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U.S. Supreme Court to Decide Billion Dollar Sales Tax Case

January 18, 2018
The U.S. Supreme Court this month agreed to decide South Dakota v. Wayfair. A major case for states and local governments, South Dakota is asking the Supreme Court to rule that states and local governments may require retailers with no in-state physical presence to collect sales tax.
 
The Government Accountability Office issued a report  in October 2017 report that estimated that states and local governments could “gain from about $8 billion to about $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers.”
 
History Predicts a Likely Victory for South Dakota
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In 1967 in National Bellas Hess  v. Department of Revenue of Illinois, the Supreme Court held that per its Commerce Clause jurisprudence, states and local governments cannot require businesses to collect sales tax unless the business has a physical presence in the state. Twenty-five years later in Quill v. North Dakota (1992), the Supreme Court reaffirmed the physical presence requirement but admitted that “contemporary Commerce Clause jurisprudence might not dictate the same result” as the Court had reached in Bellas Hess.Customers buying from remote sellers still owe sales tax but they rarely pay it when the remote seller does not collect it. Congress has the authority to overrule Bellas Hess and Quill but has thus far not done so.
 
The State and Local Legal Center (SLLC) in 2014 filed an amicus brief in Direct Marketing Association v. Brohl describing the devastating economic impact of Quill on states and local governments. Justice Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this Court to reexamine Quill.” Justice Kennedy criticized Quill for many of the same reasons the SLLC stated in its amicus brief. Specifically, internet sales have risen astronomically since 1992 and states and local governments have been unable to collect most taxes due on sales from out-of-state vendors.
 
In September 2017, after South Dakota had passed a law requiring remote vendors to collect sales tax, the state’s highest state court ruled that the South Dakota law is unconstitutional because it clearly violates Quill and it is up to the U.S. Supreme Court to overrule Quill. The State of South Dakota in October 2017 filed a petition asking the Supreme Court to hear its case and overrule Quill. The SLLC filed an amicus brief supporting South Dakota’s petition. The Supreme Court will hear this case this term, which means that it will issue an opinion by the end of June 2018. 
 
Experts that follow the Supreme Court anticipate that the Court will rule in favor of South Dakota and overturn Quill. If the Supreme Court wanted to leave the Quill rule in place it probably would have simply refused to hear South Dakota v. Wayfair. That said, the current Court is generally reticent about overturning precedent. The Court will hear this case this term meaning it will issue an opinion by the end of June 2018.   

The League wishes to thank SLLC Executive Director Lisa Soronen for providing the update on this important case for California cities.


 
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