Certain Business Selling Out of State Will Need
to Withhold Sales Taxes.
Withholding sales tax is not the end of the world and not much
of a big deal. In fact, if a business is selling to other
businesses, there is an excellent possibility that the sale is
exempt from withholding. However, keep in mind that if a business fails to
withhold from its Buyers, the sales tax is must be paid by the Seller. Rarely does a Seller have
any ability to recoup those amounts from customers.
True, every state (and in many cases each county or city) have
their own sales tax rules which many include services as well as
hard goods.
However, many states exempt certain items in specialized
industries that make up a large sector of their economy. For
example, Texas and Alabama exclude certain shipyard activities
in order to protect that sector’s work force from moving to its
neighbors.
Dana S. Beane & Company, PLLC can quickly and affordably
assist your business in navigating the post Wayfair landscape.
In addition to our own expertise, we are affiliated with 2,700
CPA firms throughout the United States and likely can obtain
expertise in the precise jurisdiction your business is selling
into in minutes.
Rather then rely upon commentator hype; below is the actual text
of the Wayfair opinion (if you are short on time, we recommend
that you read only the Court Opinion omitting dissenting and
concurring opinions). Dana S. Beane & Company PLLC tax
opinions are based upon source material, not “Google” search
results or rumor. When the transactions are material, look to us
to be assured that answers are source document researched.
To discuss this and any other material matter with one of our
staff, call Donna Doucette, CPA at 1-800-585-2088 x 17 or email
her at donna@dsbcpas.com.
SUPREME COURT OF THE
UNITED STATES
Syllabus
SOUTH DAKOTA v. WAYFAIR, INC., ET AL.
CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
No. 17–494. Argued April 17, 2018—Decided June 21, 2018
South Dakota, like many States, taxes the
retail sales of goods and services in the State. Sellers are
required to collect and remit the tax to the State, but if they
do not then in-state consumers are responsible for paying a use
tax at the same rate. Under
National Bellas Hess, Inc.
v.
Department of Revenue of Ill., 386 U. S. 753, and
Quill
Corp. v.
North Dakota, 504 U. S. 298, South Dakota
may not require a business that has no physical presence in the
State to collect its sales tax. Consumer compliance rates are
notoriously low, however, and it is estimated that
Bellas
Hess and
Quill cause South Dakota to lose be¬tween
$48 and $58 million annually. Concerned about the erosion of its
sales tax base and corresponding loss of critical funding for
state and local services, the South Dakota Legislature enacted a
law requiring out-of-state sellers to collect and remit sales
tax “as if the seller had a physical presence in the State.” The
Act covers only sellers that, on an annual basis, deliver more
than $100,000 of goods or services into the State or engage in
200 or more separate transactions for the delivery of goods or
services into the State. Respondents, top online retailers with
no employees or real estate in South Dakota, each meet the Act’s
minimum sales or transactions requirement, but do not collect
the State’s sales tax. South Dakota filed suit in state court,
seeking a declaration that the Act’s requirements are valid and
applicable to respondents and an injunction requiring
respondents to register for licenses to collect and remit the
sales tax. Respondents sought summary judgment, arguing that the
Act is unconstitutional. The trial court granted their motion.
The State Supreme Court affirmed on the ground that
Quill
is controlling precedent.
Held: Because the physical presence rule of
Quill
is unsound and incorrect,
Quill Corp. v.
North
Dakota, 504 U. S. 298, and National
Bellas Hess, Inc.
v.
Department of Revenue of Ill., 386 U. S. 753, are
overruled. Pp. 5–24.
(a) An understanding of this Court’s Commerce
Clause principles and their application to state taxes is
instructive here. Pp. 5–9.
(1) Two primary principles
mark the boundaries of a State’s authority to regulate
interstate commerce: State regulations may not discriminate
against interstate commerce; and States may not impose undue
burdens on interstate commerce. These principles guide the
courts in adjudicating challenges to state laws under the
Commerce Clause. Pp. 5–7.
(2) They also animate
Commerce Clause precedents addressing the validity of state
taxes, which will be sustained so long as they (1) apply to an
activity with a substantial nexus with the taxing State, (2) are
fairly apportioned, (3) do not discriminate against interstate
commerce, and (4) are fairly related to the services the State
provides. See
Complete Auto Transit, Inc. v.
Brady,
430 U. S. 274, 279. Before
Complete Auto, the Court held
in
Bellas Hess that a “seller whose only connection with
customers in the State is by common carrier or . . . mail”
lacked the requisite minimum contacts with the State required by
the Due Process Clause and the Commerce Clause, and that unless
the retailer maintained a physical presence in the State, the
State lacked the power to require that retailer to collect a
local tax. 386 U. S., at 758. In
Quill, the Court
overruled the due process holding, but not the Commerce Clause
holding, grounding the physical presence rule in
Complete
Auto’s requirement that a tax have a “substantial nexus”
with the activity being taxed. Pp. 7–9.
(b) The physical presence rule has long been
criticized as giving out-of-state sellers an advantage. Each
year, it becomes further removed from economic reality and
results in significant revenue losses to the States. These
critiques underscore that the rule, both as first formulated and
as applied today, is an incorrect interpretation of the Commerce
Clause. Pp. 9–17.
(1)
Quill is
flawed on its own terms. First, the physical presence rule is
not a necessary interpretation of
Complete Auto’s nexus
requirement. That requirement is “closely related,”
Bellas
Hess, 386 U. S. at 756, to the due process requirement
that there be “some definite link, some minimum connection,
between a state and the person, property or transaction it seeks
to tax.”
Miller Brothers Co. v.
Maryland, 347 U.
S. 340, 344–345. And, as
Quill itself recognized, a
business need not have a physical presence in a State to satisfy
the demands of due process. When considering whether a State may
levy a tax, Due Process and Commerce Clause standards, though
not identical or coterminous, have significant parallels. The
reasons given in
Quill for rejecting the physical
presence rule for due process purposes apply as well to the
question whether physical presence is a requisite for an
out-of-state seller’s liability to remit sales taxes. Other
aspects of the Court’s doctrine can better and more accurately
address potential burdens on interstate commerce, whether or not
Quill’s physical presence rule is satisfied.
Second,
Quill creates rather than
resolves market distortions. In effect, it is a judicially
created tax shelter for businesses that limit their physical
presence in a State but sell their goods and services to the
State’s consumers, something that has become easier and more
prevalent as technology has advanced. The rule also produces an
incentive to avoid physical presence in multiple States,
affecting development that might be efficient or desirable.
Third,
Quill imposes the sort of
arbitrary, formalistic distinction that the Court’s modern
Commerce Clause precedents disavow in favor of “a sensitive,
case-by-case analysis of purposes and effects,”
West Lynn
Creamery, Inc. v.
Healy, 512 U. S. 186, 201. It
treats economically identical actors differently for arbitrary
reasons. For example, a business that maintains a few items of
inventory in a small warehouse in a State is required to collect
and remit a tax on all of its sales in the State, while a seller
with a pervasive Internet presence cannot be subject to the same
tax for the sales of the same items. Pp. 10–14.
(2) When the day-to-day
functions of marketing and distribution in the modern economy
are considered, it becomes evident that
Quill’s physical
presence rule is artificial, not just “at its edges,” 504 U. S.
at 315, but in its entirety. Modern e-commerce does not align
analytically with a test that relies on the sort of physical
presence defined in
Quill. And the Court should not
maintain a rule that ignores substantial virtual connections to
the State. Pp. 14–15.
(3) The physical presence
rule of
Bellas Hess and
Quill is also an
extraordinary imposition by the Judiciary on States’ authority
to collect taxes and perform critical public functions.
Forty-one States, two Territories, and the District of Columbia
have asked the Court to reject
Quill’s test. Helping
respondents’ customers evade a lawful tax unfairly shifts an
increased share of the taxes to those consumers who buy from
competitors with a physical presence in the State. It is
essential to public confidence in the tax system that the Court
avoid creating inequitable exceptions. And it is also essential
to the confidence placed in the Court’s Commerce Clause
decisions. By giving some online retailers an arbitrary
advantage over their competitors who collect state sales taxes,
Quill’s physical presence rule has limited States’
ability to seek long-term prosperity and has prevented market
participants from competing on an even playing field. Pp. 16–17.
