Supreme Court allows states to collect sales taxes on more online transactions

[Lord Coke]

I don't fully understand what happened here. Roberts joined the dissent along with the left wing of the court and Ginsburg joined the majority. This was a 5/4 decesion. Anyone have any idea why the composition of this opinion turned out this way? @Quipling @JamesRussler @panamaican

https://www.usatoday.com/story/news...llows-sales-taxes-online-purchases/699556002/

WASHINGTON — A closely divided Supreme Court upended the nation's Internet marketplace Thursday, ruling that states can collect sales taxes from online retailers.

The decision, which overturns an earlier Supreme Court precedent, will boost state revenues at the expense of consumers and sellers who have avoided sales taxes in the past. But the justices did not specify what types of exceptions states may impose to limit the burden on small businesses.

Justice Anthony Kennedy wrote the 5-4 decision, jettisoning the court's longstanding rule that states cannot require companies without a physical presence to collect sales taxes. He was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch.

"The Internet's prevalence and power have changed the dynamics of the national economy," Kennedy wrote. "This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes."

Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.

 

[Cubo de Sangre]

So they overturned a previous ruling based on nothing but the states are losing more money than they used to? Not sure that's how the Constitution is supposed to work.

 

[Quipling]

I don't have a satisfactory answer on composition. I'm going to be following commentary on this case. My guess is that Roberts wants the court to be more respectful of its own precedents because he wants it to be less of a political trophy. Lucia v. SEC is a bigger deal for me, though.

 

[JamesRussler]

I don't fully understand what happened here. Roberts joined the dissent along with the left wing of the court and Ginsburg joined the majority. This was a 5/4 decesion. Anyone have any idea why the composition of this opinion turned out this way? @Quipling @JamesRussler @panamaican

https://www.usatoday.com/story/news...llows-sales-taxes-online-purchases/699556002/

I read the syllabus and skimmed the opinion, concurrences, and dissent. I see the Court grappling with three inescapable realities here, aside from the substantive law of interstate commerce, due process, and taxing power:

1. Technology is changing our societies in ways we never thought possible
2. The Court can never not make "judge-made law"
3. The system must survive

The Court found itself in a position where its prior Commerce Clause precedents imposed a rather arbitrary requirement of "physical presence" for states to impose on sellers a duty to collect and remit sales tax. No doubt the prior decisions which created this rule purported to be "common sense" applications of the Commerce Clause, and models of judicial restraint. After all, there was no such thing as a "virtual presence" back then, so why read that criterion into the Commerce Clause? Fast forward to 2018, and the effect of these decisions was to gift 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" via e-commerce. They recognized that the physical presence rule at once both disincentivized the creation of "brick and mortar" establishments, and the patronizing of such establishments. Who knew that the internet would change things so much?

So now because of the revenue shortfall created by this "judicially created tax shelter," we're in this position where states are having trouble funding their own liabilities and balancing their budgets. In other words, the un-wisdom of the old "physical presence" rule is threatening to upend the whole system. This is the subtext in which the Court's so-called "Originalists" and "Textualists" were asked to consider the old "physical presence" rule. And the fact of the matter is that the Court is "legislating from the bench" no matter what it does, whether it keeps the old "physical presence" rule, or expands it to include "virtual presence." In fact, for the Court to do nothing at all would arguably be far more extreme than simply saying what we all know: there is no reason internet retailers should be exempt from collecting and remitting state sales taxes when selling to consumers within a state.

That's why Justices such as Gorsuch, Thomas, and Alito voted this way IMO (in addition to the reasons explicitly stated). Roberts went hard-line for stare decisis because Congress can still legislate in this area (i.e. so far as "Dormant Commerce Clause" grounds are concerned). This is strange given that Roberts concedes "[a]n erroneous decision from this Court may well have been an unintended factor contributing to the growth of e-commerce." So he admits the precedent was incorrect, but doesn't think it's important enough to overturn? Roberts sounds like the sort of country club free trade Republican who sees no problem with once bustling downtown districts boarded up because they couldn't "compete" with Amazon. He's numb to the corrosive effects e-commerce has had on communities over the years, mocking the majority's "inexplicable sense of urgency." This is the same guy who wrote the majority opinion in Shelby County v. Holder, 570 U.S. 2 (2013), which overturned prior precedent and invalidated parts of the Voting Rights Act based on changed factual / historical circumstances. This should be right in his wheelhouse, but apparently things aren't bad enough for him to reconsider an admittedly "erroneous decision."

I don't know why Ginsburg joined the majority (of all the the "liberals," I would have expected Kagan to do so), except to say that even broken clocks are right twice a day. Perhaps she is nostalgic for her old neighborhood bookstore, and she sees that Amazon is to blame for its closure. Or perhaps this is just one of those issues which kind of blurs traditional partisan boundaries. This politics of this case are nowhere near as clear as that gay wedding cake case.

