Facts of the Case
South Dakota law required out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the state.” Sellers are generally required to collect and remit this tax to the Department of Revenue. If for some reason the sales tax is not remitted by the seller, then in-state consumers are separately responsible for paying a use tax at the same rate. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc., were merchants with no employees or real estate in South Dakota.
Should the Court abrogate its holding in Quill Corp. v. North Dakota that the dormant Commerce Clause prohibits states from requiring sellers with no physical presence in the state to collect and remit sales tax for goods sold within the state?
The physical-presence rule of Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Illinois is unsound and incorrect, so both of those cases are overruled. In a 5-4 decision authored by Justice Anthony Kennedy, the Court held that sellers who engage in a significant quantity of business within a state may be required to collect and remit taxes, despite not having a physical presence in the state. First, the Court reasoned that the physical presence rule of Quill 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. Physical presence is an outdated proxy for substantial nexus, and the Court’s due process doctrine provides other methods of establishing whether a seller has a substantial nexus to the state. Then, it found the rule in Quill creates, rather than resolves, market distortions. It puts businesses with physical presence at a competitive disadvantage relative to remote sellers. Finally, the Court explained by example how the rule in Quill as imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow.Justice Clarence Thomas filed a concurring opinion clarifying that he should have joined Justice White’s dissenting opinion in Quill and to criticize the Court’s entire negative Commerce Clause jurisprudence.Justice Neil Gorsuch filed a concurring opinion to criticize the dormant Commerce Clause, as well.Chief Justice John Roberts filed a dissenting opinion, in which Justices Breyer, Sotomayor, and Kagan joined. The dissent would find that the internet’s prevalence and power have changed the dynamics of the national economy is a rationale not for discarding the physical-presence rule, but for upholding it. In the dissent’s view, any alteration to those rules with the potential to disrupt such a critical segment of the economy should be undertaken by Congress.
- Citation: 585 US _ (2018)
- Granted: Jan 12, 2018
- Argued: Apr 17, 2018
- Decided Jun 21, 2018