(c)
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. It is inconsistent with this Court’s
proper role to ask Congress to address a false constitutional
premise of this Court’s own creation. The Internet revolution
has made
Quill’s original error all the more
egregious and harmful. 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.
Because the physical presence rule as defined
by
Quill is no longer a clear or easily applicable
standard, arguments for reliance based on its clarity are
misplaced.
Stare decisis may accommodate “legitimate
reliance interest[s],”
United States v.
Ross,
456 U. S. 798, 824, but a business “is in no position to found a
constitutional right . . . on the practical opportunities for
tax avoidance,”
Nelson v.
Sears, Roebuck & Co.,
312 U. S. 359, 366. Startups and small businesses may benefit
from the physical presence rule, but here South Dakota affords
small merchants a reasonable degree of protection. Finally,
other aspects of the Court’s Commerce Clause doctrine can
protect against any undue burden on interstate commerce, taking
into consideration the small businesses, startups, or others who
engage in commerce across state lines. The potential for such
issues to arise in some later case cannot justify retaining an
artificial, anachronistic rule that deprives States of vast
revenues from major businesses. Pp. 17–22.
(d) In the absence of
Quill and
Bellas
Hess, the first prong of the Complete Auto test simply
asks whether the tax applies to an activity with a substantial
nexus with the taxing State, 430 U. S., at 279. Here, the nexus
is clearly sufficient. The Act applies only to sellers who
engage in a significant quantity of business in the State, and
respondents are large, national companies that undoubtedly
maintain an extensive virtual presence. Any remaining claims
regarding the Commerce Clause’s application in the absence of
Quill
and
Bellas Hess may be addressed in the first instance
on remand. Pp. 22–23.
2017 S.D. 56, 901 N. W. 2d 754, vacated and remanded.
KENNEDY, J., delivered the opinion of the
Court, in which THOMAS, GINSBURG, ALITO, and GORSUCH, JJ.,
joined. THOMAS, J., and GORSUCH, J., filed concurring opinions.
ROBERTS, C. J., filed a dissenting opinion, in which BREYER,
SOTOMAYOR, and KAGAN, JJ., joined.
NOTICE: This opinion is subject to formal
revision before publication in the preliminary print of the
United States Reports. Readers are requested to notify the
Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other
formal errors, in order that corrections may be made before
the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
No. 17–494
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC., ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
[June 21, 2018]
JUSTICE KENNEDY delivered the opinion of the
Court.
When a consumer purchases goods or services,
the consumer’s State often imposes a sales tax. This case
requires the Court to determine when an out-of-state seller can
be required to collect and remit that tax. All concede that
taxing the sales in question here is lawful. The question is
whether the out-of-state seller can be held responsible for its
payment, and this turns on a proper interpretation of the
Commerce Clause, U. S. Const., Art. I, §8, cl. 3.
In two earlier cases the Court held that an
out-of-state seller’s liability to collect and remit the tax to
the consumer’s State depended on whether the seller had a
physical presence in that State, but that mere shipment of goods
into the consumer’s State, following an order from a catalog,
did not satisfy the physical presence requirement.
National
Bellas Hess, Inc. v.
Department of Revenue of Ill.,
386 U. S. 753 (1967);
Quill Corp. v.
North Dakota,
504 U. S. 298 (1992). The Court granted certiorari here to
reconsider the scope and validity of the physical presence rule
mandated by those cases.
I
Like most States, South Dakota has a sales
tax. It taxes the retail sales of goods and services in the
State. S. D. Codified Laws §§10–45–2, 10–45–4 (2010 and Supp.
2017). Sellers are generally required to collect and remit this
tax to the Department of Revenue. §10–45–27.3. If for some
reason the sales tax is not remitted by the seller, then instate
consumers are separately responsible for paying a use tax at the
same rate. See §§10–46–2, 10–46–4, 10–46– 6. Many States employ
this kind of complementary sales and use tax regime.
Under this Court’s decisions in
Bellas
Hess and
Quill, South Dakota may not require a
business to collect its sales tax if the business lacks a
physical presence in the State. Without that physical presence,
South Dakota instead must rely on its residents to pay the use
tax owed on their purchases from out-of-state sellers. “[T]he
impracticability of [this] collection from the multitude of
individual purchasers is obvious.”
National Geographic Soc.
v.
California Bd. of Equalization, 430 U. S. 551, 555
(1977). And consumer compliance rates are notoriously low. See,
e.g., GAO, Report to Congressional Requesters: Sales Taxes,
States Could Gain Revenue from Expanded Authority, but
Businesses Are Likely to Experience Compliance Costs 5
(GAO–18–114, Nov. 2017) (Sales Taxes Report); California State
Bd. of Equalization, Revenue Estimate: Electronic Commerce and
Mail Order Sales 7 (2013) (Table 3) (estimating a 4 percent
collection rate). It is estimated that
Bellas Hess and
Quill
cause the States to lose between $8 and $33 billion every year.
See Sales Taxes Report, at 11–12 (estimating $8 to $13 billion);
Brief for Petitioner 34–35 (citing estimates of $23 and $33.9
billion). In South Dakota alone, the Department of Revenue
estimates revenue loss at $48 to $58 million annually. App. 24.
Particularly because South Dakota has no state income tax, it
must put substantial reliance on its sales and use taxes for the
revenue necessary to fund essential services. Those taxes
account for over 60 percent of its general fund.
In 2016, South Dakota confronted the serious
inequity
Quill imposes by enacting S. 106—“An Act to
provide for the collection of sales taxes from certain remote
sellers, to establish certain Legislative findings, and to
declare an emergency.” S. 106, 2016 Leg. Assembly, 91st Sess.
(S. D. 2016) (S. B. 106). The legislature found that the
inability to collect sales tax from remote sellers was
“seriously eroding the sales tax base” and “causing revenue
losses and imminent harm . . . through the loss of critical
funding for state and local services.” §8(1). The legislature
also declared an emergency: “Whereas, this Act is necessary for
the support of the state government and its existing public
institutions, an emergency is hereby declared to exist.” §9.
Fearing further erosion of the tax base, the legislature
expressed its intention to “apply South Dakota’s sales and use
tax obligations to the limit of federal and state constitutional
doctrines” and noted the urgent need for this Court to
reconsider its precedents.§§8(11), (8).
To that end, the Act requires out-of-state
sellers to collect and remit sales tax “as if the seller had a
physical presence in the state.” §1. The Act applies only to
sellers that, on an annual basis, deliver more than $100,000 of
goods or services into the State or engage in 200 or more
separate transactions for the delivery of goods or services into
the State.
Ibid. The Act also forecloses the retroactive
application of this requirement and provides means for the Act
to be appropriately stayed until the constitutionality of the
law has been clearly established. §§5, 3, 8(10).
Respondents Wayfair, Inc., Overstock.com,
Inc., and Newegg, Inc., are merchants with no employees or real
estate in South Dakota. Wayfair, Inc., is a leading online
retailer of home goods and furniture and had net revenues of
over $4.7 billion last year. Overstock.com, Inc., is one of the
top online retailers in the United States, selling a wide
variety of products from home goods and furniture to clothing
and jewelry; and it had net revenues of over $1.7billion last
year. Newegg, Inc., is a major online retailer of consumer
electronics in the United States. Each of these three companies
ships its goods directly to purchasers throughout the United
States, including South Dakota. Each easily meets the minimum
sales or transactions requirement of the Act, but none collects
South Dakota sales tax. 2017 S. D. 56, ¶¶ 10–11, 901 N. W. 2d
754, 759– 760.
Pursuant to the Act’s provisions for
expeditious judicial review, South Dakota filed a declaratory
judgment action against respondents in state court, seeking a
declaration that the requirements of the Act are valid and
applicable to respondents and an injunction requiring
respondents to register for licenses to collect and remit sales
tax. App. 11, 30. Respondents moved for summary judgment,
arguing that the Act is unconstitutional. 901 N. W. 2d, at 759–
760. South Dakota conceded that the Act cannot survive under
Bellas
Hess and
Quill but asserted the importance, indeed
the necessity, of asking this Court to review those earlier
decisions in light of current economic realities. 901 N. W. 2d,
at 760; see also S. B. 106, §8. The trial court granted summary
judgment to respondents. App. to Pet. for Cert. 17a.
