Sometimes, the Supreme Court’s ultimate power to define what the Constitution means seems just too daunting for the Justices. That was the sentiment that swept across the bench Tuesday, as the Court confronted – after years of refusing to do so – the question of whether to allow states broad new freedom to tax shopping that consumers do via the Internet. Maybe this should be left to Congress, Justice after Justice suggested.
The Constitution, since 1992, has been interpreted by the Court to mean that a state simply cannot impose a sales tax on goods that are sold to an in-state customer by an out-of-state seller. Only if the seller had a store, warehouse, or even just a traveling salesman inside the state, can that seller be required to collect a sales tax on what it sells from afar.
It made commercial, as well as constitutional, sense at the time, because companies selling goods via merchandise catalogs were understood to have no real connection to that state – in short, they simply were not there, physically speaking.
Now, some of the nation’s biggest sellers of consumer goods – Amazon is a prime example – peddle their goods across the nation digitally, to consumers who very much like the convenience of simply clicking to buy something that, otherwise, they would have to go to a store to get.
To revenue-lacking state and local governments, however, the 1992 decision means they cannot legally impose a sale tax on those digital transactions. Amazon, and some of the other big digital retailers collect and pay over the sales tax, but that is a voluntary choice, not a legal duty.
And what the states now want is for the Court to let them make it a legal duty, and that can only happen, they are telling the Court, if the 1992 decision (in the case of Quill Corp. v. North Dakota) is overruled.
That ruling makes no sense, at any level, the states argue, because the out-of-state sellers are doing a big-time business in all of the states – via the circuitry of home-bound shoppers’ computers or smartphones. (One of those sellers, sued in this case, is Wayfair, Inc., which floods TV these days with ads telling how much “fun” it is to simply click and be “done” with buying goods that miraculously just drop into place in a home. A chorus comes on to sing a jingle, “Wayfair, you have just what I need!”)
A few years ago, the states got their hopes up when Justice Anthony M. Kennedy commented in another case that the question of reconsidering the Quill decision should be taken up in a new test case. Officials in South Dakota snatched the hint, passed a new Internet sales tax that they knew was invalid under the 1992 precedent, and that case sped its way to the Supreme Court’s docket to seek the overruling of that precedent. Unlike many other attempts to follow up on Kennedy’s notion, this one was granted review.
It came up for a one-hour hearing Tuesday, and there was almost no way to interpret what was said from the bench to give the states much dependable hope. From the very opening of the oral argument, Justice Sonia Sotomayor recited the lengthy list of questions that would arise if the Quill decision were to be overruled. What would the Constitution then allow the states to do with their sales tax codes? Who would define what gives a digital retailer enough tie to a state to subject it to the tax? Could states make their sales tax laws retroactive, and assess for billions of dollars of past Internet sales? Sotomayor could imagine a big wave of new lawsuits.
Soon, other Justices were seeing the same gaping holes in the law of sales taxation, and the idea of leaving the matter to Congress swiftly gained followers across the bench. Justice Stephen H. Breyer jumped in with a list of his own questions, and argued flatly that, even though the 1992 decision was based on the Constitution, it was the kind of ruling that left Congress with wide authority to answer all the questions about where sales taxation should now be allowed to go.
Justice Samuel A. Alito, Jr., wondered whether it would be better to overrule the Quill decision, allowing the states to do whatever they wished, or to let Congress work out all the problems. When South Dakota’s lawyer replied that Congress has had a quarter-century to take some action, and has not done so, Justice Elena Kagan said that just might be because the lawmakers didn’t think there was a problem that needing solving. Breyer chimed in that all 50 states could use their influence to lobby Congress to sort it all out.
Justice Ruth Baker Ginsburg, who at a couple of points suggested that if the 1992 decision had turned out to be wrong, the Court should correct the mistake itself, later joined in the suggestions of others that Congress had the capacity to set some standards to guide the states on how to deal with the burgeoning of the Internet marketplace.
The Trump Administration sent a lawyer to the hearing to press the idea that the Justices need not overrule outright the Quill decision, but simply say now that they really didn’t mean to require an actual physical presence in the state to justify taxing out-of-state sales, so a digital presence could now be understood as sufficient to let state taxes apply. The idea did not gain any notable support from the bench. Justice Kagan told the government lawyer that the 1992 decision had made a “binary choice” – apply a sales tax to a company with a physical presence in the state, but not if it remained a complete outsider – but Congress could “craft a compromise in ways that we cannot.”
Justice Alito told that lawyer that, if matters were left to the financially stressed state and local governments, they would “grab everything they possibly can.”
When the big retailers sued in the case had their case presented to the Court, their lawyer gave fervent support to the idea that if anything was to be done about the change in retail taxation, it should be done by Congress. He drew some aggressive questions from Justices who suggested that the retailers wanted the 1992 decision left as is in order to benefit the big retailers, but he deflected the challenges by saying Congress could set some standards.
That attorney’s main line of argument was that the Quill decision had been around a considerable number of years and businesses have shaped their commercial operations to conform to a well-known standard on sales taxation. That did not seem to gain much sympathy from the bench, but it did lend a measure of support to the seemingly dominant sentiment to leave the 1992 decision alone, unless Congress wanted to intervene.
Justice Kennedy, who now had before him a straightforward test case of the kind he had specifically called for, did not take much part in the hearing. He did suggest at one point, in a somewhat negative tone, that the repeated suggestions for intervention by Congress might be an invitation for the lawmakers to second-guess what had been a constitutional decision. He thought that should make a difference in how the Court approached the dispute, and that might well have been a hint that if the Court were now to see the Quill ruling as obsolete for today’s brand of consumer shopping, it should be for the Court to find a remedy. The brief comments were somewhat opaque, but if that was what he was getting at, it could have been the one promising thing of the hour for the states.
