Last week the U.S. Supreme Court heard oral arguments in the Wayfair v. South Dakota online sales tax case. While the court’s decision regarding the matter isn’t expected until June, the Justices’ questions in the matter reveal that it’s far from already settled, and they’re divided on whether or not Quill should be overruled.
South Dakota’s Arguments Regarding Quill
South Dakota’s Attorney General Marty Jackley began his statement,
First, our states are losing massive sales tax revenues that we need for education, health care, and infrastructure. Second, our small businesses on Main Street are being harmed because of the unlevel playing field created by Quill, where out-of-state remote sellers are given a price advantage.
In response, Justice Sonia Sotomayor shared her concern that overturning the precedent could create a large number of lawsuits. While South Dakota’s 2016 law makes it clear that retailers doing business in the state will not be liable for sales tax due before the law went into effect, not all states have legislation in place to protect online retailers from retroactive sales tax.
Sotomayor also asked how out-of-town sellers would be able to calculate the complicated sales tax for each consumer’s purchase. While there are sophisticated software to help retailers, she asked, “What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?”
Wayfair’s Arguments Regarding Quill
When it was time for arguments from Wayfair and the other retailers, lawyer George S. Isaacsonmade the point, “Borders count. States exercise their sovereignty based upon borders, territorial limits. It’s a key part of horizontal federalism in this country. So, if there’s going to be some standard that determines when is a company subject to the tax jurisdiction of a state, using the territorial limits of that state make sense.”
Isaacson also claimed, “A ruling against his clients would impose burdens on small online merchants. A national solution, he said, should come from Congress rather than the Supreme Court,” pointing out that Congress is a better branch to address sales tax collection issues as it can implement a law that requires standard definitions across the country and one tax rate per sate for each seller, to which Chief Justice John Roberts pointed out it would be strange for them to tell Congress they need to do something.
Where The Justices Stand Regarding Online Sales Tax
Obviously we don’t have a ruling yet, but based on the questions and statements made during the oral arguments, and in a few of the Justices’ opinions prior to this case, here’s where it seems they stand:
In favor of overturning Quill:
- Justice Kennedy, who wrote, “The legal system should find an appropriate case for this court to reexamine Quill” (in March 2015).
- Justice Gorsuch, who wrote that if the Supreme Court was given a chance, it should overrule Quill (when he was on the Tenth Circuit).
- Justice Thomas, who’s rejected the whole idea of the dormant Commerce Clause, which is what the argument in favor of Quill rests on.
- Justice Ginsburg, who said during the oral arguments that, “The court needs to take responsibility for overturning precedent it created which is no longer appropriate in the current economy instead of relying on Congress to act.”
In favor of upholding Quill:
- Justice Sotomayor’s questions during the oral arguments seemed to be in defense of Quill.
- Justice Kagan’s questions seemed to show the view that Congress could create a better solution than the court.
- Justice Alito seemed to be concerned that if Quill was overturned, “States would ‘grab everything they could’ rather than exempt small businesses from having to collect.”
- Chief Justice Roberts asked questions of lawyers from both sides, however they seemed to focus on, “The burden of requiring small businesses to collect sales tax and honoring Congress’s decision to leave things the way they are.”
Those with whom it’s unclear:
- Justice Breyer said during the case that both sides’ briefs were correct, and that he was looking to the oral arguments to help sort out the lingering questions.
As you can tell, the online sales tax issue is far from being settled. It will be very interesting to see what the Supreme Court decides in June!
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