The South Dakota Supreme Court affirmed. It
stated: “However persuasive the State’s arguments on the merits
of revisiting the issue,
Quill has not been overruled
[and] remains the controlling precedent on the issue of Commerce
Clause limitations on interstate collection of sales and use
taxes.” 901 N. W. 2d, at 761. This Court granted certiorari. 583
U.S. ___ (2018).
II
The Constitution grants Congress the power
“[t]o regulate Commerce . . . among the several States.” Art. I,
§8, cl. 3. The Commerce Clause “reflect[s] a central concern of
the Framers that was an immediate reason for calling the
Constitutional Convention: the conviction that in order to
succeed, the new Union would have to avoid the tendencies toward
economic Balkanization that had plagued relations among the
Colonies and later among the States under the Articles of
Confederation.”
Hughes v.
Oklahoma, 441 U. S.
322, 325–326 (1979). Although the Commerce Clause is written as
an affirmative grant of authority to Congress, this Court has
long held that in some instances it imposes limitations on the
States absent congressional action. Of course, when Congress
exercises its power to regulate commerce by enacting
legislation, the legislation controls.
Southern Pacific Co.
v.
Arizona ex rel. Sullivan, 325 U. S. 761, 769 (1945).
But this Court has observed that “in general Congress has left
it to the courts to formulate the rules” to preserve “the free
flow of interstate commerce.” Id., at 770.
To understand the issue presented in this
case, it is instructive first to survey the general development
of this Court’s Commerce Clause principles and then to review
the application of those principles to state taxes.
A
From early in its history, a central function
of this Court has been to adjudicate disputes that require
interpretation of the Commerce Clause in order to determine its
meaning, its reach, and the extent to which it limits state
regulations of commerce.
Gibbons v.
Ogden, 9
Wheat. 1 (1824), began setting the course by defining the
meaning of commerce. Chief Justice Marshall explained that
commerce included both “the interchange of commodities” and
“commercial intercourse.” Id., at 189, 193. A concurring opinion
further stated that Congress had the exclusive power to regulate
commerce. See id., at 236 (opinion of Johnson, J.). Had that
latter submission prevailed and States been denied the power of
concurrent regulation, history might have seen sweeping federal
regulations at an early date that foreclosed the States from
experimentation with laws and policies of their own, or, on the
other hand, proposals to reexamine
Gibbons’ broad
definition of commerce to accommodate the necessity of allowing
States the power to enact laws to implement the political will
of their people.
Just five years after
Gibbons,
however, in another opinion by Chief Justice Marshall, the Court
sustained what in substance was a state regulation of interstate
commerce. In
Willson v.
Black Bird Creek Marsh Co.,
2 Pet. 245 (1829), the Court allowed a State to dam and bank a
stream that was part of an interstate water system, an action
that likely would have been an impermissible intrusion on the
national power over commerce had it been the rule that only
Congress could regulate in that sphere. See id., at 252. Thus,
by implication at least, the Court indicated that the power to
regulate commerce in some circumstances was held by the States
and Congress concurrently. And so both a broad interpretation of
interstate commerce and the concurrent regulatory power of the
States can be traced to
Gibbons and
Willson.
Over the next few decades, the Court refined
the doctrine to accommodate the necessary balance between state
and federal power. In
Cooley v.
Board of Wardens of
Port of Philadelphia ex rel. Soc. for Relief of Distressed
Pilots, 12 How. 299 (1852), the Court addressed local laws
regulating river pilots who operated in interstate waters and
guided many ships on interstate or foreign voyages. The Court
held that, while Congress surely could regulate on this subject
had it chosen to act, the State, too, could regulate. The Court
distinguished between those subjects that by their nature
“imperatively deman[d] a single uniform rule, operating equally
on the commerce of the United States,” and those that “deman[d]
th[e] diversity, which alone can meet . . . local necessities.”
Id., at 319. Though considerable uncertainties were yet to be
overcome, these precedents still laid the groundwork for the
analytical framework that now prevails for Commerce Clause
cases.
This Court’s doctrine has developed further
with time. Modern precedents rest upon two primary principles
that mark the boundaries of a State’s authority to regulate
interstate commerce. First, state regulations may not
discriminate against interstate commerce; and second, States may
not impose undue burdens on interstate commerce. State laws that
discriminate against interstate commerce face “a virtually per
se rule of invalidity.”
Granholm v.
Heald, 544
U. S. 460, 476 (2005) (internal quotation marks omitted). State
laws that “regulate[e] even-handedly to effectuate a legitimate
local public interest . . . will be upheld unless the burden
imposed on such commerce is clearly excessive in relation to the
putative local benefits.”
Pike v.
Bruce Church, Inc.,
397 U. S. 137, 142 (1970); see also Southern Pacific, supra, at
779. Al-though subject to exceptions and variations, see, e.g.,
Hughes v.
Alexandria Scrap Corp., 426 U. S. 794
(1976);
Brown-Forman Distillers Corp. v.
New York
State Liquor Authority, 476 U. S. 573 (1986), these two
principles guide the courts in adjudicating cases challenging
state laws under the Commerce Clause.
B
These principles also animate the Court’s
Commerce Clause precedents addressing the validity of state
taxes. The Court explained the now-accepted framework for state
taxation in
Complete Auto Transit, Inc. v.
Brady,
430 U. S. 274 (1977). The Court held that a State “may tax
exclusively interstate commerce so long as the tax does not
create any effect forbidden by the Commerce Clause.” Id., at
285. After all, “interstate commerce may be required to pay its
fair share of state taxes.”
D. H. Holmes Co. v.
McNamara,
486 U. S. 24, 31 (1988). The Court will sustain a tax so long as
it (1) applies to an activity with a substantial nexus with the
taxing State, (2) is fairly apportioned, (3) does not
discriminate against interstate commerce, and (4) is fairly
related to the services the State provides. See
Complete
Auto, supra, at 279.
Before
Complete Auto, the Court had
addressed a challenge to an Illinois tax that required
out-of-state retailers to collect and remit taxes on sales made
to consumers who purchased goods for use within Illinois.
Bellas
Hess, 386 U. S., at 754–755. The Court held that a
mail-order company “whose only connection with customers in the
State is by common carrier or the United States mail” lacked the
requisite minimum contacts with the State required by both the
Due Process Clause and the Commerce Clause. Id., at 758. Unless
the retailer maintained a physical presence such as “retail
outlets, solicitors, or property within a State,” the State
lacked the power to require that retailer to collect a local use
tax.
Ibid. The dissent dis-agreed: “There should be no
doubt that this large-scale, systematic, continuous solicitation
and exploitation of the Illinois consumer market is a sufficient
‘nexus’ to require
Bellas Hess to collect from Illinois
customers and to remit the use tax.” Id., at 761–762 (opinion of
Fortas, J., joined by Black and Douglas, JJ.).
In 1992, the Court reexamined the physical
presence rule in
Quill. That case presented a challenge
to North Dakota’s “attempt to require an out-of-state mail-order
house that has neither outlets nor sales representatives in the
State to collect and pay a use tax on goods purchased for use
within the State.” 504 U. S., at 301. Despite the fact that
Bellas
Hess linked due process and the Commerce Clause together,
the Court in
Quill overruled the due process holding,
but not the Commerce Clause holding; and it thus reaffirmed the
physical presence rule. 504 U. S., at 307–308, 317–318.
The Court in
Quill recognized that
intervening precedents, specifically
Complete Auto,
“might not dictate the same result were the issue to arise for
the first time today.” 504 U. S., at 311. But, nevertheless, the
Quill majority concluded that the physical presence rule
was necessary to prevent undue burdens on interstate commerce.
Id., at 313, and n. 6. It grounded the physical presence rule in
Complete Auto’s requirement that a tax have a
“‘substantial nexus’” with the activity being taxed. 504 U. S.,
at 311.
