitor General Malcolm Stewart, representing the Administration at different points during the hearing admitted that if the High Court were to overturn Quill, a single sale could obligate a company to then comply with the particulars of that jurisdiction’s tax. Chilling.
South Dakota also agreed that for states to impose taxes retroactively in a post-Quill environment would be constitutional. Jackley said the state would not do so but could not make a case.
- MR. JACKLEY: So what should we be doing is telling a remote seller you don’t have to collect and remit this, and then three years later you would say: Oh, by the way, you do. And we’ve now changed that collection responsibility to a penalty and interest. And that has significant constitutional concerns, which is why the states aren’t doing it and aren’t likely going to do it.
Implications for Small Businesses
In peppering Jackley with questions challenging the state’s anti-Quill stance, for instance, Justice Sonia Sotomayor called the state out.
- JUSTICE SOTOMAYOR: So what are we going to do with the costs that you’re going to put on small businesses?
- MR. JACKLEY: The small businesses are the ones that are affected most by Quill. If you look at that small business on Main Street, it is that business that is put at a price disadvantage because of Quill.
- JUSTICE SOTOMAYOR: Actually, they’re put at disadvantage not by Quill but by the fact that there are massive discount sellers, not just on the Internet, but even in stores now… the added cost of doing business for the small businessman, someone. One of the briefs said it was a $250,000 cost to implement one of these sales programs, one of these sales tax programs? (Note: This is the cost of implementation study done by ACMA members Kavanagh and Bessin, later updated by Kavanagh.)
- MR. JACKLEY: That brief left out that it begins — it’s to scale, and it begins at $12 a month for 30 transactions…. (Note: Yeah, if you don’t mind handing Amazon your most precious asset – sales by SKU by customer…no risk there!)
- JUSTICE SOTOMAYOR: That doesn’t include auditing. It doesn’t include integrating the program with the existing sales program of the company. It doesn’t account for the maintenance of the program. There’s lots of costs that are inherent in a process of this type.
Overturning Quill Really Necessary?
Chief John Justice Roberts noted how online retailers like Amazon are already collecting sales taxes in most, if not all, sales taxing states, thereby questioning the need to overturn Quill:
- CHIEF JUSTICE ROBERTS: The suggestion in some of the briefs is that this is a problem that has peaked in the sense that the bigger e-commerce companies find themselves with physical presence in all 50 states. So they’re already covered. And the work-arounds that some of the states have employed are also bringing more in. And if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there are greater significance to the arguments that we should leave Quill in place?
Interstate Burdens on Commerce Far More Extreme Today vs. 1967
George S. Isaacson, lead counsel for Wayfair, Overstock.com and Newegg, as well as to ACMA and its coalition partners, reminded the Court why it had ruled in mail order marketers’ favor in National Bellas Hess in 1967; something only far more complex today.
- MR. ISAACSON: The Court found back in the Bellas Hess decision in ’67 that the existence of 2,300 different sales and use tax jurisdictions with varying rates, varying exemptions, varying taxability items, varying filing requirements and audit obligations, was a burden on in-state commerce. In 1992, when Quill was decided, that figure went from 2,300 to 6,000. That figure today is over 12,000 different jurisdictions. So the court’s concern in Bellas Hess and Quill … was the notion that a free and open market would be encumbered by that degree of complexity. And that complexity has only worsened over time.
Who’s Going to Win?
As Mr. Isaacson agreed that the ultimate decision should come from Congress, Chief Justice Roberts questioned the need for the Court to take any action.
- CHIEF JUSTICE ROBERTS: Maybe [Congress] already [has] made a decision or at least majorities have made a decision that this is something they’re going to leave the way it has been for, whatever it is, 25 years. I think it would be very strange for us to tell Congress it ought to do something in any particular area.
- MR. ISAACSON: This Court recognized in its Quill decision that Congress had the power and was better suited to be addressing the issue.
- JUSTICE RUTH BADER GINSBURG: But if the court is responsible for Bellas Hess, and there was from the very beginning strong dissenting opinions, and there was a suggestion that there be a test — a test case, why shouldn’t the Court take responsibility to keep our case law in tune with the current commercial arrangements? It’s been said that that has been done in the antitrust area. Why…ask Congress to overturn our obsolete precedent?
- MR. ISAACSON: If this Court decided to overturn Quill – and I think Justice Alito giving the two alternatives, either an immediate overturning of Quill or — or turning to a congressional solution – the result would be chaotic.
- Several justices acknowledged this to be a difficult decision. Fortunately for our side, the justices will have a tougher time overturning Quill than upholding it as they require a higher standard to overturn a long-standing precedent than to keep it in place.
- JUSTICE ELENA KAGAN: Usually, when somebody says something like, that Congress has not addressed an issue for 25-plus years, it gives us reason to pause, because Congress could have addressed the issue and Congress chose not to. This is not the kind of issue where you say: “Well, probably didn’t get on Congress’s radar screen or maybe Congress was too busy doing other things.” This is a very prominent issue which Congress has been aware of for a very long time and has chosen not to do something about that.
- MR. JACKLEY: This is a constitutional interpretation.
- JUSTICE STEPHEN BREYER: The reason that we say we are more willing to overturn a constitutional case is because Congress can’t act. But, here, they can act. And, therefore, there is no reason for treating it specially.
More Complicated Than SD Thought
As my colleague Steve DelBianco of NetChoice pointed out, and I concur with, perhaps the key takeaway from the hearing is, the tough questions asked by the Justices reveal that the court understands this is way more complicated than South Dakota has claimed.
Another reality pointed out today is that the High Court’s agreeing to take the case makes it less likely that Congress will act until the court rules one way or the other. A decision is expected by June and then there will be precious few legislative days available prior to the midterm elections. More, House Judiciary Committee Chairman Bob Goodlatte (R-VA) who has been a champion of issues raised by our side is retiring. It is not known who will succeed him but they may be less sensitive to our concerns than Mr. Goodlatte has been.
The Justices also wondered which alternatives would engender more competition, greater consumer choice, and whether states would have more or less motivation to simplify their complex tax codes under one scenario or the other. While we are a long way from being “out of the woods,” today was clearly a good day for our side. Kudos are due to George Isaacson and the fine folks at Brann & Isaacson who represented all remote seller interests so admirably today, as well as the fine companies that have continued to bankroll our ongoing fight for a truly workable solution to a complex issue.
Links to Media Coverage
- GrayDC video interview
- NBC News
- SCOTUS Blog
- NY Times
- National Public Radio
- Associated Press
- Wall Street Journal
- Washington Post
- Los Angeles Times
- US News & World Report
- Yahoo! Finance
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