 

[Cubo de Sangre]

The Court found itself in a position where its prior Commerce Clause precedents imposed a rather arbitrary requirement of "physical presence" for states to impose on sellers a duty to collect and remit sales tax. No doubt the prior decisions which created this rule purported to be "common sense" applications of the Commerce Clause, and models of judicial restraint. After all, there was no such thing as a "virtual presence" back then, so why read that criterion into the Commerce Clause?

How old are the rulings the court reversed? Mailorder is hardly a new thing.

 

[My Spot]

I'm fine. Leave it up to each state (imagine that, what a concept).

 

[JamesRussler]

How old are the rulings the court reversed? Mailorder is hardly a new thing.

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)

Both of those cases involved mail order. They were on-point here, but they got overturned.

 

[Cubo de Sangre]

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)

Both of those cases involved mail order. They were on-point here, but they got overturned.

So nothing's really changed other than the dollar amounts involved?

 

[JamesRussler]

So nothing's really changed other than the dollar amounts involved?

The Court explained:

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 reali ties of the interstate marketplace. In 1992, less than 2 percent of Americans had Internet access. Today that number is about 89 percent. When it decided Quill, the Court could not have envisioned a world in which the world’s largest retailer would be a remote seller.

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. Last year, e-commerce retail sales alone were estimated at $453.5 billion. Combined with traditional remote sellers, the total exceeds half a trillion dollars. 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. 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.

Opinion at pp. 18-19 (citations omitted).

 

[JamesRussler]

@waiguoren How's this for federalism, eh?

 

[Cubo de Sangre]

The Court explained:

Though Quill was wrong on its own terms when it was decided in 1992, ...

What was wrong with it?

 

[JamesRussler]

What was wrong with it?

Part III, subsection A (beginning on page 10) explains why the "physical presence" rule is erroneous on its merits, notwithstanding the influence of technology:

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.

The most compelling reason I can see is in Part III(A)(2), where the Court rules that the "physical presence" rule 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." As Gorsuch's concurrence points out, that in itself is a violation of "Dormant Commerce Clause" principles because it favors out-of-state retailers (he calls the physical presence rule "a judicially created tax break for out-of-state Internet and mail-order firms at the expense of in-state brick-and-mortar rivals"). Ostensibly this was true back in the days before the internet, but e-commerce just made it more apparent.

 

[Cubo de Sangre]

Part III, subsection A (beginning on page 10) explains why the "physical presence" rule is erroneous on its merits, notwithstanding the influence of technology:



The most compelling reason I can see is in Part III(A)(2), where the Court rules that the "physical presence" rule 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." As Gorsuch's concurrence points out, that in itself is a violation of "Dormant Commerce Clause" principles because it favors out-of-state retailers (he calls the physical presence rule "a judicially created tax break for out-of-state Internet and mail-order firms at the expense of in-state brick-and-mortar rivals"). Ostensibly this was true back in the days before the internet, but e-commerce just made it more apparent.

It still just sounds like they just up and changed the law because they didn't like the results. But whatever.

Moving forward, how does a state force and out of state business to collect taxes on their behalf? To me this sounds like exactly what we have the commerce clause for (i.e. regulating interstate commerce). Seems like enforcement would need to happen federally.

 

[JamesRussler]

It still just sounds like they just up and changed the law because they didn't like the results. But whatever.

Moving forward, how does a state force and out of state business to collect taxes on their behalf? To me this sounds like exactly what we have the commerce clause for (i.e. regulating interstate commerce). Seems like enforcement would need to happen federally.

Sounds about right. That's pretty much all they ever do.

I suppose the states' tax agencies will hit up Amazon for their sales figures, then give them a bill and make them pay it. Amazon will collect and remit the taxes in order to pay the bill. If they don't pay it, the states will bring 'em into court.

 

[Cubo de Sangre]

I suppose the states' tax agencies will hit up Amazon for their sales figures, then give them a bill and make them pay it. Amazon will collect and remit the taxes in order to pay the bill. If they don't pay it, the states will bring 'em into court.

Would that court be federal?

 

[waiguoren]

@waiguoren How's this for federalism, eh?

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.

How does the "use tax" work? Never heard of such a thing.

 

[JamesRussler]

Would that court be federal?

I imagine it could be brought in diversity (federal court applying state law), though there might be some other process for enforcing tax debts. As a practical matter, Amazon, Wayfair, etc. aren’t going to defy the laws of a state where they do business.

 

[Cubo de Sangre]

I imagine it could be brought in diversity (federal court applying state law), though there might be some other process for enforcing tax debts. As a practical matter, Amazon, Wayfair, etc. aren’t going to defy the laws of a state where they do business.

I'm just wondering how a state court could enforce collection on a business located in another state.

 

[Lord of Lies]

This is going to screw a lot of small businesses. Collecting the taxes and paying them to the states will be a nightmare. And most states have different taxes based on state level, county level and city level. And some on different types of products.

 

[JamesRussler]

I'm just wondering how a state court could enforce collection on a business located in another state.

A state court can enforce its judgments against out-of-state parties, but it's more complicated, and some states have better rules for enforcing judgments than others. It's better to get the judgment in federal court in diversity so you can have the federal court enforce it.