Three Justices based their decision to uphold
the physical presence rule on
stare decisis alone.
Id.,
at 320 (Scalia, J., joined by KENNEDY and THOMAS, JJ.,
concurring in part and concurring in judgment). Dissenting in
relevant part, Justice White argued that “there is no
relationship between the physical-presence/nexus rule the Court
retains and Commerce Clause considerations that allegedly
justify it.”
Id., at 327 (opinion concurring in part and
dissenting in part).
III
The physical presence rule has “been the
target of criticism over many years from many quarters.”
Direct
Marketing Assn. v.
Brohl, 814 F. 3d 1129, 1148,
1150–1151 (CA10 2016) (Gorsuch, J., concurring).
Quill,
it has been said, was “premised on assumptions that are
unfounded” and “riddled with internal inconsistencies.”
Rothfeld,
Quill: Confusing the Commerce Clause, 56 Tax
Notes 487, 488 (1992).
Quill created an inefficient
“online sales tax loophole” that gives out-of-state businesses
an advantage. A. Laffer & D. Arduin, Pro-Growth Tax Reform
and E-Fairness 1, 4 (July 2013). And “while nexus rules are
clearly necessary,” the Court “should focus on rules that are
appropriate to the twenty-first century, not the nineteenth.”
Hellerstein, Deconstructing the Debate Over State Taxation of
Electronic Commerce, 13 Harv. J. L. & Tech. 549, 553 (2000).
Each year, the physical presence rule becomes further removed
from economic reality and results in significant revenue losses
to the States. These critiques underscore that the physical
presence rule, both as first formulated and as applied today, is
an incorrect interpretation of the Commerce Clause.
A
Quill is flawed on its own terms.
First, the physical presence rule is not a necessary
interpretation of the requirement that a state tax must be
“applied to an activity with a substantial nexus with the taxing
State.”
Complete Auto, 430 U. S., at 279. Second,
Quill
creates rather than resolves market distortions. And third,
Quill
imposes the sort of arbitrary, formalistic distinction that the
Court’s modern Commerce Clause precedents disavow.
1
All agree that South Dakota has the authority
to tax these transactions. S. B. 106 applies to sales of
“tangible personal property, products transferred
electronically, or services
for delivery into South Dakota.”
§1 (emphasis added). “It has long been settled” that the sale of
goods or services “has a sufficient nexus to the State in which
the sale is consummated to be treated as a local transaction
taxable by that State.”
Oklahoma Tax Comm’n v.
Jefferson
Lines, Inc., 514 U. S. 175, 184 (1995); see also 2 C.Trost
& P. Hartman, Federal Limitations on State and Local
Taxation 2d §11:1, p. 471 (2003) (“Generally speaking, a sale is
attributable to its destination”).
The central dispute is whether South Dakota
may require remote sellers to collect and remit the tax without
some additional connection to the State. The Court has
previously stated that “[t]he imposition on the seller of the
duty to insure collection of the tax from the purchaser does not
violate the [C]ommerce [C]lause.”
McGoldrick v.
Berwind-White
Coal Mining Co., 309 U. S. 33, 50, n. 9 (1940). It is a
“‘familiar and sanctioned device.’”
Scripto, Inc. v.
Carson,
362 U. S. 207, 212 (1960). There just must be “a substantial
nexus with the taxing State.”
Complete Auto, supra, at
279.
This nexus requirement is “closely related,”
Bellas Hess, 386 U. S., at 756, to the due process
requirement that there be “some definite link, some minimum
connection, between a state and the person, property or
transaction it seeks to tax,”
Miller Brothers Co. v.
Maryland,
347 U. S. 340, 344–345 (1954). It is settled law that a business
need not have a physical presence in a State to satisfy the
demands of due process.
Burger King Corp. v.
Rudzewicz,
471 U. S. 462, 476 (1985). Although physical presence”
‘frequently will enhance’” a business’ connection with a State,
“‘it is an inescapable fact of modern commercial life that a
substantial amount of business is transacted . . . [with no]
need for physical presence within a State in which business is
conducted.’”
Quill, 504 U. S., at 308.
Quill
itself recognized that “[t]he requirements of due process are
met irrespective of a corporation’s lack of physical presence in
the taxing State.”
Ibid.
When considering whether a State may levy a
tax, Due Process and Commerce Clause standards may not be
identical or coterminous, but there are significant parallels.
The reasons given in
Quill for rejecting the physical
presence rule for due process purposes apply as well to the
question whether physical presence is a requisite for an
out-of-state seller’s liability to remit sales taxes. Physical
presence is not necessary to create a substantial nexus.
The
Quill majority expressed concern
that without the physical presence rule “a state tax might
unduly burden interstate commerce” by subjecting retailers to
tax collection obligations in thousands of different taxing
jurisdictions.
Id., at 313, n. 6. But the administrative
costs of compliance, especially in the modern economy with its
Internet technology, are largely unrelated to whether a company
happens to have a physical presence in a State. For example, a
business with one salesperson in each State must collect sales
taxes in every jurisdiction in which goods are delivered; but a
business with 500 salespersons in one central location and a
website accessible in every State need not collect sales taxes
on otherwise identical nationwide sales. In other words, under
Quill,
a small company with diverse physical presence might be equally
or more burdened by compliance costs than a large remote seller.
The physical presence rule is a poor proxy for the compliance
costs faced by companies that do business in multiple States.
Other aspects of the Court’s doctrine can better and more
accurately address any potential burdens on interstate commerce,
whether or not
Quill’s physical presence rule is
satisfied.
2
The Court has consistently explained that the
Commerce Clause was designed to prevent States from engaging in
economic discrimination so they would not divide into isolated,
separable units. See
Philadelphia v.
New Jersey,
437 U. S. 617, 623 (1978). But it is “not the purpose of the
[C]ommerce [C]lause to relieve those engaged in interstate
commerce from their just share of state tax burden.”
Complete
Auto, supra, at 288 (internal quotation marks omitted).
And it is certainly not the purpose of the Commerce Clause to
permit the Judiciary to create market distortions. “If the
Commerce Clause was intended to put businesses on an even
playing field, the [physical presence] rule is hardly a way to
achieve that goal.”
Quill, supra, at 329 (opinion of
White, J.).
Quill puts both local businesses and
many interstate businesses with physical presence at a
competitive disadvantage relative to remote sellers. Remote
sellers can avoid the regulatory burdens of tax collection and
can offer
de facto lower prices caused by the widespread
failure of consumers to pay the tax on their own. This
“guarantees a competitive benefit to certain firms simply
because of the organizational form they choose” while the rest
of the Court’s jurisprudence “is all about preventing
discrimination between firms.”
Direct Marketing, 814 F.
3d, at 1150– 1151 (Gorsuch, J., concurring). In effect,
Quill
has come to serve as a judicially created tax shelter for
businesses that decide to limit their physical presence and
still sell their goods and services to a State’s
consumers—something that has become easier and more prevalent as
technology has advanced.
Worse still, the rule produces an incentive
to avoid physical presence in multiple States. Distortions
caused by the desire of businesses to avoid tax collection mean
that the market may currently lack storefronts, distribution
points, and employment centers that otherwise would be efficient
or desirable. The Commerce Clause must not prefer interstate
commerce only to the point where a merchant physically crosses
state borders. Rejecting the physical presence rule is necessary
to ensure that artificial competitive advantages are not created
by this Court’s precedents. This Court should not prevent States
from collecting lawful taxes through a physical presence rule
that can be satisfied only if there is an employee or a building
in the State.
3
The Court’s Commerce Clause jurisprudence has
“eschewed formalism for a sensitive, case-by-case analysis of
purposes and effects.”
West Lynn Creamery, Inc. v.
Healy,
512 U. S. 186, 201 (1994).
Quill, in contrast, treats
economically identical actors differently, and for arbitrary
reasons.
Consider, for example, two businesses that
sell furniture online. The first stocks a few items of inventory
in a small warehouse in North Sioux City, South Dakota. The
second uses a major warehouse just across the border in South
Sioux City, Nebraska, and maintains a sophisticated website with
a virtual showroom accessible in every State, including South
Dakota. By reason of its physical presence, the first business
must collect and remit a tax on all of its sales to customers
from South Dakota, even those sales that have nothing to do with
the warehouse. See
National Geographic, 430 U. S., at
561;
Scripto, Inc., 362 U. S., at 211–212. But, under
Quill,
the second, hypothetical seller cannot be subject to the same
tax for the sales of the same items made through a pervasive
Internet presence. This distinction simply makes no sense. So
long as a state law avoids “any effect forbidden by the Commerce
Clause,”
Complete Auto, 430 U. S., at 285, courts should
not rely on anachronistic formalisms to invalidate it. The basic
principles of the Court’s Commerce Clause jurisprudence are
grounded in functional, marketplace dynamics; and States can and
should consider those realities in enacting and enforcing their
tax laws.
B
The
Quill Court itself acknowledged
that the physical presence rule is “artificial at its edges.”
504 U. S., at 315.That was an understatement when
Quill
was decided; and when the day-to-day functions of marketing and
distribution in the modern economy are considered, it is all the
more evident that the physical presence rule is artificial in
its entirety.
Modern e-commerce does not align analytically
with a test that relies on the sort of physical presence defined
in
Quill. In a footnote,
Quill rejected the
argument that “title to ‘a few floppy diskettes’ present in a
State” was sufficient to constitute a “substantial nexus,”
id.,
at 315, n. 8. But it is not clear why a single employee or a
single warehouse should create a substantial nexus while
“physical” aspects of pervasive modern technology should not.
For example, a company with a website accessible in South Dakota
may be said to have a physical presence in the State via the
customers’ computers. A website may leave cookies saved to the
customers’ hard drives, or customers may download the company’s
app onto their phones. Or a company may lease data storage that
is permanently, or even occasionally, located in South Dakota.
Cf.
United States v.
Microsoft Corp., 584 U. S.
___ (2018) (per curiam). What may have seemed like a “clear,”
“bright-line tes[t]” when
Quill was written now
threatens to compound the arbitrary consequences that should
have been apparent from the outset. 504 U. S., at 315.
The “dramatic technological and social
changes” of our “increasingly interconnected economy” mean that
buyers are “closer to most major retailers” than ever
before—“regardless of how close or far the nearest storefront.”
Direct Marketing Assn. v.
Brohl, 575 U. S. ___,
___, ___ (2015) (KENNEDY, J., concurring) (slip op., at 2, 3).
Between targeted advertising and instant access to most
consumers via any internet-enabled device, “a business may be
present in a State in a meaningful way without” that presence
“being physical in the traditional sense of the term.”
Id.,
at ___ (slip op., at 3). A virtual showroom can show far more
inventory, in far more detail, and with greater opportunities
for consumer and seller interaction than might be possible for
local stores. Yet the continuous and pervasive virtual presence
of retailers today is, under
Quill, simply irrelevant.
This Court should not maintain a rule that ignores these
substantial virtual connections to the State.
The physical presence rule as defined and
enforced in
Bellas Hess and
Quill is not just a
technical legal problem—it is an extraordinary imposition by the
Judiciary on States’ authority to collect taxes and perform
critical public functions. Forty-one States, two Territories,
and the District of Columbia now ask this Court to reject the
test formulated in
Quill. See Brief for Colorado et al.
as
Amici Curiae.
Quill’s physical presence rule
intrudes on States’ reasonable choices in enacting their tax
systems. And that it allows remote sellers to escape an
obligation to remit a lawful state tax is unfair and unjust. It
is unfair and unjust to those competitors, both local and out of
State, who must remit the tax; to the consumers who pay the tax;
and to the States that seek fair enforcement of the sales tax, a
tax many States for many years have considered an indispensable
source for raising revenue.
In essence, respondents ask this Court to
retain a rule that allows their customers to escape payment of
sales taxes—taxes that are essential to create and secure the
active market they supply with goods and services. An example
may suffice. Wayfair offers to sell a vast selection of
furnishings. Its advertising seeks to create an image of
beautiful, peaceful homes, but it also says that “‘[o]ne of the
best things about buying through Wayfair is that we do not have
to charge sales tax.’” Brief for Petitioner 55. What Wayfair
ignores in its subtle offer to assist in tax evasion is that
creating a dream home assumes solvent state and local
governments. State taxes fund the police and fire departments
that protect the homes containing their customers’ furniture and
ensure goods are safely delivered; maintain the public roads and
municipal services that allow communication with and access to
customers; support the “sound local banking institutions to
support credit transactions [and] courts to ensure collection of
the purchase price,”
Quill, 504 U. S., at 328 (opinion
of White, J.); and help create the “climate of consumer
confidence” that facilitates sales, see
ibid. According
to respondents, it is unfair to stymie their tax-free
solicitation of customers. But there is nothing unfair about
requiring companies that avail themselves of the States’
benefits to bear an equal share of the burden of tax collection.
Fairness dictates quite the opposite result. Helping
respondents’ customers evade a lawful tax unfairly shifts to
those consumers who buy from their competitors with a physical
presence that satisfies
Quill—even one warehouse or one
salesperson—an increased share of the taxes. It is essential to
public confidence in the tax system that the Court avoid
creating inequitable exceptions. This is also essential to the
confidence placed in this Court’s Commerce Clause decisions. Yet
the physical presence rule undermines that necessary confidence
by giving some online retailers an arbitrary advantage over
their competitors who collect state sales taxes.
In the name of federalism and free markets,
Quill
does harm to both. The physical presence rule it defines has
limited States’ ability to seek long-term prosperity and has
prevented market participants from competing on an even playing
field.
IV
“Although we approach the reconsideration of
our decisions with the utmost caution,
stare decisis is
not an inexorable command.”
Pearson v.
Callahan,
555 U. S. 223, 233 (2009) (quoting
State Oil Co. v.
Khan,
522 U. S. 3, 20 (1997); alterations and internal quotation marks
omitted). Here,
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 in our federal system, the Court
should be vigilant in correcting the error. While it can be
conceded that Congress has the authority to change the physical
presence rule, Congress cannot change the constitutional default
rule. It is inconsistent with the Court’s proper role to ask
Congress to address a false constitutional premise of this
Court’s own creation. Courts have acted as the front line of
review in this limited sphere; and hence it is important that
their principles be accurate and logical, whether or not
Congress can or will act in response. It is currently the Court,
and not Congress, that’s limiting the lawful prerogatives of the
States.
Further, the real world implementation of
Commerce Clause doctrines now makes it manifest that the
physical presence rule as defined by
Quill must give way
to the “far-reaching systemic and structural changes in the
economy” and “many other societal dimensions” caused by the
Cyber Age.
Direct Marketing, 575 U. S., at ___ (KENNEDY,
J., concurring) (slip op., at 3). Though
Quill was
wrong on its own terms when it was decided in 1992,since then
the Internet revolution has made its earlier error all the more
egregious and harmful.
The
Quill Court did not have before
it the present realities of the interstate marketplace. In 1992,
less than 2 percent of Americans had Internet access. See Brief
for Retail Litigation Center, Inc., et al. as
Amici Curiae
11, and n. 10. Today that number is about 89 percent.
Ibid.,
and n. 11. When it decided
Quill, the Court could not
have envisioned a world in which the world’s largest retailer
would be a remote seller, S. Li, Amazon Overtakes Wal-Mart as
Biggest Retailer, L. A. Times, July 24, 2015,
https://www.latimes.com/business/la-fi-amazon-walmart-20150724story.html
(all Internet materials as last visited June 18, 2018).
The Internet’s prevalence and power have
changed the dynamics of the national economy. In 1992,
mail-order sales in the United States totaled $180 billion. 504
U. S., at 329 (opinion of White, J.). Last year, e-commerce
retail sales alone were estimated at $453.5 billion. Dept. of
Commerce, U. S. Census Bureau News, Quarterly Retail E-Commerce
Sales: 4th Quarter 2017 (CB18–21, Feb. 16, 2018). Combined with
traditional remote sellers, the total exceeds half a trillion
dollars. Sales Taxes Report, at 9. Since the Department of
Commerce first began tracking e-commerce sales, those sales have
increased tenfold from 0.8 percent to 8.9 percent of total
retail sales in the United States. Compare Dept. of Commerce, U.
S. Census Bureau, Retail E-Commerce Sales in Fourth Quarter 2000
(CB01–28, Feb. 16, 2001),
https://www.census.gov/mrts/www/data/pdf/00Q4.pdf, with U. S.
Census Bureau News, Quarterly Retail E-Commerce Sales: 4th
Quarter 2017.And it is likely that this percentage will
increase. Last year, e-commerce grew at four times the rate of
traditional retail, and it shows no sign of any slower pace. See
ibid.
This expansion has also increased the revenue
shortfall faced by States seeking to collect their sales and use
taxes. In 1992, it was estimated that the States were losing
between $694 million and $3 billion per year in sales tax
revenues as a result of the physical presence rule. Brief for
Law Professors et al. as
Amici Curiae 11, n. 7. Now
estimates range from $8 to $33 billion. Sales Taxes Report, at
11–12; Brief for Petitioner 34–35. The South Dakota Legislature
has declared an emergency, S. B. 106, §9, which again
demonstrates urgency of overturning the physical presence rule.
The argument, moreover, that the physical
presence rule is clear and easy to apply is unsound. Attempts to
apply the physical presence rule to online retail sales are
proving unworkable. States are already confronting the
complexities of defining physical presence in the Cyber Age. For
example, Massachusetts proposed a regulation that would have
defined physical presence to include making apps available to be
downloaded by in-state residents and placing cookies on in-state
residents’ web browsers. See 830 Code Mass. Regs. 64H.1.7
(2017). Ohio recently adopted a similar standard. See Ohio Rev.
Code Ann. §5741.01(I)(2)(i) (Lexis Supp. 2018). Some States have
enacted so-called “click through” nexus statutes, which define
nexus to include out-of-state sellers that contract with
in-state residents who refer customers for compensation. See
e.g.,
N. Y. Tax Law Ann. §1101(b)(8)(vi) (West 2017); Brief for Tax
Foundation as
Amicus Curiae 20–22 (listing 21 States
with similar statutes). Others still, like Colorado, have
imposed notice and reporting requirements on out-of-state
retailers that fall just short of actually collecting and
remitting the tax. See
Direct Marketing, 814 F. 3d, at
1133 (discussing Colo. Rev. Stat. §39–21–112(3.5)); Brief for
Tax Foundation 24–26 (listing nine States with similar
statutes). Statutes of this sort are likely to embroil courts in
technical and arbitrary disputes about what counts as physical
presence.
Reliance interests are a legitimate
consideration when the Court weighs adherence to an earlier but
flawed precedent. See
Kimble v.
Marvel
Entertainment, LLC, 576 U. S. ___, ___–___ (2015) (slip
op., at 9–10). But even on its own terms, the physical presence
rule as defined by
Quill is no longer a clear or easily
applicable standard, so arguments for reliance based on its
clarity are misplaced. And, importantly,
stare decisis
accommodates only “legitimate reliance interest[s].”
United
States v.
Ross, 456 U. S. 798, 824 (1982). Here,
the tax distortion created by
Quill exists in large part
because consumers regularly fail to comply with lawful use
taxes. Some remote retailers go so far as to advertise sales as
tax free. See S. B. 106, §8(3); see also Brief for Petitioner
55. A business “is in no position to found a constitutional
right on the practical opportunities for tax avoidance.”
Nelson
v.
Sears, Roebuck & Co., 312 U. S. 359, 366 (1941).
Respondents argue that “the physical presence
rule has permitted start-ups and small businesses to use the
Internet as a means to grow their companies and access national
market, without exposing them to the daunting complexity and
business-development obstacles of nationwide sales tax
collection.” Brief for Respondents 29. These burdens may pose
legitimate concerns in some instances, particularly for small
businesses that make a small volume of sales to customers in
many States. State taxes differ, not only in the rate imposed
but also in the categories of goods that are taxed and,
sometimes, the relevant date of purchase. Eventually, software
that is available at a reasonable cost may make it easier for
small businesses to cope with these problems. Indeed, as the
physical presence rule no longer controls, those systems may
well become available in a short period of time, either from
private providers or from state taxing agencies themselves. And
in all events, Congress may legislate to address these problems
if it deems it necessary and fit to do so.
In this case, however, South Dakota affords
small merchants a reasonable degree of protection. The law at
issue requires a merchant to collect the tax only if it does a
considerable amount of business in the State; the law is not
retroactive; and South Dakota is a party to the Streamlined
Sales and Use Tax Agreement, see
infra at 23.
Finally, other aspects of the Court’s
Commerce Clause doctrine can protect against any undue burden on
interstate commerce, taking into consideration the small
businesses, startups, or others who engage in commerce across
state lines. For example, the United States argues that
tax-collection requirements should be analyzed under the
balancing framework of
Pike v.
Bruce Church, Inc.,
397 U. S. 137. Others have argued that retroactive liability
risks a double tax burden in violation of the Court’s
apportionment jurisprudence because it would make both the buyer
and the seller legally liable for collecting and remitting the
tax on a transaction intended to be taxed only once. See Brief
for Law Professors et al. as
Amici Curiae 7, n. 5.
Complex state tax systems could have the effect of
discriminating against interstate commerce. Concerns that
complex state tax systems could be a burden on small business
are answered in part by noting that, as discussed below, there
are various plans already in place to simplify collection; and
since in-state businesses pay the taxes as well, the risk of
discrimination against out-of-state sellers is avoided. And, if
some small businesses with only
de minimis contacts seek
relief from collection systems thought to be a burden, those
entities may still do sounder other theories. These issues are
not before the Court in the instant case; but their potential to
arise in some later case cannot justify retaining this
artificial, anachronistic rule that deprives States of vast
revenues from major businesses.
For these reasons, the Court concludes that
the physical presence rule of
Quill is unsound and
incorrect. The Court’s decisions in
Quill Corp. v.
North
Dakota, 504 U. S. 298 (1992), and
National Bellas Hess,
Inc. v.
Department of Revenue of Ill., 386 U. S.
753 (1967), should be, and now are, overruled.
V
In the absence of
Quill and
Bellas
Hess, the first prong of the
Complete Auto test
simply asks whether the tax applies to an activity with a
substantial nexus with the taxing State. 430 U. S., at 279.
“[S]uch a nexus is established when the taxpayer [or collector]
‘avails itself of the substantial privilege of carrying on
business’ in that jurisdiction.”
Polar Tankers, Inc. v.
City of Valdez, 557 U. S. 1, 11 (2009).
Here, the nexus is clearly sufficient based
on both the economic and virtual contacts respondents have with
the State. The Act applies only to sellers that deliver more
than $100,000 of goods or services into South Dakota or engage
in 200 or more separate transactions for the delivery of goods
and services into the State on an annual basis. S. B. 106, §1.
This quantity of business could not have occurred unless the
seller availed itself of the substantial privilege of carrying
on business in South Dakota. And respondents are large, national
companies that undoubtedly maintain an extensive virtual
presence. Thus, the substantial nexus requirement of
Complete
Auto is satisfied in this case.
The question remains whether some other
principle in the Court’s Commerce Clause doctrine might
invalidate the Act. Because the
Quill physical presence
rule was an obvious barrier to the Act’s validity, these issues
have not yet been litigated or briefed, and so the Court need
not resolve them here. That said, South Dakota’s tax system
includes several features that appear designed to prevent
discrimination against or undue burdens upon interstate
commerce. First, the Act applies a safe harbor to those who
transact only limited business in South Dakota. Second, the Act
ensures that no obligation to remit the sales tax may be applied
retroactively. S. B. 106, §5.Third, South Dakota is one of more
than 20 States that have adopted the Streamlined Sales and Use
Tax Agreement. This system standardizes taxes to reduce
administrative and compliance costs: It requires a single, state
level tax administration, uniform definitions of products and
services, simplified tax rate structures, and other uniform
rules. It also provides sellers access to sales tax
administration software paid for by the State. Sellers who
choose to use such software are immune from audit liability. See
App. 26–27. Any remaining claims regarding the application of
the Commerce Clause in the absence of
Quill and
Bellas
Hess may be addressed in the first instance on remand.
The judgment of the Supreme Court of South
Dakota is vacated, and the case is remanded for further
proceedings not inconsistent with this opinion.
It is so ordered.
THOMAS, J., concurring
SUPREME COURT OF THE UNITED STATES
No. 17–494
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC., ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
[June 21, 2018]
JUSTICE THOMAS, concurring.
Justice Byron White joined the majority
opinion in
National Bellas Hess, Inc. v.
Department
of Revenue of Ill., 386 U. S. 753 (1967). Twenty-five
years later, we had the opportunity to overrule
Bellas Hess
in
Quill Corp. v.
North Dakota, 504 U. S. 298
(1992). Only Justice White voted to do so. See
id., at
322 (opinion concurring in part and dissenting in part). I
should have joined his opinion. Today, I am slightly further
removed from
Quill than Justice White was from Bellas
Hess. And like Justice White, a quarter century of experience
has convinced me that
Bellas Hess and
Quill “can
no longer be rationally justified.” 504 U. S., at 333. The same
is true for this Court’s entire negative Commerce Clause
jurisprudence. See
Comptroller of Treasury of Md. v.
Wynne,
575 U. S. ___, ___ (2015) (THOMAS, J., dissenting) (slip op., at
1). Although I adhered to that jurisprudence in
Quill,
it is never too late to “surrende[r] former views to a better
considered position.”
McGrath v.
Kristensen,
340 U. S. 162, 178 (1950) (Jackson, J., concurring). I therefore
join the Court’s opinion.
GORSUCH, J., concurring
SUPREME COURT OF THE UNITED STATES
No. 17–494
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC., ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
[June 21, 2018 ]
JUSTICE GORSUCH, concurring.
Our dormant commerce cases usually prevent
States from discriminating between in-state and out-of-state
firms.
National Bellas Hess, Inc. v.
Department of
Revenue of Ill., 386 U. S. 753 (1967), and
Quill Corp.
v.
North Dakota, 504 U. S. 298 (1992), do just the
opposite. For years they have enforced a judicially created tax
break for out-of-state Internet and mail-order firms at the
expense of in-state brick-and-mortar rivals. See ante, at 12–13;
Direct Marketing Assn. v.
Brohl, 814 F. 3d,
1129, 1150 (CA10 2016) (Gorsuch, J. concurring). As Justice
White recognized 26 years ago, judges have no authority to
construct a discriminatory “tax shelter” like this.
Quill,
supra, at 329 (opinion concurring in part and dissenting
in part). The Court is right to correct the mistake and I am
pleased to join its opinion.
My agreement with the Court’s discussion of
the history of our dormant commerce clause jurisprudence,
however, should not be mistaken for agreement with all aspects
of the doctrine. The Commerce Clause is found in Article I and
authorizes Congress to regulate interstate commerce. Meanwhile
our dormant commerce cases suggest Article courts may invalidate
state laws that offend no congressional statute. Whether and how
much of this can be squared with the text of the Commerce
Clause, justified by
stare decisis, or defended as
misbranded products of federalism or antidiscrimination
imperatives flowing from Article IV’s Privileges and Immunities
Clause are questions for another day. See
Energy &
Environment Legal Inst. v.
Epel, 793 F. 3d 1169,
1171 (CA10 2015);
Comptroller of Treasury of Md. v.
Wynne,
575 U. S. ___, ___–___ (2015) (Scalia, J., dissenting) (slip
op., at 1–3);
Camps Newfound/Owatonna, Inc. v.
Town
of Harrison, 520 U. S. 564, 610–620 (1997) (THOMAS, J.,
dissenting). Today we put
Bellas Hess and
Quill
to rest and rightly end the paradox of condemning interstate
discrimination in the national economy while promoting it
ourselves.
ROBERTS, C. J., dissenting
SUPREME COURT OF THE UNITED STATES
No. 17–494
SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC., ET AL.
ON WRIT OF CERTIORARI TO THE SUPREME COURT OF SOUTH DAKOTA
[June 21, 2018]
CHIEF JUSTICE ROBERTS, with whom JUSTICE
BREYER, JUSTICE SOTOMAYOR, and JUSTICE KAGAN join, dissenting.
In
National Bellas Hess, Inc. v.
Department
of Revenue of Ill., 386 U. S. 753 (1967), this Court held
that, under the dormant Commerce Clause, a State could not
require retailers without a physical presence in that State to
collect taxes on the sale of goods to its residents. A quarter
century later, in
Quill Corp. v.
North Dakota,
504 U. S. 298 (1992), this Court was invited to overrule
Bellas
Hess but declined to do so. Another quarter century has
passed, and another State now asks us to abandon the
physical-presence rule. I would decline that invitation as well.
I agree that
Bellas Hess was wrongly
decided, for many of the reasons given by the Court. The Court
argues in favor of overturning that decision because the
“Internet’s prevalence and power have changed the dynamics of
the national economy.”
Ante, at 18. But that is the very
reason I oppose discarding the physical-presence rule.
E-commerce has grown into a significant and vibrant part of our
national economy against the backdrop of established rules,
including the physical-presence rule. 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.
I
This Court “does not
overturn its precedents lightly.”
Michigan v.
Bay
Mills Indian Community, 572 U. S. ___, ___ (2014) (slip
op., at 15). Departing from the doctrine of
stare decisis
is an “exceptional action” demanding “special
justification.”
Arizona v.
Rumsey, 467 U. S.
203, 212 (1984). The bar is even higher in fields in which
Congress” exercises primary authority” and can, if it wishes,
over¬ride this Court’s decisions with contrary legislation.
Bay
Mills, 572 U. S., at ___ (slip op., at 16) (tribal
sovereign immunity); see,
e.g.,
Kimble v.
Marvel
Entertainment, LLC, 576 U. S. ___, ___ (2015) (slip op.,
at 8) (statutory interpretation);
Halliburton Co. v.
Erica
P. John Fund, Inc., 573 U. S. ___, ___ (2014) (slip op.,
at 12) (judicially created doctrine implementing a judicially
created cause of action). In such cases, we have said that
“the burden borne by the party advocating the abandonment of
an established precedent” is “greater” than usual.
Patterson
v.
McLean Credit Union, 491 U. S. 164, 172 (1989).
That is so “even where the error is a matter of serious
concern, provided correction can be had by legislation.”
Square
D Co. v.
Niagara Frontier Tariff Bureau, Inc.,
476 U. S. 409, 424 (1986) (quoting
Burnet v.
Coronado
Oil & Gas Co., 285 U. S. 393, 406 (1932) (Brandeis,
J., dissenting)).
We have applied this heightened form of
stare
decisis in the dormant Commerce Clause context. Under
our dormant Commerce Clause precedents, when Congress has not
yet legislated on a matter of interstate commerce, it is the
province of “the courts to formulate the rules.”
Southern
Pacific Co. v.
Arizona ex rel. Sullivan, 325 U.
S. 761, 770 (1945). But because Congress “has plenary power to
regulate commerce among the States,”
Quill, 504 U. S.,
at 305, it may at any time replace such judicial rules with
legislation of its own, see
Prudential Ins. Co. v.
Be
jamin, 328 U. S. 408, 424–425 (1946).
In
Quill, this Court emphasized
that the decision to hew to the physical-presence rule on
stare
decisis grounds was “made easier by the fact that the
underlying issue is not only one that Congress may be better
qualified to resolve, but also one that Congress has the
ultimate power to resolve.” 504 U. S., at 318 (footnote
omitted). Even assuming we had gone astray in
Bellas Hess,
the “very fact” of Congress’s superior authority in this realm
“g[a]ve us pause and counsel[ed] withholding our hand.”
Quill,
504 U. S., at 318 (alterations omitted). We postulated that”
the better part of both wisdom and valor [may be] to respect
the judgment of the other branches of the Government.”
Id.,
at 319; see id., at 320 (Scalia, J., concurring in part and
concurring in judgment) (recognizing that
stare decisis
has “special force” in the dormant Commerce Clause context due
to Congress’s “final say over regulation of interstate
commerce”). The Court thus left it to Congress “to decide
whether, when, and to what extent the States may burden
interstate mail-order concerns with a duty to collect use
taxes.”
Id., at 318 (majority opinion).
II
This is neither the first, nor the second,
but the third time this Court has been asked whether a State
may obligate sellers with no physical presence within its
borders to collect tax on sales to residents. Whatever
salience the adage “third time’s a charm” has in daily life,
it is a poor guide to Supreme Court decision making. If
stare
decisis applied with special force in
Quill, it
should be an even greater impediment to overruling precedent
now, particularly since this Court in
Quill “tossed
[the ball] into Congress’s court, for acceptance or not as
that branch elects.”
Kimble, 576 U. S., at ___ (slip
op., at 8); see
Quill, 504 U. S., at 318 (“Congress is
now free to decide” the circumstances in which “the States may
burden interstate . . . concerns with a duty to collect use
taxes”).
Congress has in fact been considering
whether to alter the rule established in
Bellas Hess
for some time. See Addendum to Brief for Four United States
Senators as
Amici Curiae 1–4 (compiling efforts by
Congress between 2001 and 2017 to pass legislation respecting
interstate sales tax collection); Brief for Rep. Bob Good
latte et al. as
Amici Curiae 20–23 (Goodlatte Brief)
(same). Three bills addressing the issue are currently
pending. See Market¬place Fairness Act of 2017, S. 976, 115th
Cong., 1st Sess. (2017); Remote Transactions Parity Act of
2017, H. R.2193, 115th Cong., 1st Sess. (2017); No Regulation
With¬out Representation Act, H. R. 2887, 115th Cong., 1st
Sess.(2017). Nothing in today’s decision precludes Congress
from continuing to seek a legislative solution. But by
suddenly changing the ground rules, the Court may have waylaid
Congress’s consideration of the issue. Armed with today’s
decision, state officials can be expected to redirect their
attention from working with Congress on a national solution,
to securing new tax revenue from remote retailers. See,
e.g.,
Brief for Sen. Ted Cruz et al. as
Amici Curiae 10–11
(“Overturning
Quill would undo much of Congress’ work
to find a workable national compromise under the Commerce
Clause.”).
The Court proceeds with an inexplicable
sense of urgency. It asserts that the passage of time is only
increasing the need to take the extraordinary step of
overruling
Bellas Hess and
Quill: “Each year,
the physical presence rule becomes further removed from
economic reality and results in significant revenue losses to
the States.”
Ante, at 10. The factual predicates for
that assertion include a Government Accountability Office
(GAO) estimate that, under the physical-presence rule, States
lose billions of dollars annually in sales tax revenue. See
ante,
at 2, 19 (citing GAO, Report to Congressional Requesters:
Sales Taxes, States Could Gain Revenue from Expanded
Authority, but Businesses Are Likely to Experience Compliance
Costs 5 (GAO–18–114, Nov. 2017) (Sales Taxes Report)). But
evidence in the same GAO report indicates that the pendulum is
swinging in the opposite direction, and has been for some
time. States and local governments are already able to collect
approximately 80 percent of the tax revenue that would be
available if there were no physical-presence rule. See Sales
Taxes Report 8. Among the top 100 Internet retailers that rate
is between 87 and 96 percent. See
id., at 41. Some
companies, including the online behemoth Amazon,* now
voluntarily collect and remit sales tax in every State that
assesses one—even those in which they have no physical
presence. See
id., at 10. To the extent the
physical-presence rule is harming States, the harm is
apparently receding with time.
The Court rests its decision to overrule
Bellas
Hess on the “present realities of the interstate
marketplace.”
Ante, at 18. As the Court puts it,
allowing remote sellers to escape remitting a lawful tax is
“unfair and unjust.”
Ante, at 16. “[U]nfair and unjust
to . . . competitors . . . who must remit the tax; to the
consumers who pay the tax; and to the States that seek fair
enforcement of the sales tax.”
Ante, at 16. But “the
present realities of the interstate marketplace” include the
possibility that the marketplace itself could be affected by
abandoning the physical-presence rule. The Court’s focus on
unfairness and injustice does not appear to embrace
consideration of that current public policy concern.
The Court, for example, breezily disregards
the costs that its decision will impose on retailers.
Correctly calculating and remitting sales taxes on all
e-commerce sales will likely prove baffling for many
retailers. Over 10,000 jurisdictions levy sales taxes, each
with “different tax rates, different rules governing
tax-exempt goods and services, different product category
definitions, and different standards for determining whether
an out-of-state seller has a substantial presence” in the
jurisdiction. Sales Taxes Report 3. A few examples: New Jersey
knitters pay sales tax on yarn purchased for art projects, but
not on yarn earmarked for sweaters. See Brief for eBay, Inc.,
et al. as
Amici Curiae 8, n. 3 (eBay Brief). Texas
taxes sales of plain deodorant at 6.25 percent but imposes no
tax on deodorant with antiperspirant. See
id., at 7.
Illinois categorizes Twix and Snickers bars—chocolate
and-caramel confections usually displayed side-by-side in the
candy aisle—as food and candy, respectively (Twix have flour;
Snickers don’t), and taxes them differently. See
id.,
at 8; Brief for Etsy, Inc., as
Amicus Curiae 14–17
(Etsy Brief) (providing additional illustrations).
The burden will fall disproportionately on
small businesses. One vitalizing effect of the Internet has
been connecting small, even “micro” businesses to potential
buyers across the Nation. People starting a business selling
their embroidered pillowcases or carved decoys can offer their
wares throughout the country—but probably not if they have to
figure out the tax due on every sale. See Sales Taxes Report
22 (indicating that “costs will likely increase the most for
businesses that do not have established legal teams, software
systems, or outside counsel to assist with compliance related
questions”). And the software said to facilitate compliance is
still in its infancy, and its capabilities and expense are
subject to debate. See Etsy Brief 17–19 (describing the
inadequacies of such software); eBay Brief 8–12 (same); Sales
Taxes Report 16–20 (concluding that businesses will incur
“high” compliance costs). The Court’s decision today will
surely have the effect of dampening opportunities for commerce
in a broad range of new markets.
A good reason to leave these matters to
Congress is that legislators may more directly consider the
competing interests at stake. Unlike this Court, Congress has
the flexibility to address these questions in a wide variety
of ways. As we have said in other dormant Commerce Clause
cases, Congress “has the capacity to investigate and analyze
facts beyond anything the Judiciary could match.”
General
Motors Corp. v.
Tracy, 519 U. S. 278, 309
(1997); see
Department of Revenue of Ky. v.
Davis,
553 U. S. 328, 356 (2008).
Here, after investigation, Congress could
reasonably decide that current trends might sufficiently
expand tax revenues, obviating the need for an abrupt policy
shift with potentially adverse consequences for e-commerce. Or
Congress might decide that the benefits of allowing States to
secure additional tax revenue outweigh any foreseeable harm to
e-commerce. Or Congress might elect to accommodate these
competing interests, by, for example, allowing States to tax
Internet sales by remote retailers only if revenue from such
sales exceeds some set amount per year. See Goodlatte Brief
12–14 (providing varied examples of how Congress could address
sales tax collection). In any event, Congress can focus
directly on current policy concerns rather than past legal
mistakes. Congress can also provide a nuanced answer to the
troubling question whether any change will have retroactive
effect.
An erroneous decision from this Court may
well have been an unintended factor contributing to the growth
of e-commerce. See,
e.g., W. Taylor, Who’s Writing the
Book on Web Business? Fast Company (Oct. 31, 1996),
https://www.fastcompany.com/27309/whos-writing-bookweb-business.
The Court is of course correct that the Nation’s economy has
changed dramatically since the time that
Bellas Hess and
Quill roamed the earth. I fear the Court today is
compounding its past error by trying to fix it in a totally
different era. The Constitution gives Congress the power “[t]o
regulate Commerce . . . among the several States.” Art. I, §8.
I would let Congress decide whether to depart from the
physical-presence rule that has governed this area for half a
century.
I respectfully dissent.